Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
280.0000 GIFTS, MARKETING AIDS, PREMIUMS AND PRIZES— Regulation 1670
280.0585 Gift Certificates. A retailer employs a promotional program that rewards customers with a certain number of points for purchases made using the retailer's credit card(s). When the customer reaches a certain number of points, the retailer issues a Merchandise Certificate redeemable at the retailer's stores.
These Merchandise Certificate(s) may be used for any merchandise or service sold in the retailer's stores including restaurants, spa services, alterations and the purchase of gift certificates or gift cards. They may also be used in conjunction with other discount promotions including sales, markdowns and employee discounts. The certificates are treated as tender, i.e., if the purchase price plus sales tax is less than the amount of the certificate(s), the customer receives cash back. If the purchase price plus sales tax is more than the certificate(s), the customer pays the difference. If the customer returns the merchandise, the purchase price plus the sales tax is refunded to the customer. The certificates are not redeemable online and they cannot be used as payment against the customer's credit card purchases. The certificates expire after ninety days.
A gift certificate may be purchased with cash or other tender or it may be issued pursuant to some form of awards, loyalty, or promotional program. For sales and use tax purposes, a gift certificate is considered to be the same as cash when used to purchase tangible personal property at retail.
In determining whether an instrument is a gift certificate, if the retailer refunds the customer cash or credit when the customer uses the instrument to purchase merchandise of lesser value than the instrument's assigned value, this is a clear indication that the retailer and the customer consider the instrument to be some form of credit memorandum. Therefore, we would consider the Merchandise Certificates issued by the above retailer to be a form of credit memorandum like other gift certificates and not a rebate or a cash or trade discount. Accordingly, when the Merchandise Certificates are used as consideration in the sale of tangible personal property at retail, the Merchandise Certificate's value that is used as consideration will be included in the measure of tax. 8/4/03. (2004–2).