Minnesota – Taxability of Incentive Items Modified

SALT Report 1883 – The Minnesota Department of Revenue modified their notice regarding the taxability of items distributed through employee incentive programs.  Incentive programs are those that allow employees to earn points and redeem them for various products. The Department has updated their notice to reflect their position on when the sale of incentive items are taxable, how value points should be taxed when used through an authorized employer source; and that employee discounts that are available to all employees are not taxable.

Incentive Item Transfers

Transfers or sales of merchandise or services under an employee incentive program are deemed to have occurred when the employer purchases the item to distribute to its employees. Further, the employer may not purchase the incentive item exempt for resale by the employer since no further sale will occur.

Incentive Purchases through an Authorized Employee Source

If the employer’s incentive program is designed so that employees can redeem points for property or services sold through an authorized source, the value of the points is included in the consideration received by the seller on the sale. Therefore, the employee or employer must pay sales tax on the full price of the item and the seller can purchase the incentive item exempt for resale. For example, if an employee redeems $50 in points towards the purchase of a $200 taxable item, the employee must pay tax on the full selling price of $200.

Employee Discounts

Discounts that are available to all employees, and the employer will not be reimbursed by a third party, are considered discounts that are excluded from the sales price of the merchandise purchased by the employee and not subject to sales tax.

The modifications set forth in this notice took effect November, 5 2012.

For Further Information:

Minnesota Department of Revenue – Revenue Notice 03-15