When is tax due on gift certificate and layaway purchases?

Gift Certificates

Taxes are due when the gift certificate is redeemed by the holder. When the 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, 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 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