Florida Still a No Show as Other States Offer Rulings on Groupon Sales Tax
In January 2012, I blogged about the sales tax and escheat risks associated with Groupon, Living Social, and similar online vouchers (for convenience, collectively "Groupon"). As I stated in January, the issue is whether sales tax should be calculated on the full value of the goods purchased or on the face value of the Groupon. Although the state has not taken an official position, Forbes reported in an October 11, 2007 that Florida takes the position that tax is due on the full non-discounted price. Audits of various merchants throughout the state have also seemed to verify that this is indeed Florida's current position. With the recent online travel controversy and the trend towards more aggressive tax enforcement tactics, it should come as no surprise that the State is seeking tax based on the higher tax base. Since January, 2012, several states have provided some guidance to its taxpayers, while Florida has done nothing. This article is intended to show the more recent developments among several other states to help show taxpayers in Florida how it has been handled and help provide at least some level of predictability.
For example, Sylvia Dion, a Massachusetts based CPA and SALT consultant, authored an article as to how several states besides Massachusetts failed to provide guidance. If you are interested please click on the link to her well written and very informative article THE STATE AND LOCAL TAX BUZZ - GROUPON ARTICLE. As she anxiously awaits the finalization of a Draft Directive in Massachusetts, we are left with little to no guidance in Florida.
As Ms. Dion also reported, at least eight states have provided guidance for their taxpayers in the Groupon scenario. Two of the major states, namely, California and New York issued guidance in late 2011.
California's position is that tax is due on the amount paid for the coupon. Specifically, California stated:
Retailers often engage in marketing and sales programs in which they issue coupons that entitle their customers to a discounted price for products sold by the retailer. Deal-of-the-day instruments (coupons) fall within this category. In general, tax applies to the amount paid by the customer for the deal-of the day instrument plus any additional cash, credit, or other consideration required to be paid when the product is purchased.
For example: An Internet-based company advertises a deal-of-the-day offer for a $100 tennis racquet for $50. A customer pays $50 for the coupon. The customer then redeems the coupon for the tennis racket and pays no additional amount for the tennis racquet other than the amount for sales tax. The amount subject to tax is $50, which equals the amount paid for the coupon. See http://www.boe.ca.gov/news/pdf/sep11TIB.pdf
New York has taken the position as follows depending on the type of voucher involved:
A stated face value voucher is generally treated in the same manner as a gift card. That is, it is treated as cash up to the stated face value of the voucher. Therefore, when this type of voucher is redeemed for taxable products or services sales tax is computed on the selling price of the items before the value of the voucher is applied against the purchase price. If a stated face value voucher is redeemed for products and services with a value equal to or more than the face value of the voucher, any sales tax due must be collected from the customer at the time the sale occurs. However, if the voucher is redeemed for products and services valued at less than the face value of the voucher, the business can handle the collection and remittance of any sales tax due in one of two ways. A business may choose to collect the sales tax from the customer on the total value of the taxable products and services at the time of the sale. For example, if a $100 stated face value voucher is used to purchase books with a value of $90, before application of the voucher, the seller could collect the tax on the $90 from the purchaser at the time that the voucher is used to make the purchase (e.g., in an 8% taxing jurisdiction the vendor would collect $7.20 in cash from the purchaser at the time of the sale). http://www.tax.ny.gov/pdf/memos/sales/m11_16s.pdf
In December, 2011, Kentucky followed suit and issued guidance and proclaimed that tax was due on the purchase price of the Groupon, and the amount the voucher company retains is an expense of the seller. Kentucky's guidance can be found here http://revenue.ky.gov/NR/rdonlyres/3AE1FCEB-309A-438E-82E2-E1DAEA004DE7/0/SalesTaxFactsDec2011.pdf and it states:
When a consumer redeems the voucher at the local business for a taxable product, the tax is due on the total price the customer paid for the voucher rather than the total value of the voucher if the voucher indicates the discounted price or if the local retailer knows and retains documentation of the discounted price. Otherwise, the tax is due on the total face value as with the traditional gift card example.
Iowa has apparently taken the position in most situations sales tax is due on the full price of the item purchased. See http://www.iowa.gov/tax/business/groupons.html. Ms. Dion has indicated that while not final, Massachusetts has also taken the position that sales tax is due on the full amount of the goods.
Like Massachusetts, I am not aware of any position Florida has taken on the Groupon issue. Similar to the online travel companies, it has left taxpayers and their advisors in a bind as to what to do. For now, it still seems to be a reasonable approach that the Groupon concept is essentially equivalent to a cash discount described in Rule 12A-1.018, Florida Administrative Code (F.A.C.). The more conservative approach would in advising merchant clients, such as restaurants, to collect and remit tax on the full non-discounted price of the goods sold.
We will continue to wait to see if and when the Legislature and/or the State decide to act on this issue. Until the Legislature acts, Florida's lack of position will lead to increased controversy and unclear guidance for all taxpayers. However, who knows when or if that will happen . . .
Additional Resources - "24 States Moving Towards Decision on Taxing Groupon, LivingSocial Deals," Forbes, Janet Novack (March 26, 2012)