On December 10th, with consumers decking the halls and swarming retail stores, the Commissioner of the Connecticut Department of Revenue Services, Kevin B. Sullivan, gave a warning to holiday shoppers that gift cards are not subject to sales tax in Connecticut. According to the Commissioner, shoppers should return to the store with their receipts and ask for a refund.
With annual gift card sales forecast to reach approximately $118 billion this year – an amount larger than the GDP in 136 countries – Commissioner Sullivan’s extra gift of this holiday season is intended to show consumers that the proverbial taxman may not be a Scrooge after all. Touting the transparency of his Department, Commissioner Sullivan stated, “People are used to the tax commissioner telling them to pay their taxes, but this isn’t your father’s tax department and I don’t want people to pay more tax than their fair share.” Commissioner Sullivan also noted that “[a] gift card is the same as a gift of cash; no tax is due until the gift is used. When people use those gift cards to purchase taxable items, that is when stores should charge and collect Connecticut sales tax.” The State of Connecticut’s attitude about gift cards generally is also emblematic of the suspicion that the government has long exhibited about gift cards; every season, regulators issue warnings to consumers to be wary of gift card expiration dates, fees and similar issues.
Sales tax issues have also been cropping up in the coupon world. When a coupon is used to make a purchase, most states (including Connecticut) have laws requiring that the sales tax be applied to the discounted price, not the original price. In 2013, two large class actions were filed in Pennsylvania against retail giants that allegedly violated such provisions. One retailer was sued for allegedly charging and collecting sales tax on the full price of items sold when the customers were using discount coupons to buy them. According to the Complaint, the additional money collected by the retailer “under color of law” was not required to be remitted to the state, and was instead kept by the retailer. In the second case, a customer purchasing items using a “buy one, get one free” coupon contended that he was taxed on the free item in violation of state law. These class actions are ongoing, but taken with the Connecticut announcement serve as a warning that retailers should be careful to collect tax only on what they sell, when they sell it, or risk serious consequences from regulators, the class action bar and Santa himself.