Harvard Business Review: Rebates Encourage Tax Fraud

Posted on Dec 05, 2012

They're not as popular as out-and-out sales, but rebates do occupy a key niche in the ecosystem of shopping bargains, allowing consumers to recoup money after the fact for their purchases. Now, according to a blog post by the Harvard Business Review, rebates also may have a subtler, sneakier purpose: encouraging consumers to cheat on their taxes.

In his post, writer Rafi Mohammed describes his experience at a local Staples store, which was offering a $5.99 rebate on the purchase of a ream of copy paper (list price $6.99). After purchasing the paper, Mohammed went home, inputted a code into the Staples website, and was offered the option of having the $5 deposited into his Paypal account (where it could be used for any purpose, not simply to buy items from Staples.)

Where's the tax angle? Well, as Mohammed notes, he is now in possession of a receipt indicating he paid $6.99 for a ream of paper which only cost him one dollar. When he declares his business expenses on his yearly return, there's nothing to stop him from declaring that $6.99, rather than the true one-dollar purchase price.

This can add up to serious money for more substantial items, like computers. If you buy a $1,000 computer and receive a $300 cash rebate, your allowable tax write-off potentially could be $300 more than it actually was. There's also some scope for the retailer to fudge its taxes, depending on how it calculates sales and rebates.

Are you a business owner in Oklahoma who is grappling with sales taxes, or an ordinary citizen wondering about your allowed deductions? Call the Oklahoma tax experts at Travis W. Watkins, PC (800-721-7054) for a free consultation today!

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