You can use the discount as long as the amount of purchase is greater than the value of the gift card. That way you can put at least some of the purchase on your Kohl's credit card. One trip I had a $50 giftcard and my purchase after the discount came to $50.34. I put just $0.34 on my Kohl's card, but it was enough to be able to use the discount.
I tried to apply a giftcard to my Kohl's card balance and was told I couldn't do it. I tried at two different stores and was given the same answer.