This Could Get Complicated

The Massachusetts Department of Revenue issued a draft directive that could impact services such as Groupon and the retailers who increasingly use those services. And of course, consumers will feel the effects too. The directive concerns offers that are described as follows:

As a marketing technique, vendors may contract with third parties to issue certificates that are sold on the Internet to potential customers at below face value and can be redeemed to purchase taxable property or meals from those vendors. Such an offer may require a minimum number of participants to sign up and may lapse where this minimum is not obtained. When a certificate is issued, the vendor agrees to redeem it at face value, generally within a specified time period.

The question for the Department of Revenue was how to tax the whole thing. The good news? There’s no tax on the sale of the certificate in the first instance. The bad news? When you use the certificate, you’ll be taxed on the entire value of the transaction. So, if you pay $20 for a certificate that gets you a $40 meal, the tax is applied on the actual value of the meal — $40. Which goes to show you, from the perspective of the tax authorities, not only is there no such thing as a free lunch, there is, apparently, no such thing as a discounted lunch either.