LR 8202
Taxability of Gift Cards and Loyalty Programs
July 29, 2022
Dear Applicant:
This is a letter ruling issued by the Director of Revenue under Section 536.021.10, RSMo, and Missouri Code of State Regulations 12 CSR 10-1.020, in response to your letter dated June 1, 2022.
The facts as presented in your letter ruling request and in a conversation with Senior Counsel Thomas A. Houdek are summarized as follows:
Applicant is an out of state limited liability company that operates drive-thru coffee stands. As part of its business, Applicant offers customers the ability to purchase gift cards and gift certificates from Applicant. Customers may use the gift cards and gift certificates to purchase products from Applicant until the value of the gift card or the gift certificate is reduced to zero.
Applicant also offers its customers a loyalty program (stamp cards) where customers may accumulate points based upon their purchases. When the customer reaches a certain amount of stamps, customers can redeem the stamps for free products (primarily free drinks). Applicant also offers free products to its customers on the customer's birthday or if the customer forgets their wallet. Applicant also offers free drinks to its employees. Neither the customer nor the employee provides consideration for the free drinks they receive from Applicant.
ISSUE 1:
Are customers' purchases of gift cards or gift certificates from Applicant subject to Missouri state and local sales tax?
RESPONSE 1:
No. Customers' purchases of gift cards or gift certificates from Applicant are not subject to Missouri state and local sales tax.
Section 144.020, RSMo, imposes a sales tax "upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state." Applicant sells gift cards and gift certificates, which are not tangible personal property or an enumerated taxable service.
Therefore, Applicant's sales of the gift cards and gift certificates are not subject to Missouri state and local sales tax. Applicant's sales of goods in exchange for the gift cards and gift certificates are subject to sales tax.
ISSUE 2:
Should Applicant accrue and remit Missouri use tax on the ingredients Applicant uses to provide free products to its customers and employees?
RESPONSE 2:
Yes. Applicant should accrue and remit Missouri use tax on the ingredients Applicant uses to provide free products to its customers and employees.
Section 144.020.1, RSMo, provides "[a] tax is hereby levied and imposed. . . upon all sellers for the privilege of engaging in the business of selling tangible personal property or rendering taxable service at retail in this state. Section 144.010.1(13), RSMo, defines "Sale at Retail" as "any transfer made by any person engaged in business as defined herein of the ownership of, or title to, tangible personal property to the purchaser, for use or consumption and not for resale in any form as tangible personal property, for a valuable consideration."
Missouri Code of State Regulations 12 CSR 10-103.220(3)(A) provides "[a] taxpayer may purchase tangible personal property or taxable services for resale if the purchase is for subsequent sale at retail."
Applicant purchases ingredients for resale that Applicant uses to prepare various drinks to sell at retail to its customers. Applicant offers its customers and employees complimentary drinks for various reasons. When Applicant gives the customer or employee a free drink, no consideration is paid by the customer or employee for the free drink. The free drinks Applicant provides its employees and customers are not sales at retail.
Because Applicant purchases its drink ingredients for resale, Applicant is the end user of the ingredients used to provide free drinks to customers and employees. Therefore, Applicant must accrue and remit Missouri use tax on the ingredients used to provide free drinks to its employees and customers.
ISSUE 3:
Should Applicant accrue and remit Missouri use tax on the ingredients Applicant uses to provide free products to its loyalty program customers?
RESPONSE 3:
No. Applicant should not accrue and remit Missouri use tax on the ingredients Applicant uses to provide free products to its loyalty program customers.
Applicant's loyalty program rewards customers with a stamp, recorded on a card, for each cup of coffee purchased. Once a customer has enough stamps on their card, they are entitled to a free cup of coffee. Unlike Response 2, the customer has paid valuable consideration for the cups of coffee that entitled them to a free cup of coffee. As Applicant is not giving the cup of coffee away, Applicant does not need to accrue and remit use tax.
This letter ruling is binding upon the Department of Revenue with respect to the Applicant for three (3) years from the date of this letter and is subject only to statutory changes by the General Assembly and to changes in the interpretation of law by the courts or administrative tribunals. If a change occurs, the taxpayer who relies upon an outdated interpretation may be subject to additional taxes, interest and penalties, which may be imposed prospectively from the date of the change. For this reason, the interpretation set forth above should be reviewed on a regular basis. Please note that any change in or deviation from the facts as presented will render this ruling inapplicable.
Should additional information be needed, please contact Senior Counsel Thomas A. Houdek, General Counsel's Office, Post Office Box 475, Jefferson City, Missouri 65105-0475, phone (573) 751-0961.
Sincerely,
Wayne Wallingford