Prepaid Voucher Rule Examples

Prepaid Voucher Rule Examples

November 13, 2012

The answers provided below for application of the rule assume that the deal certificate meets the definition of a “voucher” for purposes of the rule unless otherwise noted.

1.  $20 deal certificate sold by Deal Company for $10. The purchaser receives is issued two $10 deal certificates for a specific seller. The two $10 deal certificates do not disclose the amount consideration paid for each by the purchaser. The purchaser presents $20 of taxable items to the seller and tenders the two $10 deal certificates to pay as consideration for the items.

VOUCHER RULE DOES NOT APPLY. Since the facts state that the amount paid by the purchaser to a the third party is not on the face of the deal certificate, the deal certificate is not a “voucher” under the rule. As such, the rule’s exclusion of the discount from “sales price” does not apply. The sales price of the taxable items subject to tax is $20.

“Sales price” is defined in the Agreement to include consideration received by the seller from third parties. Based upon the facts above, since the amount paid by the purchaser for the deal certificate is not noted on the face of the deal certificate, the sales price would be $20. The Agreement provides that “sales price” applies to the total amount of consideration, “including cash, credit, property, and services…valued in money, whether received in money or otherwise”.

Do we want to add this example in a “non-voucher” portion of the rule?

2.  $20 deal certificate sold by Deal Company for $10. The purchaser is issued one $20 deal certificate for a specific seller. The face of Tthe deal certificate indicates a face value of $20 and that the purchaser paid $10 for the deal certificate. By contract, the Deal Company is required to reimburse $10 to the seller. As a frequent user of Deal Company, the purchaser also earns a second “free” $20 deal certificate by redeeming rewards points. The “free” deal certificate does not indicate the free deal certificate was provided at no charge. The “free” deal certificate also indicates that the purchaser paid $10 for the free deal certificate.

The purchaser presents $20 of taxable items to the seller and tenders the first $20 deal certificate to pay for the items. In a separate transaction, the purchaser presents an additional $30 taxable item and tenders the second “free” deal certificate with a face value of $10 as consideration to pay for the item plus $10 cash.

VOUCHER RULE DOES APPLY. In regards to the first deal certificate and transaction, the sales price on which the sales tax is levied is $10 (i.e., the amount the purchaser paid for the deal certificate as noted on the face of the certificate). T the difference between the value of the deal certificate and the amount the purchaser paid to a the third party for the deal certificate is a discount that is not included in the sale price under the rule. The sales price on which the sales tax is levied is $10 (i.e., the amount the purchaser paid for the deal certificate as noted on the face of the certificate).

In regards to the second separate transaction, the sales price on which the tax is levied is $20. The “free” deal certificate and transaction, the sales price would be $20 ($10 cash plus $10 for the free deal certificate). The free deal certificate would meetsmeet the definition of the rulevoucher and the difference in the face value and the paid amount paid by the purchaservalue as indicated on the face of the deal certificate is would be excluded from the sales price. It is irrelevant whether that the deal certificate was given to the purchaser free of charge(such as a gift). Rather, the tax applied due on the sales price at the time of on the redemption of the the free deal certificate, is will be determined based on the information on the face of the certificate.

Recommend adding example in the voucher rule.

3.  Deal certificate sold for $20 by a Deal Company entitles the purchaser to $50 towards food and drinks from a specific seller. The amount $20 paid by the purchaser to the third partyDeal Company and the face value of $50 is are indicated on the face of the deal certificate. The purchaser presents $50 of food and drinks to the seller and tenders the $50 deal certificate to pay for the items. Deal Company pays Seller $10 and retains $10. Seller credits $10 to advertising expenses; not sales revenue.

VOUCHER RULE DOES APPLY. The sales price on which the tax is levied is $20. The deal certificate meets the definition of voucher. Regardless of how the manner the seller records the amount the Deal Company remits to the seller in its books and records, the amount the purchaser paid for the deal certificate ($20), as indicated on the face of the certificate, is the measure subject to sales tax since face value of $50 is also included on the deal certificate. A seller may not “deduct” an amount as advertising (or other) expenses from the amount the purchaser paid in order to reduce its receipts subject to tax. Therefore, the $20 indicated as paid by the purchaser on the face of the deal certificate is included in the sales price and subject to taxation.

Do not recommend adding example because it is similar to example currently in rule.

4.  Deal certificate sold for $20 by Deal company entitles purchaser to $50 towards food and drinks from a specific seller. The amount paid by the purchaser to Deal Company is indicated on the face of the deal certificate. Purchaser redeems the deal certificate for $50 of food and drinks after the stated expiration date. Seller honors the deal certificate for the face value of $50. Deal Company refuses to reimburse Seller and retains the $20 paid by the purchaser.

VOUCHER RULE DOES APPLY. The sales price on which the tax is levied is $20. The certificate meets the definition of voucher. Since the deal certificate indicates the amount the purchaser paid for it on its face, the difference ($30) between the value of the deal certificate allowed by the seller ($50) and the amount the purchaser paid to Deal Company for the deal certificate ($20) is not included in the sales price.

The rule does not specifically address the scenario where a retailer chooses to honor a voucher after the stated expiration date. Even though the retailer is not receiving any reimbursement from Deal Company, sales tax would apply to the amount paid by the customer ($20) as evidenced on the face of the deal certificate. The payment, or lack thereof, between the deal company and the retailer does not impact the taxable price upon redemption.

Recommend adding example in the voucher rule.

5.  Deal certificate sold for $19 by Deal Company entitles purchaser to $99 of services for a specific seller. The amount paid by the purchaser is indicated on the face of the deal certificate. Upon ordering $99 of services, Purchaser attempts to redeem the deal certificate after the stated expiration date. Seller only honors the deal certificate in the amount of $19 and the purchaser pays the remaining $80 in cash. Deal Company refuses to reimburse Seller and retains the $19 paid by the purchaser.

VOUCHER RULE DOES APPLY. The sales price upon which the sales tax is due is $99. The deal certificate meets the definition of voucher. Since the deal certificate indicates the amount purchaser paid for the deal certificate on its face, the difference between the value of the deal certificate allowed by the seller and the amount the purchaser paid to the third party for the deal certificate is not included in the sales price.

Even though the retailer is not receiving any reimbursement from Deal Company, sales tax would apply to the amount paid by the customer ($19) as evidenced on the face of the deal certificate and the $80 in cash. The payment or lack thereof between the deal company and the retailer does not impact the taxable price upon redemption.

Recommend adding example in the voucher rule.

6.  Deal certificate sold for $25 by Deal Company and Purchaser buys a deal certificate from Deal Company for $25. Tthe instrument deal certificate entitles purchaser to use of Seller’s equipment for one day. The instrument deal certificate does not identify the face value of equipment rental. The purchaser presents the instrument deal certificate to the seller for use of the equipment for one day.

VOUCHER RULE DOES NOT APPLY. Since the “face value” of the one day equipment rental is not identified on the deal certificate, the certificate is not adoes not met the definition of voucher for purposes of the rule because the face value of the one day rental is not included on the certificate.

The sales price upon which tax is due is the full amount of $25, the amount paid by the purchaser under the definition of “sales price” in the Agreement.

Do not recommend adding example because the point has been made in the other examples that both the “face value” and the “amount paid” must be on the instrument to meet the definition of voucher under the rule.

7.  $50 deal certificate sold by Deal Company for $20 for a specific seller. The face of the deal certificate indicates that the purchaser paid $20 for the deal certificate. By contract, the Deal Company is required to reimburse $20 to the seller. The purchaser also qualifies for a $10 discount towards the purchase of a second deal certificate for a specific seller (the discount may be offered to all purchasers as a “deal of the day”, the purchaser may be entitled to the discount because of frequent purchases, or the purchaser is a member of a “reward” program). The purchaser purchases buys the second deal certificate for $10 ($20 less $10 discount allowed by Deal Company). The second deal certificate does not indicate deal certificate was only sold for $10. The face value of the “second” $50 deal certificate indicates that the purchaser paid $20 for the deal certificate.

The purchaser presents $100 of taxable items to the seller and tenders the two $50 deal certificates to payas consideration for the items.

VOUCHER RULE DOES APPLY. The sales price upon which tax is due is $40. It does not matter that the purchaser only paid $10 for the second deal certificate.

In regards to the first deal certificate, the difference between the face value of the deal certificate ($50) and the amount the paid by the purchaser paid to Deal Company ($20), is a discount that is not included in the sale price under the rule. The sales price is $20.

In regards to the second “discounted” $50 deal certificate that is redeemed, the sales price would be identical to the first ($20), even though the deal certificate was sold at a further discount. tThe deal certificate would meets meet the definition of the voucherrule and the difference in the face value and the amount paid value by the purchaser as indicated on the face of the certificate would isbe excluded from the sales price ($50 - $30 = $20).

Therefore, the total sales price in the transaction is $40. It does not matter that the purchaser only paid $10 for the second deal certificate.

8.  Same facts as presented in Example #7 except the purchaser receives the second deal certificate at no extra charge. The face of the deal certificate indicates that the purchaser paid “zero” to the Deal Company for the second deal certificate with a face value of $20. By contract, Deal Company is required to reimburse $20 to the seller for all deal certificates redeemed upon receiving notice from the seller.

VOUCHER RULE DOES APPLYAPPLIES IN PART. . The total sales price upon tax is due is $40. In regards to the first deal certificate, the difference ($30) between the value of the deal certificate ($50) and the amount the purchaser paid paid ($20) to Deal Company is a discount that is not included in the sale price. The deal certificate meets the definition of voucher. under the rule.

In regards to the second “free” deal certificate, the certificate does not meet the definition of voucher since the recipient did not pay anything for the deal certificate. The amount included in the sales price would also be $20 because the definition of sales price includes reimbursements the seller receives from third parties if (a) the seller actually receives the consideration and the consideration is directly related to price reduction or discount, (b) the seller has an obligation to pass the price reduction on to the purchaser, (c) the amount of consideration attributable to the sale is fixed and determinable at the time of the sale and (d) the purchaser presents a coupon, certificate or other documentation to the seller.

Therefore, the total sales price in this transaction is $40. It does not matter that the purchaser paid $0 for the second deal certificate.

9.  Deal Company sells gift cards and gift certificates that may be redeemed by the holder for purchases from a specific Seller. The gift cards or certificates are not prepaid calling services. Deal Company sells the gift cards and gift certificates with a face value of $25 for $16.25. Deal Company retains $16.25 for each gift card and gift certificate and provides future advertising services to Seller. The amount paid by the purchaser to the Deal Company is not shown on the face of the gift card or gift certificate. The holder presents $40 of taxable items to the seller and tenders a $25 gift card or gift certificate and $15 cash as payment consideration for the items.

VOUCHER RULE DOES NOT APPLY. The sales price upon which tax is due is $40. . The Agreement provides that “sales price” applies to the total amount of consideration, “including cash, credit, property, and services…valued in money, whether received in money or otherwise”.