Washington Discount Voucher Taxation
- Aug 30, 2012 | Susan McLain
What Is A Discount Voucher?
Discount vouchers are defined by the Washington DOR as “an instrument” that:
- Is obtained by the customer from a DVP [Discount Voucher Provider] that has an agreement with the seller, and the seller determined the price of the voucher sold;
- Allows the customer to acquire the voucher for less than its face value;
- Is redeemable either for a specific good or service (product) or for a certain dollar amount towards the sales price of any product sold by the seller; and
- The seller, at the time of redemption, knows the amount paid by the customer for the voucher.
What Is Taxable?
In the state of Washington, the initial sale of the discount voucher is not taxable. However, not only should the face value of the discount coupon be noted on the voucher, but also the amount paid for the voucher in order to determine sales tax on the purchase properly.
When the voucher is redeemed, the price paid for the voucher becomes taxable. If the price paid for the voucher cannot be determined or verified in a way that can be documented, then the face value of the voucher becomes fully taxable as part of the purchase.
A retailer needs to know the following when receiving a discount voucher:
- What is the redeemable value? This amount should be marked clearly on the voucher and be an amount identified originally by the seller to the DVP.
- Is the amount paid marked on the voucher? If yes, then it can be treated as a voucher for sales tax purposes. If no, then it cannot be treated as a voucher and the face value is completely taxable.
Example #1: PizzaCo operates a restaurant. PizzaCo enters into an agreement with a DVP under which the DVP will distribute vouchers that entitle voucher holders to $20 toward the purchase of any large pizza from PizzaCo.
- Customer pays $12 for the voucher.
- Redemption value of voucher is $20
- Price of pizza is $25 so the customer owes an additional $5 over the voucher
The $12 paid for the voucher and the amount due over the face value of the voucher for the pizza (product). In other words, $17.
Example #2: BigBox Retailer (BigBox) sells sporting goods. Ted redeems a voucher with a face value of $20, along with an additional payment of $5, at BigBox for a racquetball glove with a listed price of $25. The voucher does not indicate the amount Ted paid for the voucher….
The voucher is not treated as a discount voucher from a sales tax perspective. The full face value and any amount paid over the voucher is taxable. The purchase price of $25 is taxable.
To learn more details, refer to the special notice on the Washington State DOR website.