restaurant.com gift certificates

[Zee]

I used a $50 restaurant.com certificate I purchased online for $6 at a Florida restaurant this evening, and was charged sales tax on the full amount of the purchase, rather than the discounted amount. These certificates are sold online and called "gift certificates". It doesn't make much sense to me that these certificates should be treated any differently than a coupon. I am aware that some states tax gift certificates when they are used, but this is kinda different. If that's the reason, you'd think restaurant.com wouldn't call them coupons instead of gift certificates to save their customers money. What do others think?

[erchess]

Two reactions

1 If I were the government involved I would have a rule that when a store of any kind sold product(s) that would have gone for $50 in cash, the fact that some other method of payment was agreed upon and that some lesser amount was received by the store would not affect the sales tax due. On the other hand if for some reason the store got more than $50 for the same goods then the larger amount would be used in figuring sales tax due. Anything else to my mind is a trick by a tax cheat.

2. You bought a GC for $6 and you exchanged it for product having FMV of $50. You have a $44 ordinary gain.

[Zee]

1 If I were the government involved I would have a rule that when a store of any kind sold product(s) that would have gone for $50 in cash, the fact that some other method of payment was agreed upon and that some lesser amount was received by the store would not affect the sales tax due. On the other hand if for some reason the store got more than $50 for the same goods then the larger amount would be used in figuring sales tax due. Anything else to my mind is a trick by a tax cheat.

2. You bought a GC for $6 and you exchanged it for product having FMV of $50. You have a $44 ordinary gain.

You're not serious...are you? If so, I wonder how many folks report their capital gains on the coupons used at grocery stores, etc? Or, taxes on the gains of discounted sales prices.

I don't often use coupons. But, I found my answer in Florida:

"Cash equivalents" are items purchased that entitle a person to redeem them in the future to receive tangible personal property or services. Examples of cash equivalents include, but are not limited to, "dine out" cards, entertainment coupon books, vouchers, gift certificates, and trading stamps (whether or not such items are called "coupons"). Cash equivalents are deemed to be intangible rights to acquire tangible personal property or services in the future, and thus they are not taxed when acquired. However, the redemption of a cash equivalent is taxable when sold directly by a retailer, based on the retail price of the tangible personal property or services for which the cash equivalent is redeemed. After the full purchase price of the cash equivalent has been redeemed, any additional discount to which it entitles the purchaser is not taxable.

Example: An individual receives a gift certificate for her birthday, entitling her to $50.00 towards the purchase of goods at a particular store. No tax was due on the purchase of the gift certificate. When the gift certificate is redeemed to purchase a taxable item with a retail price of $48.00, the tax due is $2.88, and the individual redeeming the gift certificate must pay $0.88 in addition to surrendering the gift certificate to the retailer.

Example: An individual purchases a "dine out" card for $100.00, which entitles the bearer to receive a second meal of equal or lesser value at no charge upon purchasing a meal at a particular restaurant. When the "dine out" card is purchased, no tax is due. However, for each free meal received, up to the aggregate value of the $100 purchase price of the "dine out" card, tax is due. Accordingly, if a "free" meal would ordinarily have been sold for $20.00, the individual must pay $1.20 in sales tax in addition to presenting the "dine out" card to the restaurant. After the purchase price of the "dine out" card has been met with the receipt of five "free" meals, at an assumed cost of $20.00 for each meal, no tax is due on the sixth and subsequent free meals obtained with the card. The purchase price of the cash equivalent was completely redeemed upon the fifth use of the card".

It's interesting that Entertainment Book coupons are treated differently in Florida:

"A coupon book is a collection of discount coupons for a variety of businesses usually assembled by an organization and sold as a fundraising activity. The sale of the coupon book itself is not a taxable transaction, since it is not considered a sale of tangible personal property but rather the sale of intangible future discounts. The organization (unless it is an exempt organization) would be responsible for paying tax on the printing and production costs of the coupon book itself. When the coupon is redeemed, it would be considered a seller's discount that is deducted from the selling price before computing the sales tax, unless the coupon is a manufacturer's coupon".

I don't often use coupons, so I was also wondering if they add sales tax at the grocery stores based on the full price? They do, if it's a manufacturer's coupon because the retailer is reimbursed for the full price. In-store coupons, etc. are not subject to sales tax they are treated as a discount.

Florida doesn't require sales tax on "two for one" meals. MA doesn't require sales tax on discounted meals. I suppose State requirements may differ.

I just thought the situation was interesting.

[DaveO]

I checked out the site and a couple of my favorite watering holes are on there. A $25 card for $10. Looks like a good deal except a $35 minimum purchase is required and an 18% gratuity is added so my actual cost of my "$35" night out will be $28.75. Still not bad considering if you had a $35 tab and you tipped 18% add 7% tax you would be at $43.75 but not quite the deal it appears to be.

[Zee]

I checked out the site and a couple of my favorite watering holes are on there. A $25 card for $10. Looks like a good deal except a $35 minimum purchase is required and an 18% gratuity is added so my actual cost of my "$35" night out will be $28.75. Still not bad considering if you had a $35 tab and you tipped 18% add 7% tax you would be at $43.75 but not quite the deal it appears to be.

Lots of folks really like restaurant.com. We've only used them a few times. Generally, the deals for restaurants we recognize and know are good are gone quickly. So, we have used them mostly for restaurants we don't recognize. It's "hit or miss".

The $50 gift certificate excluded liquor and a $100 purchase was required. We went to a Hilton in St Petersburg, FL. It was very over-priced and the food was just average. Our bill when we left was about $90 including the tip. We could have eaten for $45 person and most restaurants in the area, so this one was a "miss". I was curious when I saw the computation of sales tax but it was no "big deal" to me. Obviously, this is an opportunity for states to pick-up a little extra revenue.

[erchess]

I was and am serious

1. Regarding sales tax you seem to have found that the government of Florida looks at it differently from the way I look at it. Lucky for you.

2. Regarding coupons, if the coupon is from the manufacturer and is free then of course there is no tax due when you redeem it. That is not your case.

[Zee]

1. Regarding sales tax you seem to have found that the government of Florida looks at it differently from the way I look at it. Lucky for you.

2. Regarding coupons, if the coupon is from the manufacturer and is free then of course there is no tax due when you redeem it. That is not your case.

Yes, we view sales taxation much differently. It's hard to understand why anyone (especially a tax preparer) would think all discounts should be taxed as full retail.

I guess you're just a tax advocate. You must be very frustrated by the lack of taxation on internet sales. I don't think there's much doubt this will change dramatically in the future given the problems states are having with budgets.

Those of us with an different point of view are indeed lucky you aren't writing the tax code. But, the state government might like your thoughts.

But, you certainly have the right to your opinion.

[erchess]

Different Points of View

I did say in my first post in this thread something to the effect that this was how I would look at it if I were a Florida State or Local Government Official with responsibility for writing the sales tax laws. In such a position I would seek to maximize sales tax revenue.

As for internet sales I think we will see in the next ten years or so the law catching up with technology. I can see an argument for making internet sales tax free as a way of limiting the sales taxes on bricks and mortar stores that are feasible. I can also see the argument that letting internet sales be tax free hurts the bricks and mortar stores in a way that may not be socially constructive. My personal plea would be for clarification because under the current rules I feel like an idiot if I pay tax on internet sales and I fear trouble if I don't.

[DaveO]

As for internet sales I think we will see in the next ten years or so the law catching up with technology. I can see an argument for making internet sales tax free as a way of limiting the sales taxes on bricks and mortar stores that are feasible. I can also see the argument that letting internet sales be tax free hurts the bricks and mortar stores in a way that may not be socially constructive. My personal plea would be for clarification because under the current rules I feel like an idiot if I pay tax on internet sales and I fear trouble if I don't.

I would advise any business client who has a sales tax permit to pay use tax on internet purchases. In this state a sales tax audit is worse that any IRS audit I've ever handled.

As to individuals that's a matter of personal choice. Some may pay it out of fear or sense of obligation but I'd guess very few.

[erchess]

Dave O

At least in NC there is no sales tax due on items purchased for resale. Of course the business is supposed to pay tax on items purchased for use by the business.

Does your advice that business people with sales tax licenses pay tax on internet purchases apply to purchases that are NOT related to the business?

[JohnH]

NC is moving in the same directgion as NE. I've been through a few sales tax audits in NC in the past few years (after having seen virtually none in the previous 20+ years). I found that the auditor was only slightly interested in actually auditing the sales figures - they would do a quick check to verify that the system for capturing & reporting the tax was accurate and then sign off on it.

Then they would move on to purchases, which is where they spent 75% of their time. The focus was clearly on generating additional use tax revenue on internet purchases (as well as tax-free purchases of anything not for resale & used in the business operation).

[DaveO]

At least in NC there is no sales tax due on items purchased for resale. Of course the business is supposed to pay tax on items purchased for use by the business.

Does your advice that business people with sales tax licenses pay tax on internet purchases apply to purchases that are NOT related to the business?

The resale exemption is the same here. My advice is that if they order office supplies over the internet or puchase equipment in a private sale that they pay use tax. In an audit here any purchase or any sale is assumed taxable unless you can prove it isn't. The auditor will go thorugh your sales receipts and purchases and if you can't show tax was paid they will assess tax.

Stuff not related to the business is a personal matter. It's not part of the state income tax return so, as far as I'm concerned, is none of my business.

I look for the enforcement in this area to increase as the budget crisis deepens. The State is in pretty good shape here with the largest budget reserves in history but the revenue agents still desend like locust on a wheat field.

[Black Bart]

Dear erchess,

...You bought a GC for $6 and you exchanged it for product having FMV of $50. You have a $44 ordinary gain.

Don't ever mention the above statement anywhere outside this board or somebody will drop a net over you and have the guys in white coats haul you off.

[joanmcq]

Here in CA, (and anywhere else I've used 'em) a gift certificate is treated as paying with cash. Its simply a different way of paying, not a discount, and therefore the sales tax is due on the full amount. Since I've never lived in a state that taxed food, I don't know how sales tax on grocery coupons is treated. But I think they are a discount, not a form of payment. Two-for -one coupons in restaurants have sales tax on the full amount (I think....) I know you tip on the full amount!

[erchess]

Okay.....

JohnH, and anyone, neither I nor any of my clients are merchants required to collect and remit sales tax. Would we have a consensus on this board that NC is unlikely to raise at audit the issue of whether we pay sales tax on items other than those for which we keep receipts which we presumably only do when we intend to write off the items on our Federal taxes?

As for Zee and his gain I have had another thought. I have bought books of discount coupons and never thought about recognizing gain for the ones I redeemed. That IS analogous to what Zee did even if going into a restaurant with a free coupon and paying less than full price for a meal is not to my mind precisely so.