Last spring, a Massachusetts furniture store offered to refund your money on select furniture (bedroom sets?) if the Red Sox won the World Series. Sales surged. The furniture store covered themselves with an insurance policy, "That way, we're rooting for the Red Sox, too". Way back in March, the Red Sox probably had an 10% chance of winning. At this point, I think the Red Sox have about a 70% chance of winning. What are the income tax implications for the furniture buyers if the Red Sox do win?
For starters, those insurance policies aren't really that unusual. Those half court basketball shots they give away a million bucks for... the free $60k Cadillac to the PGA golfer that makes a whole in one... They're mostly covered by insurance policies. There are dozens of companies out there that make it their sole business to ensure promotional contests. As for the tax implications, what exactly do you mean? I would think that the insurance premium(s) are a business expense, any claim payouts are reported as income to the business and in this case are offset by a presumably equivalent business expenses (refunds to customers). Its all just a bunch of credits and debits on the company books. Maybe I'm missing what you are really asking? If so, please enlighten me.
Ohhhhh. Terribly sorry. Furniture BUYERS, not furniture store. That makes more sense. I would think it would be earned income in the year they received the "refund". They did not have to give back the furniture so their disposable income increased by the amount of the refund. If this is correct (which it may very well not be), does the furniture STORE issue 1099s?
Seems to me that you have a "conditional rebate" which I suspect is not taxable income. The seller buried the insurance premium in the price of the furniture and, thus, you effectively paid for the insurance.
I seriously doubt that he can refund your sales tax cause it's those sales tax auditors who give the rest of us a bad name.
This is an excellent marketing ploy because it brings in customers who might not have come otherwise and it cuts down on negotiations. Unfortunately it is probably ineffective in most cities with alleged MLB teams (Baltimore, Washington, Pittsburgh, Kansas City, etc.)
"Insurance" or "gambling"? Does the refund count as gambling winnings? (What is the insurable interest of the furniture _buyers_? I suppose if they _sold_ the Red Sox winning, against their furniture purchase, that would be hedging.) I would think it does count as income of some sort.
A partial refund might not. I've known stores to offer "Random percentage (10%-90%) off" sales, where you pick a slip to learn your discount after the goods are rung up. The price paid is just a sale price, not a taxable event. Seth
I for one lean towards the rebate on purchases school of thought.
And what, pray tell, would be the difference between a full or partial refund? Would one be taxable while the other not be? And since furniture stores carry the most liberal terms, i.e. 90 days same as cash, when one eventually pays the bill after 90 days, it is then that the final purchase price is determined. As it might just be tonight. I hope not.
I don't see any meaningful distinction between this and gambling or something like the Publishers Clearing House Sweepstakes. The outcome wasn't based on pulling a number out of a hopper but on something that was beyond the control of the seller or the buyer, equivalent to an aleatory event with respect to them and the transaction. The buyers were either actually gambling on the outcome of a sporting event, with odds of 2-to-1 and the winnings paid in the form of furniture, or they were getting non-cash prizes. Either way, wouldn't that be treated as gambling winnings?
Since the Jedi Knights of Boston won the World Series on Sunday night, this issue is now a tax reality. I've thought this out as best I could and have come up with what I believe are reasonable positions for both the taxpayer and the IRS.
The taxpayer takes the position that the furniture was purchased at full price plus the insurance premium without the possibility of negotiating discount in return for a contingent rebate, i.e., return of capital, and rebates are not taxable income.
The IRS takes the position that the purchase was analogous to buying a lottery ticket. Therefore, the rebate is Other Income and the cost of the ticket is deductible as a gambling loss on Schedule A.
IMRHO, the two positions are a wash unless the taxpayer does not have enough expenses to make a difference on Schedule A, e.g., the poor and the retired.
Considering it is near impossible to get elected to public office in Massachusetts without swearing allegiance to the Red Sox, the taxpayers' position should prevail.
I don't think so. The IRS will take the position that $1 was the price of the lottery ticket, and whatever the buyer paid in addition to that $1 was the price of the furniture. The rebate is gambling income, and the $1 cost of the ticket is deductible on Schedule A. Bob Sandler
No one has yet addressed the question (mentioned briefly by kastnna in an earlier post) of whether the store or the insurance company will report the refunds on either a W-2G or a 1099-MISC. Whether and how it gets reported is going to affect how the buyers report it on their tax returns. The OP mentioned bedroom sets and a full refund of the purchase price, so the refunds are likely to be large enough that they have to be reported, unless the company making the payments considers it a rebate. If it's not a rebate, the proper reporting, of course, depends on whether you consider it gambling income or a prize. I'm sure neither company considers itself to be in the gambling business, so they are unlikely to even think of issuing a W-2G. Having seen a lot of reports of incorrect
1099s in the past, in this group and elsewhere, I expect that the rebates will be reported in 1099-MISC box 7 (nonemployee compensation), because that seems to be the knee-jerk reaction of any company reporting any payment other than salary, even though it's obviously wrong. This will put every one of the buyers in the position of having to do battle with the payer, the IRS, or both. Bob Sandler
Thinking about it more, I agree. I've seen 100% rebates before, and the likelihood of receiving some of them (e.g. CompUSA on Norton) is comparable to that of Boston winning the World Series. And there's been no suggestion that those are taxable. Seth
More than $1; rather, whatever the store paid for its insurance would be the fair price. But if several things are purchased together (and cannot be unbundled), the pricing for each is an interesting issue. Seth
Jordan's Furniture offered to rebate the purchase price if the Sox won the World Series. An earlier reply of mine seems to have been lost in the ether. I find this to be a conditional sale. I.e., a sale that would not be completed until certain conditions were met. Sox win, your price is zero. Sox lose, your price is equal to today's price. The money turned over to Jordan's at the time of sale would be nothing more than a deposit.
And they pry your return from your cold, dead hand? Are you sure you don't work for the IRS?
It could be argued that if the rebate lowers the price below a reasonable amount (e.g. in relationship to the retailer's cost) it could lose its character as a rebate and become gambling income. Stu
Moderator: LOL - Excusez-moi! I'm the one taking the pro-taxpayer position. But let us wait for the 1099's!
The manufacturer offers a $25 rebate on what's usually a $50 item. A web store has it on sale for $30. Google Checkout offers $10 off a $30 purchase. So I pay $20, and get a $25 rebate. Is the $5 taxable? Seth
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