“Daily Deals” – More of a Deal for State Coffers Than Yours?
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Daily Deal-type marketing (think Groupon and Living Social) has become a very popular way for small businesses to market their product or service to a large and local audience. However, business owners need to be aware of the various tax and financial implications that come with these “deals.”
The way these Daily Deal sites work is that the promoter (Groupon for example) will promote a business owner’s offer for a limited period of time. The offer is usually for a product or service at a deep discount: for example, $45 worth of food is offered for $20 and the promotion is good for 6 months. The customer pays the $20 to Groupon and they receive a voucher for $45; Groupon takes a fee from the $20 received and then passes the rest on to the restaurant owner. Then, when the customer goes to the restaurant within the 6 months, they present their voucher, and $45 is deducted from their food bill.
But what happens if the customer in this scenario doesn’t redeem the voucher within the 6-month period, or never redeems it at all? Most states have Unclaimed Property Laws on the books which require a business to turn over to the state property that belongs to someone else. This type of social marketing is new territory and the states are still trying to figure out how it applies to their sales tax and unclaimed property laws. Some states view the vouchers (paper or digital) as gift certificates, some as stored value cards, some as a prepaid discount voucher, and some don’t know what to call them.
If a Daily Deal voucher falls under your state’s unclaimed property law (or other states, if you have customers in multiple states) you will have to turn over the “value” of the voucher to the state. Next question – what is the value? The full voucher amount (a portion of which expired after 6 months), the paid value, or some other amount? Again, this is new territory and each state is different in their rules.
These are just a few of the questions involved in these Daily Deal transactions. So where does this leave you? If you are thinking of using a Daily Deal promotion, contact us to help with the structure of the deal to minimize your tax and reporting responsibilities. If you have already done one of these, you can still give us a call to evaluate if you have any potential liability to a state(s) for which they may come knocking on your door wanting their share of that Daily Deal.