Sales of Discounted Certificates and Product Vouchers

Background:
This Tax Release explains that sales of discounted certificates and product vouchers ("vouchers") are not subject to Wisconsin sales or use taxes at the time the certificate or voucher is sold. Wisconsin sales and use taxes apply when the certificate or voucher is redeemed by the merchant providing the goods or services. (Note: This Tax Release does not apply to sales of digital codes as defined in sec. 77.51(3pc), Wis. Stats. (2009-10), admissions to time-sensitive events (i.e., sporting events, concerts, etc.) or gift certificates sold directly by the retailer.)

A merchant enters into an agreement with a promotional company: (1) to have that promotional company sell, at a discount from face value, certificates that may be redeemed for the face value of the certificate when purchasing goods or services from that merchant or (2) to have that promotional company sell vouchers that may be redeemed for a particular good or service that is furnished by the merchant to the holder of the voucher. In either situation, the retailer can identify the amount for which the certificate or voucher was sold to the customer.

These certificates and vouchers: (1) are commonly advertised on various websites, (2) are e-mailed to persons who have agreed to receive such e-mails, and (3) are often referred to as "deal of the day" certificates or vouchers. A person desiring to purchase the certificate or voucher does so by contacting and paying the promotional company and not the issuing merchant. The purchaser then presents the certificate or voucher to the issuing merchant in exchange for goods or services from that merchant, as indicated on the certificate or voucher.

Applicable Wisconsin Statutes:
Section 77.51(13)(a), Wis. Stats. (2009-10), provides that "retailer" includes every seller who makes any sale, regardless of whether the sale is mercantile in nature, of tangible personal property, or items, property, or goods under sec. 77.52(1)(b), (c), or (d), Wis. Stats. (2009-10), or a service under sec. 77.52(2)(a), Wis. Stats. (2009-10).

Section 77.51(14)(intro), Wis. Stats. (2009-10), provides, in part, that "sale" includes any of the following: the transfer of the ownership of, title to, possession of, or enjoyment of tangible personal property, or items, property, or goods under sec. 77.52(2)(b), (c), or (d), Wis. Stats. (2009-10), or services.

Section 77.51(15b)(a)2., Wis. Stats. (2009-10), provides that "sales price" means the total amount of consideration, including cash, credit, property, and services, for which tangible personal property, or items, property, or goods under sec. 77.52(1)(b), (c), or (d), Wis. Stats. (2009-10), or services are sold, licensed, leased, or rented, valued in money, whether received in money or otherwise, without any deduction for the cost of materials used, labor or service cost, interest, losses, all costs of transportation to the seller, all taxes imposed on the seller, and any other expense of the seller.

Section 77.51(15b)(b)1., Wis. Stats. (2009-10), provides, in part, that "sales price" does not include discounts, including cash, terms, or coupons, that are not reimbursed by a 3rd party,…; that are allowed by a seller; and that are taken by a purchaser on a sale.

Section 77.52(1), Wis. Stats. (2009-10), imposes the sales tax on a retailer's receipts from sales of the following:

Section 77.52(2), Wis. Stats. (2009-10), imposes the sales tax on a retailer's receipts from selling, performing, or furnishing any of the services specified in sec. 77.52(2)(a), Wis. Stats. (2009-10).

Question 1: How do Wisconsin sales and use taxes apply to the sales and redemption of the discounted certificates?

Answer 1: The promotional company's sale of the certificate is not subject to Wisconsin sales or use taxes, as the sale of the certificate is the sale of an intangible right. Sales of intangible rights are not subject to Wisconsin sales tax under either sec. 77.52(1) or (2), Wis. Stats. (2009-10). The merchant who accepts the certificate in exchange for goods or services has receipts from the sale of such goods or services in an amount equal to the amount for which the certificate was sold by the promotional company, plus any additional amounts it receives from the person using the certificate as payment for the goods or services purchased.

The merchant is the retailer of the goods or services sold since the merchant is the person actually transferring the ownership of, title to, possession of, or enjoyment of the goods or services to the purchaser, as provided in sec. 77.51(14)(intro), Wis. Stats. (2009-10).

The merchant's sales price of the goods or services includes all consideration received by the merchant for the sale, without deduction for any expenses incurred by the merchant and paid to the promotional company for its services of advertising and selling the certificates, as provided in sec. 77.51(15b)(a)2., Wis. Stats. (2009-10).

The merchant's sales price of the goods or services does not include the difference between the face value of the certificate and the amount the purchaser paid the promotional company for the certificate. This amount is specifically excluded from the retailer's sales price under sec. 77.51(15b)(b)1., Wis. Stats. (2009-10), as a discount allowed by the seller and taken by the purchaser, assuming the difference is not reimbursed or paid to the seller by a third party.

Example: Merchant operates a retail store located in Milwaukee, Wisconsin. Promotional Company has entered into a contract with Merchant to advertise and sell certificates. The certificates each have a stated value of $50 that may be used by the certificate holder towards the purchase of goods or services from Merchant.

Promotional Company sells a certificate with a face value of $50 to Customer for $30. Under the terms of the agreement between Merchant and Promotional Company, Promotional Company is obligated to remit $15 of the $30 it collected from Customer to Merchant. Promotional Company keeps the remaining $15 in return for the advertising and promotional services it provides to Merchant under the agreement. Customer goes to Merchant's store and selects clothing with a retail selling price of $99.99. Customer pays for the clothing by presenting the $50 certificate and using a credit card to pay $49.99.

Merchant's taxable receipts from this sale are $79.99 ($30.00, the amount for which Customer purchased the certificate, plus $49.99, the additional amount Customer paid Merchant), and Merchant is liable for Wisconsin state, Milwaukee County, and baseball stadium sales tax of $4.48 ($79.99 x 5.6%). The $20 difference between the face value of the certificate ($50) and the $30 Customer paid for the certificate is a discount allowed by Merchant and is not included in the measure subject to Wisconsin sales or use tax.

Promotional Company's receipts ($30) from its sale of the certificate to Customer are not subject to Wisconsin sales or use taxes.

Question 2: How do Wisconsin sales and use taxes apply to the sales and redemption of product vouchers?

Answer 2: The promotional company's sale of the product voucher is not subject to Wisconsin sales or use taxes, as the sale of the voucher is the sale of an intangible right. Sales of intangible rights are not subject to Wisconsin sales tax under either sec. 77.52(1) or (2), Wis. Stats. (2009-10).

When the customer redeems the voucher for particular goods or services, a sale of those goods or services has occurred and Wisconsin sales or use taxes will apply to the sales price of the voucher if the goods or services being sold are taxable.

The merchant accepting the voucher is the retailer of the goods or services since the merchant is the person actually transferring ownership of, title to, possession of, or enjoyment of the goods or services to the purchaser, as provided in sec. 77.51(14)(intro), Wis. Stats. (2009-10).

The merchant is liable for Wisconsin sales or use taxes based on the sales price of the voucher, provided the product (i.e., good or service) represented by the voucher is subject to Wisconsin sales or use taxes.

The merchant's sales price of the goods or services sold using the voucher includes all consideration received by the merchant for the sale, without deduction for any expenses incurred by the merchant and paid to the promotional company for its services of advertising and selling the vouchers, under sec. 77.51(15b)(a)2., Wis. Stats. (2009-10).

Example 1: Merchant operates a hotel at a location in Outagamie County, Wisconsin. Promotional Company is a business that has entered into an agreement with Merchant to sell vouchers that are good for two nights of lodging at Merchant's hotel. Promotional Company sells a voucher to Customer for $100. Under the terms of the agreement between Merchant and Promotional Company, Promotional Company is obligated to remit $60 to Merchant relating to Promotional Company's sale of the voucher to Customer and Merchant's obligation to redeem the voucher and furnish the lodging to the voucher holder. Under the terms of its agreement, Promotional Company retains the remaining $40 in return for the advertising and promotional services it provides to Merchant.

At the time Customer redeems the voucher for the lodging services, Merchant has taxable receipts of $100 from its sale of the lodging services, unless an exemption applies. Receipts from the selling, performing, or furnishing of lodging to transients are subject to Wisconsin sales tax. The lodging services are to be received in Outagamie County, Wisconsin, and Merchant is liable for Wisconsin state sales tax of $5 ($100 x 5%) on its receipts from the sale of the lodging services. (Outagamie County does not impose a county sales and use tax and is not a part of a special district imposing a tax so no county or special district tax is due on this transaction.)

Example 2: Restaurant contracts with Promotional Company to issue vouchers that may be redeemed by the voucher holder for 2 dinners at Restaurant at its location in Waukesha County, Wisconsin. The sales price of the voucher is $25. Promotional Company advertises the vouchers to subscribers of its "daily deal" offers by sending e-mail messages to subscribers, alerting them to the offer. Individual purchases one voucher and pays Company $25. Under the terms of its agreement, Promotional Company remits $13 to Restaurant and keeps the remaining $12 as compensation for the advertising and promotional services provided to Restaurant.

Restaurant has taxable receipts of $25. Restaurant's sale of the dinners is a sale of prepared food and is subject to Wisconsin sales tax, unless an exemption applies. Since the meals are received in Waukesha County, Wisconsin by the person redeeming the voucher, Restaurant is liable for Wisconsin state and baseball stadium sales tax of $1.28 ($25 x 5.1%) on the sale of the dinners (i.e., prepared food).

Last updated August 3, 2012