In a recent ruling, the U.S. Court of Appeals for the Third Circuit Court overturned an IRS decision that Giant Eagle, a supermarket chain, was not entitled to make a $3.7 million deduction on the expenses associated with loyalty discounts from its tax returns, PricewaterhouseCoopers reported. This case was significant because it showed one of the potential pitfalls associated with a mismanaged incentive system.
“The case showed the pitfalls of a mismanaged incentive system.”
Giant Eagle v. Commissioner
In the case, the supermarket chain had offered a “Fuelperks!” point rewards program for loyalty discounts on gas where the points expired after 90 days if unused by customers. The issue was that in their tax filings, Giant Eagle deducted the estimated expenses from customers for redeeming a portion of the Fuelperks! points, whether they were unused or had not expired. The IRS denied the deductions after it claimed the company was not eligible. At this point, the case went to the Tax Court, where the decision went in favor of the IRS. Then Giant Eagle filed the appeal – a decision the supermarket chain subsequently won.
The importance of sales incentive platform management
While the decision worked in favor of Giant Eagle, it demonstrated a key point about the value of well-managed and digitized incentive management platform.
This serves as a cautionary tale because a traditional, paper-based sales incentive platform could have cost the company millions of dollars, just by virtue of the intractability of the status of each consumer rewards account. It goes to show that regardless of the size of a company, if relevant claim data for incentives is not properly collected, managed and validated along the way, mismanaged incentive platform can lead to cases just like this one. Without a proper incentive claim data management system in place, Giant Eagle ran the risk of a potentially massive loss of a tax deduction.
What defines a well-managed incentive platform?
The first two aspects of any well-managed sales incentive platform are data insights and visibility. Transparency is crucial because all manufacturers have access to real-time reports on rebate programs just like the Fuelperks! program. In this case, Giant Eagle would have been able to easily track which points had been redeemed and provide the IRS with a more accurate tax deduction figure.
Perhaps just as importantly though, the company would have been able to track records and sales reports to get a better picture of the entire sales channel’s performance. This is particularly important because the company could also get a clearer depiction of how its money was spent on its Fuelperks! program. In the end, Giant Eagle could have saved a lot of time and legal fees that could have been allocated to its marketing spend on their incentive program.
At 360insights, we provide a software platform that builds and manages incentive programs just like that of Giant Eagle. Our cloud-based technology captures and audits 100 percent of all claims submitted by customers and retailers through the electronic platform. On average, we save between 10 percent and 20 percent of marketing spend for companies like Giant Eagle within the first three months of launching the platform.