The popularity of “Deal of the Day” websites, such as Groupon and LivingSocial, has created an interesting issue as to the correct sales tax base when redeeming vouchers purchased from such websites, as illustrated in a previous post. When someone buys a $100 “gift card” for $50, is the sales tax base upon redemption $50 (what the customer actually paid) or $100 (the voucher’s value)? Unfortunately, the states do not treat such “Deal of the Day” vouchers uniformly.

The Streamline Sales and Use Tax Agreement’s “best practice” is to apply the difference between the value of the voucher and amount actually paid for the voucher as a discount, thereby reducing the sales price upon which tax must be charged. See Streamline Sales and Use Tax Agreement (amended through Oct. 30, 2013), at Appendix E. So, in the above example, the customer would pay sales tax on $50 when redeeming the voucher / gift card. However, the Ohio Department of Taxation has not accepted this position and will continue to apply sales tax to the full amount of the voucher, regardless of the amount actually paid by the customer. See Ohio Streamline Sales Tax Best Practices Matrix (submitted Dec. 30, 2013). The better approach, in our opinion, is that adopted by Streamline Sales and Use Tax Agreement, which only taxes the amounts actually paid for the voucher. Ohio’s position ignores the substance of the transaction by inflating the sales tax base to include amounts never paid by the consumer, or anyone for that matter. See also, R.C. 5739.01(H) (“price” defined as the “total amount of  consideration” for  the property or services provided, and does not include discounts for which the vendor is not reimbursed).

Businesses selling “Deal of the Day” vouchers can reduce the Ohio sales tax base for such vouchers by structuring them as a coupon rather than a gift card. This could be particularly important for restaurants selling such vouchers, who continue to receive increased scrutiny for Ohio sales tax.