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When is tax due on gift cards, gift certificates and layaway purchases?

Gift Cards and Gift Certificates

Taxes are due when the gift card/certificate is redeemed by the holder. When the card/certificate is used, the taxes due on the sale depend on the nature of the item or service purchased:

  • When a customer purchases tangible personal property and/or retail services, sales tax is collected and the seller reports Retailing B&O tax and retail sales tax at that time.
  • For purchases of sales tax exempt food products, only Retailing B&O tax is due.The seller should report the income for sales tax, then take an "exempt food products" deduction.No sales tax is due.
  • If the card/certificate is used to purchase a service (a haircut, for example), the seller reports the transaction under the Service B&O tax classification. No sales tax is due.

Layaways

When an item is purchased on layaway, the seller does not enter the transaction as a sale until the customer takes delivery of the item. Upon delivery, the business will collect and report retail sales tax and Retailing B&O tax.

If the customer does not complete the terms of the layaway and forfeits the deposit, the seller will report this income under the Service B&O tax classification, because there is no retail sale to charge sales tax. Resource: WAC 458-20-103

Prepaid Telephone Debit Cards

Unlike sales of gift cards/certificates, sales of prepaid telephone debit cards are subject to retail sales tax. See ETA 3093.2009.