The Illinois Department of Revenue recently outlined its position regarding the application of sales tax to online deal-of-the-day coupons.
The Department received a query on behalf of someone who wished to sell online coupons for third party goods, in a similar fashion to Groupon. The entrepreneur wanted to know if they had any obligation to collect and remit Illinois state sales tax on the sale of such coupons.
According to the Department, the online service provider does not have to collect sales tax, since they sell an intangible item, an online coupon. However, the retailers providing the goods would have to collect, since they sell tangible personal property, such as food and drink. But do the retailers collect tax for the discounted price of the coupon or the full price of the item(s)?
Not all states treat online coupon taxability alike. For instance . . .
- Kentucky law states that retailers must always collect tax on the discounted price.
- New York law states that retailers must collect tax on the full price when it involves tangible personal property, but on the discounted price when it involves a service.
- Iowa law states that retailers must collect tax on the full price unless the coupon lists the discount price “on its face.” In the latter case, retailers should collect tax on the listed discount price.
The Illinois Department of Revenue zeroes in on a concern implicit in Iowa law–how do the retailers know the discounted price? However, Illinois takes a different tack. They state that if the retailer knows the discounted price (regardless of how they know it), they should tax the discounted price. If they don’t know it, they should tax the full price. The Department offers the following examples to illustrate:
- The customer orders $50 of food; presents $50 voucher, for which he paid $25.00.
- $25.00 subject to tax if retailer knows customer paid $25 for voucher.
- TAX BASE IS $25. Anything spent over the $50.00 value of the voucher is added to the tax base.
- $2.00 in sales tax is paid by customer (8% tax on $25).
- The customer orders $50 of food; presents $50 voucher.
- The retailer does not know what the customer paid for the voucher, therefore $50.00 subject to tax.
- TAX BASE IS $50. Anything spent over the $50 value of the voucher is added to the tax base.
- $4.00 Total paid by customer (8% tax on $500)
Download a complete tax rate table for Illinois below.