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
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)