The Washington State Department of Revenue recently issued a special notice discussing the taxability of items purchased using deal-of-the-day vouchers. Wash. Spec. Notice: Discount Vouchers (Wash. Dept. of Revenue Aug. 23, 2012). With the ever growing popularity of websites like Groupon and Living Social, states like Washington are taking steps to address the tax treatment of items purchased with these deal-of-the-day vouchers.
Vendors such as Groupon and Living Social work with retailers to offer deal-of-the-day vouchers to customers that allow them to purchase merchandise or services at a discounted price. The purchase of the voucher prior to redemption is not subject to tax because a taxable sale has not yet occurred. In order to determine tax liability, the retailer must look to the voucher. And, if the voucher indicates the amount the customer paid, the retailer will include that amount in the sales price of the merchandise purchased. If the retailer, through its agreement with vendors like Groupon and Living Social, knows the amount the customer paid for the voucher, that amount is to be included in the sales price for the merchandise purchased. For example, if a retailer enters into an agreement with Groupon in which Groupon will distribute vouchers that entitle the customer to $20 towards merchandise or a service for a $12 fee, tax will be charged on the $12 paid by the customer for the voucher. The voucher must clearly indicate what the customer paid for the voucher or the retailer must be aware of what the customer paid for the voucher through their agreement with Groupon. Any additional amount paid by the customer for merchandise or services will also be subject to tax.
If the retailer does not know what the customer paid for the voucher and it is not clearly indicated on the voucher itself, the retailer will treat the consideration paid by the customer as equal to the face value of the instrument. For example, if a customer brings a voucher into a store with a face value of $20, but the retailer does not know what the customer actually paid to obtain the voucher and it is not clearly indicated on the face of the voucher, tax will be charged on the face value: $20.