Do you pay sales tax on gift cards?

Is sales tax charged on a gift card purchase?

No. Gift cards are not taxable. The purchase that you buy using that gift card will be taxed, so if tax is paid on a gift card they will be paying twice. Unfortunately, a lot of unsuspecting customers do pay tax on a gift card purchase. Sales tax should only be charged when using the gift card, never when buying it.

Why? Because essentially, you are passing on the sales tax to the cardholder.

Watch out for retailers that charge you sales tax. Many people report that they have been unwittingly charged sales tax when purchasing a gift card.

One large retailer in particular is reported online as a common offender. Reports aside, we were able to purchase a gift card from that very retailer on their online site without being charged sales tax. This may very well be a case of improperly trained store associates or a faulty POS system.

Why are retailers charging sales tax on Gift Cards?

There is a general confusion when it comes to taxing gift card purchases, because of the lack of knowledge. Revenue Services Commissioner Kevin B. Sullivan reminds retailers and shoppers of the official policy:

A gift card is the same as a gift of cash; no tax is due until that gift is used.

said Commissioner Sullivan. “When people use those gift cards to purchase taxable items, that is when stores should charge and collect sales tax.”

How to prevent getting charged sales tax:

  1. Remind the clerk that’s checking you out. There’s a risk you’ll sound like a nag, but you’ll prevent being overcharged.
  2. If you were charged tax on a gift card discuss it with the store manager and let him know you are not afraid to back it up by contacting the Federal Trade Commission to let them know that the store is charging taxes on a non-taxable item.

What should you do if you were already charged sales tax on your gift card purchase?

It was probably an honest mistake, but it does happen all the time. If you see that you were charged sales tax on your gift card, you should go back to the store with your gift card and the receipt. Connecticut Revenue Services Commissioner Kevin B. Sullivan recommends, “Shoppers who have been charged sales tax when buying gift cards or gift certificates should return to the store with their receipt and ask for a refund.” Explain to them that the purchase with the gift card will be charged tax, and not the gift card itself. You should be able to recoup your loss.

Did you ever pay sales tax on gift cards? We’d love to hear your comments.

Rachel is a marketing genius and a gift card fanatic. She is known throughout CardCash for her fantastic homemade chocolate chip cookies and also secretly loves deep sea fishing.

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