In Brief

Companies that provide daily deal vouchers on discounted goods and services, such as Groupon, have grown in popularity with consumers. Ensuring that the necessary sales and use taxes on purchases using these vouchers are collected can be difficult, and even perilous, for merchants and their accountants. This is particularly true when the daily deal business provides a further discount beyond that agreed to by the merchant. The authors detail the myriad challenges and varying state and local rules faced by merchants who must attempt to properly assess and collect sales and use tax on daily deal transactions.

Over the past five years, the daily deal industry has grown by an annualized rate of 12.5% to become a $6 billion industry (“Daily Deals Sites Industry in the U.S.—Market Research Report, IBISWorld, March 2019, Groupon, the most prominent daily deal business, has more than 47 million customers who have purchased over 1.5 billion deals, thereby infusing more than $20 billion into local businesses as of 2019. The Groupon app is one of the top six most used retail applications of all time on iOS (Groupon Q3 2019 Public Fact Sheet, Despite this popularity, however, business owners may face complexity and uncertainty when assessing and collecting tax on these deals.

To illustrate this complexity, assume a consumer purchases a voucher worth $50 in services. The voucher was advertised for $25 as agreed to by the merchant, but the daily deal business offered an additional discount of 25%. The voucher states the merchant-advertised price of $25 but is silent on the additional 25% discount. When the consumer redeems the voucher, who must determine whether the deal is taxable, and if it is, who must assess, collect, and pay the sales tax? This article addresses these complex and uncertain questions.

Daily Deals Explained

Although the consumer is generally ultimately responsible for paying sales tax, it is the merchant who assumes assessment, collection, and remittal of tax. The merchant’s accountant, acting as an agent of the state, assists the merchant in complying with the applicable sales tax laws. The daily deal business is viewed as an advertising firm providing advertising services on behalf of the merchant. The taxing authority administers the sales tax law and can assess and collect through the audit process. Exhibit 1 illustrates this transactional framework.

Exhibit 1

Daily Deal Transactional Exchange Framework

Daily deal sites contract with vendors to advertise and sell promotional vouchers to consumers for a fee that is typically 50% of the negotiated voucher price. The deal usually goes live if a minimum number of consumers buy the deal within a specified time frame. When a consumer purchases a deal and pays the daily deal business, an electronic voucher is sent to the consumer’s e-mail or app. These sites do not collect taxes when daily deals are sold. In its merchant agreement, Groupon states that the merchant “shall be responsible for paying any and all sales, use or any other taxes related to the Merchant Offering or the goods and services” (

To stimulate sales, daily deal businesses often offer additional discounts, the cost of which they normally absorb. Groupon frequently sends out e-mails temporarily offering these additional discounts, normally ranging from 10% to 30%. The merchant is normally still paid its 50% share of the negotiated voucher price.

At times, merchants or their employees may not assess and collect the correct sales tax. Various reasons include a lack of knowledge of the accurate tax base for each transaction, ambiguous state tax regulations, or susceptibility to errors in sales tax collection. In the case of daily deal businesses, anecdotal evidence suggests an inherent flaw exists in the communication between merchants and the daily deal business with respect to the actual price paid for daily deals. Merchants may thus be unwittingly and systematically overcharging sales tax to many consumers.

Merchants’ Responsibilities and Liability

Administering sales taxes can be a burden to merchants, considering that tax authorities constantly change their sales and use tax rates as well as what products and services are taxable. There are nearly 10,800 sales tax jurisdictions in the United States, with varying sales tax rates and rules for various categories of services and products (Katherine Loughead, “Growing Number of State Sales Tax Jurisdictions Makes South Dakota v. Wayfair That Much More Imperative,” Tax Foundation, Apr. 17, 2018, Between 700 and 1,000 sales-and-use tax changes occur each year across states and municipalities (Carla Yrjanson, “How Inaccurate Sales Tax Calculations Spur Class Actions,”, Feb. 27, 2015, This makes it very complex for merchants to correctly apply sales tax to the various types of transactions, especially merchants offering a daily deal in multiple taxing jurisdictions in the wake of Wayfair. Many jurisdictions have given greater scrutiny to daily deal transactions; for example, the Kansas Department of Revenue stated that [daily deals] are “on our radar, as it is an area where a lot of states are finding that technology is outpacing their laws” (Christine Metz, “Kansas Department of Revenue Monitoring Sales Tax Collections by Retailers Using Groupon,” Lawrence Journal-World, Feb. 27, 2011,

Although established remedies for overpaid sales tax vary from state to state, consumers may resort to litigation, including class action lawsuits. Litigation is a costly and unproductive proposition for merchants, whether or not they ultimately prevail. Merchants’ accountants may be called to testify as to their work product and how they arrived at the figures placed on sales tax returns. If one’s work product is successfully challenged in court, it can cause reputational harm, as most court cases become a matter of public record.

In Laura Bugliaro v. BJ’s Wholesale Club, Inc. and State of Florida Department of Revenue (Case No. 2015-006256-CA-01), Bugliaro claimed to have been charged state sales tax on the full retail price of discounted Samsung televisions in November 2014. The lawsuit was later decertified, as BJ’s members can shop at BJ’s locations in any state, and thus the class is not ascertainable. In Brooks et al. v. Costco Wholesale Corp. et al. (Case No. 3:15-cv02098), Wong v. Whole Foods Market Group, Inc. (Case No. 1:15-cv-00848), and Wong v. Target Corporation (Case No. 1:15CV01985), the plaintiffs stated that the respective merchants improperly collected sales tax on purchases with manufacturer rebates, charging sales tax on the pre-discounted price. The plaintiffs believed that the merchants did not receive reimbursement from the manufacturers or any other third party for these rebates, and in the Target case, that the coupons did not state that the customer must pay the tax on the pre-coupon price if the retailer is reimbursed, and thus sales tax should be calculated on the discounted price of the item.

In Brian Farneth v. Walmart Stores Inc. (Case No. 2:13-cv-01062), the plaintiff claimed that he was charged sales tax on the full price rather than the discounted price of shaving gel that he received for free by using a buy-oneget-one-free coupon. The U.S. District Court for the Western District of Pennsylvania ordered Walmart to pay out a minimum of $21.5 million up to a maximum of $45 million in cash and gift cards, as well as change its point-of-sale (POS) system and cash registers in Pennsylvania Walmart stores to cross-reference applicable items with manufacturer coupons and charge sales tax on the discounted price after applying the coupon.

New York has taken a different position. In Mark A. Guterman v. Costco Wholesale Corp. (Case No. 7:17-cv-04812), the plaintiff claimed that prior to August 2013, Costco’s monthly coupon booklets indicated which discounts offered were manufacturers’ coupons and which were store-issued coupons, but ceased to do so thereafter. The complaint alleged that, under state law section 526.5(c)(4), the store should have charged tax on the post-discount amount, and Costco is liable for the difference in the sales tax. The court dismissed the complaint, asserting that the plaintiff’s remedy lay with the New York Tax Commission and not the court, as Costco is merely a tax collector and its responsibility ends once it has collected the taxes.

A propensity to protect businesses from class action lawsuits pertaining to sales tax refunds is evident. For example, section 325 of the Streamlined Sales and Use Tax Agreement (SSUTA), which maintains that state members shall require consumers to request a refund for overcollected sales or use taxes by giving a seller written notification and 60 days to respond before they are eligible to pursue litigation (

The Multistate Tax Commission has endorsed the American Bar Association’s Model Transactional Tax Overpayment Act, which encourages consumers to file a claim for a refund either with the merchant or the pertinent tax administration and limits legal action against merchants to cases of fraud (Sheldon H. Laskin, Memo to the Executive Committee, Dec. 11, 2014, In states like California, however, a consumer’s only option may be to pursue the merchant for a refund. Loeffler v. Target Corp. [58 Cal. 4th 1081 (Cal. 2014)] established that only the merchant can file for a refund with the Board of Equalization after remitting to the board the collected sales tax; the consumer cannot file a such claim directly with the board. Furthermore, in Littlejohn v. Costco Wholesale Corp. [Case No. A144440 (Cal. Ct. App. Jul. 13, 2018)], the California Court of Appeal affirmed that consumers cannot coerce merchants to pursue sales tax refunds with the board or sue the board directly. This leaves consumers with no other remedy but to take action against the retailer; such lawsuits are extremely costly for the merchant and onerous for the merchant’s accountant.

States like New York parse vouchers into two types: 1) vouchers that represent advance payment for a specific product or service, and 2) vouchers that indicate a stated value that can be used to purchase a variety of goods or services.

Determining the Correct Sales Tax

The guidelines for taxing daily deal vouchers vary by jurisdiction, but it is important to understand what is considered a voucher before assessing sales tax. Most states agree that vouchers most closely resemble retailer coupons, whereby a retailer offers a cash discount on the sale of a good or service and does not receive subsequent reimbursement from a third party; the discount is applied, and the reduced sales price is taxed. When a manufacturer’s discount is applied to a sale, however, the retailer receives reimbursement from a third party, and therefore the full sales price is taxed (Josh Barro, “Coupons Shouldn’t Be Taxed, but Government Vouchers Should,” Tax Foundation, Jul. 9, 2008,

To complicate matters, states like New York parse vouchers into two types: 1) vouchers that represent advance payment for a specific product or service, and 2) vouchers that indicate a stated value that can be used to purchase a variety of goods or services from the merchant [New York Department of Taxation and Finance TSB-M-11(16)S (2011),].

To illustrate the difference, assume $20 is paid to purchase a voucher that is redeemable for one car wash that normally costs $50. This is a specific product or service voucher, and New York asserts that sales tax should be assessed on the $20 discounted purchase price. A stated face value voucher, however, taxes the full value of the deal; for example, a voucher purchased for $25 that can be redeemed for $50 worth of car cleaning services. Per New York guidance, what the customer is purchasing is not specific, and therefore the customer must pay tax on the $50 stated value, and the $25 discount paid for the voucher is not taken into consideration.

The explosive growth of the daily deal industry and the sheer complexity of social coupon taxation among states and localities urged the 24 member states of the SSUTA to devise a model policy to address taxation of vouchers purchased from daily deal firms. The Streamlined Sales and Use Tax Governing Board seeks to “simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance” through the SSUTA. In 2013, the board adopted a model policy that details tax administration for vouchers. Eight states—Georgia, Iowa, Kansas, Kentucky, Minnesota, Nebraska, Ohio, and Washington—have put forth their own guidance as to daily deal taxation that may differ from the SSUTA’s model.

Disclosed Practice 1 of Appendix E of the SSUTA defines a voucher. Some of the main points assert that a voucher—

  • is not a gift card or gift certificate, nor is it convertible, in whole or in part, to gift cards, gift certificates or cash;
  • is issued to a purchaser for an amount that is less than the face value, and both the face value and the amount paid by the purchaser are noted on the voucher;
  • is redeemable for personal property or services in a single visit only at the seller’s business;
  • is redeemable either for a specific product or for a certain dollar amount toward the purchase price of any product sold by the seller; and
  • is issued, marketed, or distributed by a third party pursuant to a specific agreement with the seller, and the seller determines the price at which the voucher is to be issued and allows redemption of the specific voucher for personal property or services.

SSUTA member states administer “the difference between the value of a voucher allowed by the seller and the amount the purchaser paid for the voucher as a discount that is not included in the sales price, provided the seller is not reimbursed by a third party, in money or otherwise, for some or all of that difference” (SSUTA, Disclosed Practice 1.1, Appendix E). Thus, the SSUTA recommends treating a voucher as a seller’s coupon and assessing sales tax on the discounted sales price, provided that the seller knows the exact amount that the purchaser paid for the voucher. This is technically the same policy deployed by the eight states listed above—tax the purchase price if it is known, otherwise tax the full sales price.

Anecdotal evidence supports the idea that the daily deal business may not always list the accurate purchase price on the voucher, especially when the deal is further discounted.

This raises a major concern, as anecdotal evidence supports the idea that the daily deal business may not always list the accurate purchase price on the voucher, especially when the deal is further discounted. In such cases, the merchant may not have an easy way of telling how much the customer paid for the deal. That brings into question whether a further discounted deal is considered a voucher, given that the actual price the purchaser paid may not be noted on the voucher. If a daily deal voucher is technically determined not to be a “voucher,” then what is it, and what is the appropriate tax treatment?

Exhibit 2 highlights pertinent state guidance regarding the taxation of coupons or daily deal vouchers. A table outlining the state-by-state sales tax administration of vouchers will be available with the online version of this article at

Exhibit 2

Daily Deal Voucher Taxation by State

Sales Tax Treatment of Additional Discounts

Four important questions arise when daily deal businesses offer additional discounts:

  • What is the correct amount of sales tax to assess and collect for vouchers sold by daily deal businesses?
  • How do these additional discounts affect sales tax calculations?
  • Which customers purchased a daily deal at the price set by the merchant or the further discounted price offered by the daily deal business?
  • What happens if the merchant or its accountant errs in assessing and collecting sales tax resulting from additional discounts offered by the daily deal business?

While most states do treat daily deal vouchers as retailer’s coupons, the trick is knowing the price that the consumer paid for the voucher. As noted above, Arizona, Illinois, Iowa, Kentucky, Massachusetts, Minnesota, Penn sylvania, and Washington explicitly pronounce that if the purchase price is not listed on the voucher and the price the consumer paid is unknown, then the full sales price should be taxed.

For example, assume a car wash runs a daily deal offering a $60 car wash for $30. To stimulate sales, the daily deal business offers an additional discount of 25%, bringing the voucher price down to $22.50. If car wash services are subject to sales tax in that state, the additional discounted price should be taken into consideration; however, it is not listed on the voucher, and the merchant cannot tell the exact price the consumer paid. Following the law in the aforementioned states, the $60 sales price must be taxed, and the consumer would have to pay $5.68 in sales tax on the $60 value, or 25% of the cost of the $22.50 voucher. Furthermore, if the vendor is not aware of the exact price paid because of an additional discount, the vendor may routinely overcharge charge sales tax on the $30 negotiated price stated on the voucher rather than the $22.50 paid by the consumer. In an audit, the merchant may be found to undercollect sales tax by not charging sales tax on the full promotional value and the consumer overtaxed because the additional discount was not taken into consideration. In this case, the merchant is noncompliant both ways.

This is a real problem for merchants. Anecdotal evidence suggests uncertainty as to how merchants are informed regarding which consumers purchased vouchers for the price set by the merchant or the daily deal firm’s additional discounted price. Merchants and their accountants may be susceptible to miscalculation when sales tax is charged to consumers based on the negotiated discounted price with the daily deal business rather than a further discounted price. This would likely result in angry customers, potential lawsuits, and perhaps reputational damage to the business, as the local customers can quickly spread negative feedback.

Exhibit 3 is a general taxation formula of how a daily deal should be taxed when additional discounts apply.

Exhibit 3

General Daily Deal Taxation Formula

Consumer Remedies

States that impose sales tax normally have procedures on how to apply for a refund or credit for overpayment of sales tax. Some states only permit sellers to apply for a refund or credit with the state with proof that they reimbursed the consumer for the tax overpaid on a transaction. Other states allow consumers to apply for a refund directly with the state, often if certain requirements are met. Accountants should be aware of the pertinent state requirements to obtain refunds of over-collected taxes. A table outlining the state-by-state sales tax refund procedures for overpaid taxes is available with the online version of this article at

Penalty Concerns

When sales tax is assessed and collected, most tax jurisdictions require a sales-and-use tax return to be filed, depending on such factors as the volume of business and dollar amounts of sales tax assessed and collected. When sales tax is incorrectly assessed, it causes incorrect sales and use tax returns to be prepared and filed. Although an accountant’s concern normally is centered on underpayment of sales tax, issues also arise with overpayment. Virginia Code section 58.1-6 imposes a penalty of 25% on overcollection of sales tax that is not paid to the appropriate state agency. Furthermore, section 58.1-635 imposes up to a 30% penalty for failure to account for overcollected sales tax, as well as a fraud penalty of 50%. If Missouri finds that sales tax was overcharged with the intent to keep the extra money, a penalty of 100% of the amount in question is imposed per section 44.157 of the Missouri Revisor of Statutes. Most states will not assess a penalty if the overcollected tax is remitted to the state tax authorities.

Given the volume of transactions in the daily deal industry, properly assessing sales tax requires transparent and accurate information.

Future Concerns

Groupon recently launched a new program entitled Groupon Select. Per the Groupon Select Terms and Conditions, this is a subscription-based program; for $4.99 per month, subscribers can access unlimited additional discounts on almost all deals for an additional 25% off local deals; 10% off tickets, events, and travel; exclusive deals; and free shipping. The discount is automatically applied at checkout, with some exclusions. Merchants may be unable to easily discern which customers are Groupon Select subscribers and thus know the correct price paid for the voucher. Until more guidance is disseminated, programs like these will introduce further complexities into daily deal sales tax administration.

Getting It Right

Given the volume of transactions in the daily deal industry, properly assessing sales tax requires transparent and accurate information. It might be wise for state and local governments to encourage daily deal businesses to take a more prominent position in the calculation of sales tax at the point of voucher redemption. Currently, however, this onus is placed on the merchants, and thus accountants must be knowledgeable of the mechanics of daily deals and the sales tax complexities surfacing from the sale and redemption of such vouchers.

A good starting place for merchants is to see if they are subject to the SSUTA. If not, sales tax rules related to vouchers need to be carefully researched. When a consumer redeems a voucher, merchants need to be able to determine the correct price paid by the consumer; if it is not stated on the voucher, it is recommended that the merchant inquire of the consumer and ask for proof of the price paid. The correct sales tax assessment and collection process is a burden carried not only by merchants, but also by their accountants, state sales tax authorities, and consumers—information needs to be more transparent among all parties for the correct assessment and collection of sales tax.

Rachel Raskin, CPA is an assistant professor at the City University of New York (CUNY) College of Technology, Brooklyn, N.Y.
Joseph Foy, DPS, CPA is an assistant professor of accounting at the CUNY School of Professional Studies, New York, N.Y.
Frimette Kass-Shraibman, PhD, CPA is a professor of accounting at CUNY Brooklyn College, Brooklyn, N.Y.