Massachusetts Addresses Sales Tax on "Deal-of-the-Day" Transactions: Sale of Qualifying Promotional Vouchers Not Subject to Sales Tax

Thursday, August 2nd, 2012


The Massachusetts Department of Revenue (DOR) recently issued a directive explaining that most sales of "Deal-of-the-Day" vouchers (which are known as Groupon or Living Social) are not subject to tax. Mass. Directive 12-4 (Dept. of Revenue July 16, 2012). Instead, sales tax is due when the holder of the voucher later redeems it for taxable services, meals, or tangible personal property.

To explain the application of sales tax to "Deal-of-the-Day" transactions, the DOR first laid out how such a voucher can qualify for this tax treatment. To be a "qualifying promotional voucher," the voucher must do two things. First, it must clearly state both the promotional (face) value and the amount paid by the customer for the voucher. Second, if the promotional value is time limited, the voucher must indefinitely remain valid for redemption for at least the amount paid by the customer.

The DOR reasoned that the initial sale of "Deal-of-the-Day" vouchers should be treated like the initial sale of gift certificates. The sale of a gift certificate is not a taxable transfer of tangible personal property; instead, a taxable transaction occurs when a purchaser presents a gift certificate in lieu of cash in order to make a taxable purchase. Similarly, Massachusetts taxes the transactions in which the vouchers are redeemed, not the transactions in which they are issued.

Also, the DOR explained that the price to which the sales tax applies is determined in the same way it is when a purchaser uses a retailer's coupon. Massachusetts applies sales tax to the sales price the vendor receives and excludes any cash discounts that reduce the vendor's gross receipts from the taxable sales price. In other words, the difference between the promotional (face) value of a voucher and the amount a customer actually paid for that voucher is a cash discount and is excluded from the sales price subject to tax. It's important to note that non-qualifying vouchers (e.g. those that do not state the amount the voucher purchaser paid for the voucher) are not treated as retailer's coupons; thus, the sales price subject to tax is not reduced by the amount of the undetermined discount, and the vendor must charge tax on full sales price.

Massachusetts has now joined a growing cadre of states that have addressed "Deal-of-the-Day" vouchers. Earlier this year we reported on Illinois's, Iowa's and Kentucky's treatment of them.

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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

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