TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, October 18, 2011

Taxing Groupon

Tax AnalystsTimothy P. Noonan & Lance E. Rothenberg (both of Hodgson Russ, New York), Taxing Groupon-Type Coupons: New York Tax Department Guidence, 62 State Tax Notes 171 (Oct. 17, 2011):

[T]here are sizable compliance issues that merchants must be aware of when transacting business through prepaid discount vouchers. Merchants have to determine first whether the product or service being purchased is taxable. If some items are taxable and some are not, does the cheeseboard rule apply? Is the voucher for a specific product or service or is it for a stated face value? If the voucher is for a specific product or service and that product or service may be redeemed more than once, a merchant must remember to collect the appropriate amount of tax from the customer each time the voucher is redeemed. If a stated face value voucher is redeemed for a purchase price that is less than its stated face value, a merchant should allow its customers to use the remaining value of the voucher to pay the tax only if it has systems in place to ensure that it remits the full amount of the tax due. The tremendous growth of this business model ensures that these and many other issues will crop up with increased frequency.

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Forbes, New York Makes Grab For Groupon, Living Social Sales Tax, by Janet Novack:

After months of study,  New York state tax administrators have concluded merchants should collect sales tax on the full face value of items purchased with vouchers from Groupon, Living Social and other Internet discount deal sites —if the vouchers are for a specific dollar amount. The decision should mean more tax dollars for government and could make some (but not all) daily deals less attractive to New York consumers and retailers. Why just some? In a twist that only a tax administrator could understand, New York said that if a Groupon is for a specific service—say, a one hour massage or an oil change—the sales tax should be applied only to the smaller amount the customer paid, not the normal cost of the service.

Meanwhile, Massachusetts has just put out for public comment the “working draft” of a rule that would also force merchants to collect tax on the full face value of any taxable goods or service bought with a Groupon. (The draft doesn’t treat deals for specific services differently, as the New York guidance does, but services are not generally subject to sales tax in Massachusetts.)

Confused? Join the crowd. Back in February, I pointed out that the proper taxation of  items bought from the burgeoning daily deal sites is confusing and likely to end up in court. (There’s ample precedent. Cities and counties in more than 20 states have been to court to battle Expedia, Priceline and Orbitz over the proper taxation  of discounted hotel rooms sold over the Internet.

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