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Friday, June 15, 2012
The state tax treatment of social media
coupons such as Groupon or LivingSocial has evolved from treating the
vouchers in the same manner as a gift certificate to treating the
vouchers as a cash discount, state tax experts participating in a June 12 Bloomberg BNA Webinar said.
However, the states are still all over the map when it comes to taxing transactions involving deal-of-the-day vouchers. The crux of the issues is how a state defines “sales price.”
Retailers collecting and remitting sales tax on transactions involving
the redemption of deal-of-the day vouchers must cope with the general
lack of uniformity among states, including the jurisdictions
participating in the Streamlined Sales and Use Tax initiative, Arthur R. Rosen, a partner with McDermott Will & Emery LLP. Even within the 21 full member states of the STT, the term "sales price" is defined very differently, Robert W. Nuzum, a partner with Baker Donelson Bearman Caldwell & Berkowitz PC in New Orleans, noted. Over the years the concepts of cash discounts, vendors coupons and manufacturers coupons have become relatively settled. However, as Groupon and LivingSocial coupons emerge in new marketing strategies, these prior concepts of “sales price” cannot keep pace.
The “stakes are high” for many retailers, Nuzum said, because if a retailer does not collect enough sales tax, the retailer can be liable for sales tax, interest, and penalties. Likewise, if a retailer collects tax when none is due, there are plaintiff's lawyers ready to file lawsuits against the retailers for over-collecting sales and use tax, and possibly even violating consumer protection laws.
“When the deal is redeemed for a taxable item
(either by the original purchaser or someone who may have received the
deal as a gift), the deal is treated like cash given for the purchase of
the item,” the Texas Comptroller of Public Accounts explained in Tax Policy News
(June 2011). “If the item purchased is taxable, sales tax is due on the
full sales price, including any amount paid with the use of the deal,”
the Comptroller concluded.
Similarly, Massachusetts indicated in Working Draft Directive 11-XX (Sept. 16, 2011) that deal-of-the-day coupons
should be treated in the same manner as gift certificates.
Massachusetts excludes cash discounts from its
statutory and regulatory definitions of “sales price,”
Hedstrom noted, which leads to the question: Is including amounts
representing deal-of-the day vouchers within the sales price consistent
with these provisions?
More recent guidance issued by state tax agencies shows a trend toward
applying tax against the amount that the customer pays the retailer.
These states include:
An effort by the Streamlined Sales Tax Governing Board Inc. to create a uniform tax rule collapsed May 24 when a measure was narrowly defeated by a small group of states already administering different tax treatment schemes. The board was one vote shy of adopting the “Tennessee Rule,” which would have treated the difference between the voucher's face value and the amount the consumer pays for the voucher (if known by the retailer) as an in-store discount. The competing approach was the “Nebraska Rule,” which would allow the states to choose among three differing methods.
In Other Developments:
Thirteen states have raised sales tax rates, reports the Tax Foundation
Oregon Tax Court rules goodwill excluded from sales factor in Tektronix Inc. v. Oregon Dept. of Rev., Or. Tax Ct., No. TC 4951, 6/5/12.
Arizona, Michigan and Rhode Island could claim budget surpluses, according to the Stateline Daily News Service
Compiled by Deborah SwannFollow us on Twitter at: @SALTaxJoin BNA's State Tax Group on LinkedIn
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