As law abiding citizens we pay our taxes. Even though we don’t always like it.
But it really hurts to pay twice. Which is what a lot of unsuspecting customers do when they pay tax on gift card purchases. Sales tax should only be charged when using the gift card, never when buying it.
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:
- Remind the clerk that’s checking you out. There’s a risk you’ll sound like a nag, but you’ll prevent being overcharged.
- 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.
Did you ever pay sales tax on gift cards? We’d love to hear your comments.