Interim statement regarding rewards programs - deferred sales or use tax

This interim guidance statement expired on December 15, 2022 and was replaced by ETA 3191.2022 (Rewards Programs)

October 1, 2014


The Department is issuing this interim statement to address the tax treatment of products given away to customers under a rewards program solely upon the redemption of rewards program awards that do not constitute taxable consideration.

This interim statement is limited to awards earned from the rewards programs discussed in the Department’s ETA 3191.2014 on “Rewards Programs – Retail Sales Tax.” Please see ETA 3191.2014 for additional information regarding whether reward program awards constitute taxable consideration.

Deferred sales or use tax

Generally, where a customer redeems reward program awards that do not constitute taxable consideration (discount awards) for taxable items and the seller receives no additional taxable consideration for the purchase from the customer or a third party, the seller will owe deferred sales or use tax on the items given away. However, this is not true in cases where an item given away is not subject to retail sales tax or use tax.

Example: Redeeming discount awards for goods with no additional taxable consideration

  • Facts: ShoeSeller offers frequent buyer cards to all customers. The card is used to record a customer’s dollar purchases of retail sales taxable shoes. For every $10.00 spent, the customer earns a one-dollar point towards future purchases. Nancy has spent $700.00 to earn 70 points. She redeems 65 points for a pair of retail taxable sandals with a stated sales price of $65.00.
  • Application of law: Deferred sales or use tax is due on items given away to customers as part of a rewards program. See RCW 82.04.190, 82.08.020, 82.12.010, 82.12.020, and WAC 458-20-116.
  • Result: ShoeSeller owes deferred retail sales tax on the price it paid in acquiring the sandals.

Note: Persons who sell products on a "two for one" or similar basis in a single sales transaction are not giving away free products, but rather are selling two products at a discounted price. B&O and retail sales taxes should be calculated on the reduced price actually received by the seller, and no deferred sales or use tax is due. See WAC 458-20-124.

Taxpayer instructions

The Department will develop and publish final interpretive guidance in this area. Taxpayers are advised to pay deferred sales or use tax consistent with this interim statement pending final published interpretive guidance.