When you buy a gift card can the store charge tax on it?

Question

The store wants to charge tax on the giftcard saying then the person you give it to dosent have to pay the tax. I think this is wrong.

When I say the person you are giving it to dosent have to pay tax, I mean that if the gift card is $20 and they can buy something that is $20, the tax is pre-paid.

Answer 1

the store cannot charge tax on a gift card.

Answer 2

This doesn't sound right. Basically, the gift card is like a check. It represents a certain amount of money. That money can be used to purchase an item. If the item costs less than the value of the gift card, the remaining money can be used to pay the tax. If you pay tax on the gift card, I would think the store would still try to collect a tax at the time of the purchase. Sounds like double taxation to me.

Another point is that the gift card is seldom the exact amount of the purchase. Sometimes the purchase is for less than the card is worth and the store will issue another gift card for the remaining value of the original card. If it's only a few dollars, they might just make change as if real money was used. Most of the time, however, the card is used to buy a more expensive item and the buyer makes up the difference, which includes any tax. The store gains here because a more expensive item is purchased.

Another point is that frequently the gift card is not used completely. If there is only a few dollars left and the store issues a new card for the remaining amount instead of giving change, this remaining amount is sometimes not used. Also, cards can get lost or forgotten. The store still has the money and it's all profit.

As someone else pointed out, money works just fine. This is what I do. Then the person isn't forced into one particular store or mall. They can go where ever they want and there is no issue with tax. Cash is just as personal as a gift card. Green is always the right color.

Answer 3

In California, you buy a $20 amount gift card for $20. Period. That's the end of that. I've worked in retail since 1991 and at least in the main retail stored you don't. Now if you are dealing with small local stores they might be getting away with something. They either are not aware of it or are trying to pull a fast one on you. A gift card works like cash. YOu wouldn't buy a $20 dollar bill and get taxed on it.

NOw once redeemed the person who received the gift card does pay for tax for the items.

Answer 4

Sounds wrong to me. Tax should be charged when a puchase is made with the card. The card is simply another method of payment. The store doesn't pay tax to the government on gift cards, only on their sales of goods. Your friend will have to pay the tax, but if they buy something for less than $20, then the card might cover the tax too.

Answer 5

The giver of the card pays tax on the card purchase, also the receiver is charged tax on the items purchased with the card. The price we pay for convenience of not making a decision on a gift. But check with the local tax office to make sure this applies in your area.

Answer 6

The tax should be on the purchase of the item and not on the gift card because if the person never used the GC then the company charged tax on something that was never sold

Answer 7

They are wrong.. yes you pay sales tax for the purchase of the card and the person you give it to still pays tax on their purchase. Research issues with gift card giving. You lose out a lot. I used to give gift cards but it ends up costing me more and worth less to the recipient. Now I give cash.

Answer 8

No, because they charge you tax when you purchase the goods. If they taxed you for the gift card, then they would be charging tax twice on one item.

Gift cards are promotional tools used to generate business, they are not a tangible item that can be taxed.

Answer 9

A gift card (or gift certificate) is not taxable. They can certainly offer to preload the tax of what the cost of a $20 item would be, but if that amount is not preloaded, the recipient of the gift card would be responsible for any tax on the item they purchase.

Answer 10

That may vary based on your state laws. Normally you pay the face value of the gift card and the taxes are calculated when the card is redeemed.