How Iowa applies sales tax to Groupons

The Iowa Department of Revenue published a statement on the taxability of Groupons and similar coupons. Groupons are coupons purchased online that require a certain number of people to buy-in before they become available. 

According to the publication, “in most situations” the retailer that accepts the coupon should charge sales tax on the regular price of the purchase, not the discounted price.

The Department offers this example:

  • “Value of meal purchased = $100
  • Price paid by purchaser = $50
  • Online buying service fee = $22.50
  • Amount received by restaurant = $27.50

Sales tax will be collected by the restaurant when the purchaser redeems the certificate. In this example, the restaurant collects Iowa sales tax on $100, the full price of the meal.”

The exception to this rule: if the coupon, or certificate, “states on its face” the discounted price paid by the purchaser to the online service, then sales tax should only be collected on the discounted price. So, in the example above the retailer would only collect sales tax on $50.

Other states that have issued clarifying statements on how to charge sales tax for Groupons include Kentucky and New York.

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