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, retail 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 retail sales tax purposes, then take an "exempt food products" deduction.No sales tax is due.
- If the card/certificate is used to purchase a service (i.e. a haircut), the seller reports the transaction under the Service B&O tax classification. No retail sales tax is due.
When an item is purchased on layaway, the seller does not recognize the transaction as a sale until the customer takes delivery of the item. Upon delivery, the seller 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 retail 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.