Coupons, Gift Certificates and Free Meals

Coupons, Gift Certificates and Free Meals https://wahospitality.org/wp-content/uploads/2016/05/shutterstock_225247270.jpg

What amount is subject to tax when a customer uses a two-for-one coupon?

For tax purposes, selling meals on a “two for one” or similar basis is not giving away a free meal, but rather selling meals at a discounted price. Retail sales tax and retailing B&O tax apply to the amount that is actually received by the seller.

Example: A customer uses a two-for-one coupon to purchase two meals costing $10 each. Tax applies to $10, which is the actual amount charged for the two meals. If extra items are sold, such as beverages, tax applies to $10 plus the amount charged for the beverages.

Do I need to collect sales tax when I sell a gift certificate?

Retail sales tax does not apply to the sale of a gift certificate or gift card. Instead, tax applies to the total charge for the meal at the time the gift certificate or card is actually redeemed.

Example: A customer purchases a $25 gift certificate in July. A sale has not really occurred at this time and no tax applies. In August the customer redeems the certificate and purchases a meal costing $30. Retail sales tax applies to $30. The restaurant charges the customer $30 plus tax. The amount of the gift certificate is then applied as a cash payment toward the total amount due. The customer pays the total bill less the $25 certificate.

How does tax apply when a discount voucher is used?

Some restaurants have agreed with third parties to accept web-based “discount vouchers” that may be redeemed for personal property and services at a reduced or discounted price.

As a general rule, if a customer redeems a discount voucher when purchasing a product or a retail service, the retailer is required to collect retail sales tax based on the total amount paid for the voucher, plus any other consideration received by the seller (e.g., cash, check, or credit card amount).

Please note there are numerous arrangements involving vouchers that may result in a voucher not being considered a discount voucher. See the Department of Revenue’s Special Notice on Discount Vouchers. http://dor.wa.gov/docs/pubs/specialnotices/2012/sn_12_discountvouchers.pdf

Does tax apply to free meals?

If a restaurant provides a free meal to a person other than an employee, the meal is not subject to retail sales tax or use tax. However, if soft drinks or beer/wine are given away, use tax applies to the value.

See the Employee Meals Section.

 

Rev. 12/14/14

 


This article is an excerpt from the Handbook for Excellent Restaurant Operations (HERO), published by the Washington Hospitality Association.  Want a hard copy of the whole manual?  It’s one of the many benefits of becoming a member!  Find out more about joining the Washington Hospitality Association here.

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