Rebate Ruckus.

In order to drum up consumer interest in their products or clear inventories, manufacturers often run special rebate promotions through retailers that sell their products. They require the retailer to reduce the sale price of the product, and then rebate the retailer directly.

For example, on a flat-panel television that normally retails for $1,499, a retail outlet might be given a $100 rebate from the manufacturer and then be ordered to charge the customer only $1,399 for it. But, there's a catch.

In California, the storeowner is taxed on both the discounted price and on the rebate received from the manufacturer. Storeowners generally pass the total tax on to the customer. So, on that television sold in Los Angeles for $1,399, the customer is taxed on the original $1,499 retail price--to the tune of $123.67, instead of $115.42.

Over the years, sharp consumers have noticed this discrepancy and brought the issue up with retail store managers. Often, rather than fight the customer, the retailer eats the cost of the rebate tax. Several years back, frustrated retailers petitioned the state Board of Equalization to re-examine its rules regarding these manufacturer or "third-party" rebates. The agency finally is doing just that, with agency staff putting forward four alternative proposals.

The key issue appears to center around whether the customer is informed about the details of the rebate, if the customer knows how much the store is receiving in a manufacturer's rebate before the tax is added on at the register, then two of the proposals call for the entire amount to be taxed. Otherwise, only the reduced sale price charged by the retailer is subject to sales tax, not the rebate from the manufacturer, since the customer only knows the final retail price that he or she is paying.

The other two proposals would keep the current law under which both the discounted retail sales price and the manufacturer's rebate are subject to sales tax. Retail groups and the California Taxpayers Association both oppose this concept.

In a letter to the Board of Equalization, the California Retailers Association said "sales tax should apply to the agreed upon price between the buyer and seller. Rebates are not part of sales price because they are not 'agreed to' by buyer and seller."

The Board of Equalization has set an "interested parties" meeting on the issue next month in Sacramento; the board itself is expected to take up the matter in November. For more information, log onto the board's website at http://www.boe.ca.gov/meetings/pdf/IDPRebate.pdf.