Charges for 'Free Gift Cards' Taxable in New York

Friday, November 16th, 2018

Young woman exchanging gift card for consumer goods.
New York

The New York Division of Tax Appeals recently ruled that a taxpayer was giving away gift cards with the purchase of a qualifying product rather than providing a discount on qualifying products with the purchase of a gift card.

The taxpayer implemented a back-to-school program entitling purchasers to a free gift card with the purchase of a qualifying product. Due to issues with its point-of-sale system, the taxpayer charged customers for the free gift card and then applied a discount equal to the value of the card to the qualifying product.

New York does not tax gift card sales, but does tax tangible personal property (e.g., the taxpayer's qualifying products). The ruling found that the taxpayer was not actually charging customers for gift cards. Instead, the taxpayer was charging for the gift card in order to accommodate its point-of-sale system. As a result, the ruling determined that tax applied to the full price of the qualifying product rather than the discounted price that was charged to accommodate the free gift card."FreeGiftCards"TaxableinNewYork

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