Is there a way to charge tax on gift cards offered by Shopify? Shopify notified me that my store is not charging tax currently:
I faced an error message when I went through Settings > Taxes page.
I also understand that gift cards, unlike regular products, does not have a checkbox "Charge tax on this product" under Product > Pricing.
Cal here from Shopify, thanks for reaching out to us. I understand how this warning message may be misleading. While it is warning you that you are not charging tax on a specific product, there is no reason to heed that warning unless there is specific legislation in your region that states you must apply tax to gift cards.
Gift Cards, generally, should not include tax. When your customer spends that Gift Card on your store, it will be treated as cash, and the products they purchase will have tax on them. If you were to charge tax for gift cards, you would effectively be double taxing your customers.
I hope that makes sense! You can read our FAQ about Gift Cards here.
Just to clarify my understanding of gift cards being recognized as cash:
If I am issuing gift cards of $100, and my customer uses this gift card to purchase a $300 item, the tax charged will be a % of $300?
My end goal is for the tax to always be the % of the amount paid- i.e. the amount paid after discount (i.e. $200 in the above example). If this is possible, I would like to charge tax on gift cards.
Else, would my next alternative be using discount codes?
Hi @Cal - the whole of the EU must charge tax on gift cards, it's a legal requirement. Tax on point of gift card purchase, no tax on gift card redemption. How do we change the settings to charge tax on gift cards?
Hi @Catkins10, this forum post goes into detail on this here. The customer would be charged tax on what they purchase with the gift card (and the tax applicable to those goods) but not on the gift card purchase itself. Let me know if there are any sources you can share that I can read that is contrary to this, and I'll be happy to investigate further for you!
Hi @Cal - that article already goes into quite a lot of detail explaining that in the EU VAT must be charged as point of issue as the gift cards are SPV gift cards i.e. you know where they will be spent. The same rule also applies to digitally issued gift vouchers. There are 4 pages of EU people on that thread complaining about Shopify not being able to charge tax on gift cards.
https://www.gov.uk/government/publications/changes-to-the-vat-treatment-of-vouchers/vat-treatment-of... -this is the UK government link to the EU law re vouchers - states that digital vouchers are included and that only MPV (where the voucher could be spent in multiple places) can be tax free.
Hi again @Catkins10! Thanks for providing me with that link. I believe there is a misunderstanding about the definition of single-purpose voucher and multi-purchase voucher here. Let me try to explain a little further!
Single-purpose voucher: a voucher where the place of supply of the goods or services to which the voucher relates, and the VAT due on those goods or services, are known at the time of the issue of the voucher. This would include a voucher which can only be redeemed by a specific supplier for a particular good or service.
Multi-purpose voucher: a voucher, other than a single purpose voucher. This would include vouchers which can be redeemed against goods and services with different VAT rates.
Let's say you run a spa and your customer purchases a voucher for a manicure. This voucher is for a particular service and the tax rate would be known at the time of purchase. The voucher cannot be redeemed for a different service. This would be a single-purpose voucher.
Say you sell a $100 gift card. This gift card can be redeemed for any services or products, which could have different tax rates. This is a multi-purpose voucher.
Shopify gift cards are multi-purpose vouchers and thus do not need to have VAT charged at the time they are issued. Shopify gift cards are not designed to be redeemed for a single product/service.
I hope this helps!