Tax awareness in customer loyalty reward programs

By Emily Zuver, Holbrook & Manter

Dealer commitment or loyalty rewards can be a great incentive for a growing ag business. They can help free up working capital, build equipment inventory for the farm, or update your inventory. Overall, they can add value to the business while building a partnership with the dealers.

Dealers can offer different types of rewards. Point-based rewards are the most common. This is where customers accumulate points from their purchases, which can then be redeemed for discounts or products. Earning points-based rewards for purchasing seed from a dealer could result in a discount on future purchases or a new piece of farm equipment.

A tiered loyalty program can offer a more elevated level of reward to a purchaser. This level of a rewards program engages customers in their loyalty to the brand. Different levels of loyalty reached will enable customers to earn different rewards.

Another reward program offered is cashback offers. They are simple ways for purchasers to understand and receive a percentage of their spending returned as a reward. An example would be receiving a discount if an invoice is paid within a shorter payment term than normal.

When the opportunity arises, keep your accountant in the back of your mind. Retaining documentation will help answer any questions your accountant may have at year-end.

The following factors could impact the tax side. Keep documentation or a bill of sale for the equipment received as part of the reward redemption. Equipment will need to be recorded on your books and properly depreciated. Keep documents pertaining to sales tax from the gifts. A 1099 could be issued at year-end and will need to be included with tax documents or properly recorded in the financials.

Consulting with your accountant for guidance on each situation is a great way to stay ahead of any year-end complications.