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Sales Tax and Gift Certificates

Many online retailers reap the benefit of gift-giving, especially for shoppers buying presents for friends and family who live elsewhere. Whether you are a business that focuses primarily on gifts, such as gift basket or flower delivery service, a shop that rarely caters to the gift-giving crowd, or somewhere in between, take the opportunity to upsell your best products for gift-driving holidays, such as Mother’s Day, Father’s Day, Christmas, and others.

Of course, many would-be gift givers are too lazy and will just wind up purchasing last minute gift cards. Most shops offer these and they should not have sales tax charged on them – usually (see below). I recently read a complaint from a consumer who purchased gift cards at two separate shops from the same retailer, a few months apart. One store charged tax, the other did not. The consumer was ready to let the problem go since it was a small amount – she just wanted to know if tax was applicable. However, it brought up a firestorm of indignation among the blog post’s commenters.

Keep in mind that sales tax is levied when your customer purchases the product. So if the card is purchased in a state with sales tax and spent in a state does not charge it for those products, there will be no tax at all for that purchase. It may be all the same to your shop, however, states that do charge tax have thought up ways to get around this.

For example in 2012, New York State legislators tried to pass a law that changed the sales tax from the time of usage to the time of purchases – passing the sales tax onto the gift card buyer rather than the giftee. No vote was ever taken on this law; however, you can imagine the accounting nightmare if such a law was passed in a only few states!

To protect yourself, you need to keep abreast of the laws affecting the sales tax in each and become familiar with escheatment laws. These laws mean when a gift card is abandoned or unused for a certain amount of time, the state can charge the vendor sales tax on that amount or a percentage of that amount. Confused? The National Conference of State Legislators (NCSL) provides a convenient table of statutes and recent legislation regarding gift cards and certificates, which is searchable by state and the last few years. Please note their disclaimer that this is just for general information and NOT a legal reference. However, it provides a pretty good overview of laws concerning gift cards, including expiration dates, fees, escheat laws and redemption values across the United States.

For now, gift cards and certificates are easy buys for customers, so display this option prominently if you offer them. Don’t forget to do promote items with Mother’s Day or other holiday specials. Need to spice up some your marketing ideas?  Likeable Media shows how 4 diverse stores thought outside the box to create unique campaigns just for Mother’s Day, promoting products from makeup to dining to charitable donations.