My company is trying to create a website for a customer where we have a feature that someone could buy a gift card for a friend. We are wondering if anyone could help us answer a few questions regarding gift cards:
FYI: most of the customers purchasing a gift card on the site being developed will be from the USA.
- Since taxes in the US vary by state, how can we decide how much sales tax the customer will pay?
- Aren't gift cards not taxable? Since the customer using the gift card will be paying sales tax when they actually use the card?
Thanks so much for your help, everyone!
Julie here from Shopify Support.
I'm glad to hear that you're taking advantage of the gift card feature! With the holidays fast approaching, this is a great way to grow your sales.
When it comes to gift cards and taxes, you're right — generally speaking, gift cards 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. If your store is currently charging sales tax but you don't want to collect tax on gift cards, then you can make your gift cards exempt from sales tax from directly within the product page in your Admin. There, you'll just want to uncheck "Charge taxes on this product."
If you do decide to charge taxes on your gift cards, then just keep in mind that the sales tax will be based off the customer's address, rather than the address of the gift card recipient. If you have automatic US sales tax calculations set up, then the appropriate sales tax will be calculated automatically.
That being said, laws and regulations about gift cards vary based on region. To determine whether you need to charge tax on a gift card, I would suggest consulting a local tax or legal expert, as they'll be able to confirm this with you.
I hope that makes sense! If you're wanting to learn more about gift cards, feel free to check out our FAQ here.
Julie | Social Care @ Shopify
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