Massachusetts Issues Directive Addressing Applicability of Sales Tax to Promotional Vouchers

DALLAS, Aug. 7, 2012 /PRNewswire/ -- On July 16, 2012, the Massachusetts Department of Revenue issued Directive 12-4: Application of Sales Tax to Sales and Redemption of Qualifying Promotional Vouchers. Directive 12-4 clarifies that the sales of qualifying promotional vouchers that later may be redeemed are not subject to sales tax when purchased. Examples of such arrangements include Deal of the Day, Groupon, and LivingSocial. Only purchases of qualifying promotional vouchers or coupons are excluded from tax. Qualifying promotional vouchers must clearly state: 1) the face value of the voucher, 2) the time limit or expiration of the full face-value redemption period, and 3) the amount the customer paid for the voucher. Further, if the face value is not redeemed prior to the expiration date, the voucher is worth the amount the customer paid for it.

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When the voucher is redeemed, the face value of the voucher, minus the amount actually paid by the customer, is treated as a retailer's discount. A retailer's discount is excluded from the sales price under Mass. Gen. Laws ch. 64H, Section 1 and, therefore, reduces the base subject to tax. For example, if a customer purchases a $40 voucher for $20 and uses it to pay for a $40 meal, the base subject to tax is $20.

The Directive further provides that if the price of the customer's ultimate purchase is greater than the face value of the voucher, the amount the customer paid for the voucher, plus any additional cash paid, is the base subject to tax. Under such a scenario, if a customer purchased a $40 voucher for $20 and used the voucher to purchase a $75 meal, the tax base would be $55 ($20 voucher price, plus the additional $35 paid by the customer). Directive 12-4 provides additional examples of the computation of sales tax for typical scenarios associated with the purchase of these vouchers.

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Ryan is an award-winning global tax services firm, with the largest indirect tax practice in North America and the seventh largest corporate tax practice in the United States. Headquartered in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. Ryan is a two-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 925 professionals and associates serves over 6,500 clients in 40 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at www.ryan.com.

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