Freebies and Giveaways: How States Tax Promotional Items in 2025
Businesses hand out free items for all kinds of reasons, and summer often brings more opportunities to do so. Company shirts for employees volunteering at a community event. Branded water bottles or tote bags at a local fair, golf outing, parade, or customer appreciation event. Small gifts for employees during summer celebrations. Donations to nonprofits, youth programs, or civic events. These gestures can support marketing, employee engagement, and community relationships. They also create a tax question that often goes unnoticed.
Most states view a free item as a shift from resale to business use. When that happens, the purchase may become taxable even though nothing is sold. The rules are direct but not identical across states. Below is a quick look at how seven states treat promotional giveaways in 2025.
Below are snippets from each state’s publication.
Iowa
“When a retailer purchases tangible personal property, a specified digital product, or a taxable service, exclusive of tax, for the purpose of resale in the regular course of business and later gives it away or donates it, the retailer shall include in the return the value of the property, product, or service at the retailer’s cost price.”
Minnesota
“If you donate or give away taxable items, you owe sales or use tax on your cost of the items, no matter who receives it. For example, if you change the oil in a church van at no charge, you owe use tax on your cost of the filter and the oil used.”
North Carolina
“Except as provided in SUTB 35-3B., an employer shall pay the sales or use tax due on the purchase of an item that is provided to an employee or other person as a gift or as compensation. The tax due shall be computed at the applicable State, local, and transit rates of sales and use tax on the sales price or purchase price of the item given away.”
North Dakota
“ABC Motor Company provides t-shirts, decals, and calendars to their customers at no charge. ABC Motor Company must pay sales or use tax when they purchase these items because they are using the items to promote and advertise the company.”
Nebraska
“The sale of property to be given away for advertising or promotional purposes is taxable. If property is purchased for resale and subsequently given away, the purchaser must include the cost of the property on the use tax return and remit the use tax due.”
South Dakota
“A business donating items, such as prizes for a contest or fundraiser, owes use tax on the cost of the donated item if sales tax was not already paid on the item. • A business does NOT owe use tax on items donated to entities that are exempt from sales and use tax.”
Texas
“Sales tax is due when a motor vehicle dealer purchases the following: marketing and advertising materials, ‘giveaway’ items.”
Key Takeaway
Across these states, the theme is consistent. Once an item moves from resale inventory to a giveaway, most states treat it as a taxable use. Even low-cost promotional items can create reporting obligations if not tracked. A short review of your process can help prevent surprises during an audit.
If you would like clarity on how these rules apply to your business, the Brady Martz team is here to help.
Sources:
Iowa Department of Revenue, Iowa Administrative Code Rule 701—288.15 (2022).
https://www.legis.iowa.gov/docs/iac/rule/11-02-2022.701.288.15.pdf
Minnesota Department of Revenue, Motor Vehicle Repair Industry Guide.
https://www.revenue.state.mn.us/guide/motor-vehicle-repair-industry-guide
North Carolina Department of Revenue, Sales and Use Tax Bulletin (2025).
https://www.ncdor.gov/sutb-2026pdf/open
North Dakota Office of State Tax Commissioner, Sales and Use Tax Guideline.
https://www.tax.nd.gov/sites/www/files/documents/guidelines/business/sales-use/gl-21963.pdf
Nebraska Department of Revenue, Regulation 1-036: Contractors.
https://revenue.nebraska.gov/sites/default/files/doc/legal/regs/1-036.pdf
South Dakota Department of Revenue, Use Tax for Business.
https://dor.sd.gov/media/pzkjzc1y/use-tax-business.pdf
Texas Comptroller of Public Accounts, Publication 98-778: Motor Vehicle Repair and Maintenance.
https://comptroller.texas.gov/taxes/publications/98-778.php
Related Posts
Landmark Tax Bill Signed Into Law: What Businesses and Individuals Need to Know
President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4, 2025, following its passage by Congress on July 3. This sweeping legislation includes significant changes to the federal tax code, making permanent several provisions from the 2017 Tax Cuts and Jobs Act (TCJA), modifying business and individual tax rules, scaling […]
Understanding the Tax Treatment of Business Meals and Entertainment in 2026
Many businesses routinely incur expenses for meals, client events, and employee gatherings. While these costs may support relationship building and company culture, their tax treatment has become more restrictive over the past several years. As companies prepare for the 2026 tax year, understanding how meal and entertainment expenses are treated can help avoid
The Fine Print this Holiday Season: How States Tax Gift Certificates
As holiday shopping picks up, many businesses and organizations turn to gift cards and certificates as a simple way to say, “thank you.” But when it comes to sales tax, timing matters — and the rules can vary from state to state. Here’s a quick summary of how eight states treat the sale and redemption […]
Real Estate and Construction Companies Can Prepare for Tax Changes Under Trump
How tax changes in 2025 under the Trump administration could affect real estate and construction companies, and how they can prepare.