Questions and Answers

Identifying Information:Retail Promotional Deals
Tax Type:Kansas Retailers' Sales Tax
Brief Description:Sales tax treatment of retail promotional deals.
Keywords:
Approval Date:06/08/2011



Body:

Are purchases of retail promotional deals (“deals-of-the-day”) taxable?

Retail promotional deals, sometimes referred to as “deals-of-the-day,” can include offers on everything from vacation packages to restaurant meals. Purchases of these promotional deals from advertisers, such as online businesses, local radio stations, and newspapers, which generally take the form of a certificate issued to the purchaser and redeemable at the promoting retailer’s business location, are treated in the same manner as purchases of gift certificates for sales tax purposes. The payment made by the purchaser to the advertiser for the promotional “deal” certificate is not subject to sales tax.

When the promotional deal certificate is redeemed by the customer at the promoting retailer’s location, sales tax is first calculated on the full selling price of the taxable sale. The value of the promotional deal certificate is then applied to the transaction. See K.A.R. 92-19-16a(f).
Example 1: A restaurant in a city with a 1.5% local sales tax contracts with an online advertiser to sell $50 promotional deals for $25. The state sales tax rate in effect is 6.3%. When a promotional deal is purchased, a certificate is issued to the customer. The promotional deal certificate is redeemable on the purchase of meals. The customer orders meals with a total selling price of $70 and redeems the promotional deal certificate at the promoting restaurant. The restaurant must calculate and collect sales tax on the full selling price of $70 before deducting the $50 value of the promotional deal as indicated on the certificate.

Meals
$ 70.00
Sales Tax
+$ 5.46
Subtotal
$ 75.46
Deal
-$ 50.00
Total Due
$ 25.46

Example 2: A clothing store in a city with a 1% local sales tax contracts with a radio station to sell $20 promotional deals for $10. The state sales tax rate in effect is 6.3%. When the promotional deal is purchased, the radio station issues a certificate to the customer. The promotional deal is redeemable for a specific article of clothing. The customer comes into the clothing store to purchase the specified article of clothing which has a selling price of $20 . The clothing store must calculate and collect sales tax on the full selling price of $20 before deducting the $20 value of the promotional deal certificate.

Article of clothing
$ 20.00
Sales Tax
+$ 1.46
Subtotal
$ 21.46
Deal
-$ 20.00
Total Due
$ 1.46

Please note that the total amount due from the customer consists only of the tax calculated and collected by the clothing store on this transaction. The tax is still due from the customer even if the deal certificate covers the full price of the article redeemed.




Date Composed: 06/08/2011 Date Modified: 06/08/2011