Question about tax and gift cards

[iDetail]

Hello! I’ve been selling a lot of gift cards on my website this holiday season. I have a question though, people are buying gift cards for the exact amount of my services but my services are taxable so when someone comes in with a gift card (let’s say a full detail — $205 value on gift card) I have to charge tax when they have the service completed. We charge 7% sales tax on services so I am forced to make a customer pay an additional fee to leave with the their vehicle and that doesn’t sit too well with some. The point of the gift card is to have a service done and not pay a thing. What can I do to make customers pay a 7% tax when purchasing the gift card so the receiver of the gift card doesn’t owe me anything when they come in to have the services performed?  

For instance, someone buys a gift card on my website for a Premium Detail ($205), when a customer comes in to redeem the gift card and I write up an invoice, the total due will be $219.35, so the customer will owe me $14.35. 

[txgroomer]

Just a thought, not sure it would be helpful or not,  can you sell the gift cards with a set amount option?  You know like $25, $50 or $100 increments?  That way it eliminates that guess work out and doesn't specify it as a set as amount for one particular service/item where the sales tax wouldn't be as much of a surprise.  You could list what your items/service prices are and that gives someone an idea of how much they need to buy.  OR you could just put on there the gift card amount for a particular service but sales tax is not included in the card but I suppose you could also include the sales tax if you are selling it for a specific item/service and you know the price can't fluctuate.   I mean you can give MC/VISA (etc) gift cards for a certain amount but the recieving person goes out and buys a $50 set headphones shouldn't be surprised they're still having to fork out cash for a sales tax out of their own pocket, right?   

[txgroomer · Accepted solution]

Googled it,  common suggestions for wording is 
"No sales tax is charged when purchasing gift cards; however, purchases paid for with gift cards may be subject to tax."  Perhaps that would give the gifter an idea to slip an extra $20 in the gift card to cover the tax.  🙂

[iDetail]

That is a wonderful idea. I will put that disclaimer on the gift card page of my website. Thanks!!

[VanKalkerFarms]

probably the simplest way would be to have the gift card include the payment for the tax, not charge sales tax to the buyer.  If I was a customer buying a gift card for a specific service I wouldn't assume that the recipient would have to pay the sales tax.  so if your service is $200 sell gift cards for $215. 

or you can just back rate the service fee so the tax is included at $205 for gift card sales.  so your service would only be $191.58.  

I would think that these would be best for the recipient if they are getting a gift card for a specific service.  otherwise just offer gift cards for set amounts that won't have an assumption that the entire service is covered.

[camillebaughman]

We've set up the online link to purchase egift cards through Square. We pass the processing fee on to our customers in-house by creating a "sales" tax on the service.  How do we add a percentage fee or apply a "sales" tax to online gift card transactions? We are allowed by state law to charge a processing fee.  We choose to accept credit cards as a convenience to our customers so do not absorb the fee as a cost of doing business.  They always have the option to pay with cash or check to avoid the fee.  However, we need an online method to pay for gift cards so the customer does not have to personally visit our office. 

[AshleyK]

Hey there @camillebaughman and welcome to the Seller Community! I merged your post with an existing thread that will answer your question. While it's a feature request to add a surcharge onto a gift card sale of any type, you can see how other sellers are accounting for "tax" or "fees" for their gift cards. However; taxes will never be automatically assigned to Gift Card sales.

@VanKalkerFarms has an amazing suggestion in bumping the price of the gift cards to cover for any potential taxes, or in your case, surcharges, that the customers will pay when they actually buy a product in the store with the gift card. 

I hope this helps and makes sense. Let me know if you have any other questions. 🙂

[PicKFishPets]

When you sell an item as a gift card you sell it non-taxable as the tax is added when it is redeemed to the actual purchase. However when you go to do sales tax they ask you for Gross sales. Because of the setup in square the Gross sales includes non-taxable sales of gift cards and then when a purchase is made with the gift card and the user pays sales tax the state is getting a double dip even though you only took it in once. 
There needs to be a line for gross sales not including non-taxable sales. My tax collected line never matches what the state takes because of this and I end up paying twice 

Going back this is an issue here since 2017, is there a new change yet?

[_Violet]

Hi @PicKFishPets - Thanks for reaching out to us here on the Square Seller Community👋 I'm happy to provide you with some more information regarding tax calculations for gift cards.

At the time a customer purchases a Square-issued gift card, Square’s normal processing fees apply for gift cards purchased with credit or debit cards, and a 2.5% per gift card load fee. When your customers pay with a gift card, no additional fees will be applied to transactions completed with a gift card issued from Square – only the payment total will be deducted from the gift card balance.

Are your gift cards issued by Square or are you using another provider?

We'll keep an eye out for your reply!