Groupon/LivingSocial Sales Tax

Multistate – New York state tax administrators have concluded merchants should collect sales tax on the full face value of items purchased with vouchers from Groupon, LivingSocial and other Internet discount deal sites. This could make some daily deals less attractive to NY consumers and retailers. If a Groupon is for a specific service the sales tax should be applied only to the smaller amount the customer paid.

Massachusetts has put out the “working draft” of a rule that would also force merchants to collect tax on a full face value of any taxable goods or service bought with a Groupon.

Groupon and LivingSocial dominate local daily deal business. Example, you might pay $50 with your credit card and get via email a link to a voucher work $100 at a local shop or restaurant. The merchant would get $25 of that $50. Deal sites do not collect sales tax when they debit your card. This is agreed by New York and Massachusetts because what’s being sold is an intangible promise of product, not the product itself, similar to buying a gift card. The question is: When a resident of your state goes to use his deal voucher, should he be charged sales tax on $25 (what local merchant is getting; $50 (customer has paid); or $100 (non-discounted price). Texas said $50. Florida, Illinois, and California said $100, although California is reconsidering.

“This treatment is inconsistent with New York’s current laws”, said Terrell Davis, a partner at Davis & Davis LLC. “Normally when a retailer issues a coupon and they are not reimbursed by the manufacturer, the tax is due from the purchaser on only the discounted price, which is the actual receipt.” Mr. Davis further stated, “There’s no basis for taxing Groupon/LivingSocial coupons differently from other regular store issued coupons (where there is no reimbursement for the retailer). Without New York making a law change, the distinction they’re making is false and has no basis.”