That the deals purchased online for a product or service should incur sales tax is very obvious (as long as the product or service is taxable). However, what is not so obvious is what amount and what stage of the deal purchase should the taxation happen. The daily deal industry is making the tax officers sit up and plan for tax collection that is appropriate and justified. However, not everyone agrees on one solution.
Should the tax be imposed at the time the coupon is purchased or when it is redeemed? Should it be on the face value of the coupon or the amount actually paid out by the customer? Should the coupons be treated as other coupons sold by merchants, which sometimes do not incur service tax?
National tax in United States averages around 9.6 percent and it does matter to the daily deal industry, merchants and clients if they have clarity around the taxable component in the daily deal. If you thought it should be common sense to tax the actual transaction amount when the deal is redeemed, think again. It is far more complicated than that.
As the tax departments gear up to the new reality of the daily deals, what is crystal clear is that all of them interpret deals in their own way.
Twenty four states have come together to address the taxation issue for daily deals in what they call “Streamlined Sales Tax Use Agreement”. While they have not clarified the policy as yet, it is expected to be publicly discussed or implemented in a couple of months. Other states are doing what they like. As an example, New York State (not in that 24 states group) is collecting tax (about 8.9%) on full face value if the deal is for a specific dollar amount. If it is for a service such as a spa, then it would be based on the actual transaction. This still leaves stuff hazy and subject to interpretation. California however has gone ahead with the policy that collects sales tax on the actual transaction.