Most people don’t understand the possible tax implications of some of the coupons they purchase on social media websites like Groupon. In this example you might pay $50.00 for a coupon worth $100.00. Most State and City government (“Agencies”) are requiring that sales tax be charged on the full $100.00 value of the coupon when it is redeemed. The fact is many Agencies disagree with retailers and consumers on what the taxable amount is on the transaction when the coupons are redeemed. Most Agencies treat the coupon like a gift certificate from a third party rather than a discount form the retailer and want the retailer to charge and collect sales tax on the original value of the transaction not the discounted amount.
Many organizations and retail establishments are starting to challenge the various Agencies in an effort to get a fair and consistent ruling on this type of transaction.
Colorado and most of the other local city Agencies have also determined that this type of transaction is more like a gift certificate and sales tax should be charged on the full value of the sale. I recently looked for more information on the Colorado Department of Revenue’s website but was unable to get solid direction on the specifics of social media coupons. Additionally, a phone call to the State of Colorado confirmed that tax should be charged and collected on the full value of the sale prior to any applied discount.
Until Agencies start to recognize this problem and start to find a reasonably stance, the consumer is faced with the question and challenge of how the redemption of their coupon will be taxed. We hope to offer some additional conclusions to this problem in the coming months.
By: R. Sean Manning
April 16, 2012