Coupons, gift certificates and free meals

What amount is subject to tax when a customer uses a two-for-one coupon?

Selling meals on a “two for one” or similar basis is not giving away a free meal, but rather selling meals at a discounted price. Retail sales tax and retailing B&O tax apply to the amount that is actually received by the seller.

Example: A customer uses a two-for-one coupon to purchase two meals costing $10 each. Tax applies to $10, which is the actual amount charged for the two meals. If extra items are sold such as beverages tax applies to $10 plus the amount charged for the beverages.

Do I need to collect sales tax when I sell a gift certificate?

Retail sales tax does not apply to the sale of a gift certificate or gift card. Tax applies to the total cost of the meal at the time the gift certificate or card is actually redeemed.

Example: A customer purchases a $25 gift certificate in July. A sale has not really occurred at this time and no tax applies. In August the customer redeems the certificate and purchases a meal costing $30. Retail sales tax applies to $30. The business charges the customer $30 plus tax. The amount of the gift certificate is then applied as a cash payment toward the total amount due. The customer pays the total bill less the $25 certificate.

Does tax apply to free meals?

If a restaurant or similar business provides a free meal to a person other than an employee, the meal is not subject to retail sales tax or use tax. However, if soft drinks or beer/wine are given away, use tax applies to the value.

Note: Meals provided to employees are presumed to be in exchange for services and are not considered free meals. See the Employee Meals Section.

References: WAC 458-20-119; WAC 458-20-124; WAC 458-20-108.