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?
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.
I’m also setting up gift cards for my online store. However, my gift cards are not physical gift cards; they’ll be emailed. So, I have two questions.
I’m trying to set up a sales tax exemption. When I tried to follow the instructions, I click on “products” and the name of the product, then I don’t see any “pricing section”. Where do I find that?
In your Shopify admin, click Products, and then click the name of the product.
In the Pricing section, uncheck Charge taxes on this product.
Click Save.
How can a customer have the gift card emailed directly to the recipient instead of themselves?
I took a look at my own gift cards here on my end and you’re right - by default, there is actually no tax option available with gift cards in particular. This means that gift cards are already exempt from sales tax. My apologies for the confusion there!
As for pricing, this is structured a bit differently for gift cards and you can view your gift card prices under the Variant section, where you’re able to set your own denominations.
In regards to delivery, there are a couple of different ways you can have the gift card emailed to the recipient. The most popular way to offer this option is to use an app like ShopKeeper Easy Gift Cards or Rise: Gift Cards & Loyalty. Both of these apps are designed to offer more robust gift card features, including the ability to have the gift card automatically emailed to the recipient.
If you are wanting to avoid an app, then I suggest customizing your gift card email template so that it includes instructions for the customer to simply forward the gift card email to the recipient. In this scenario, you’ll need to edit the Gift card created template.
Not to worry — If you are already charging tax on your products, then customers will still be charged tax when redeeming gift cards.
This is because customers will still be purchasing products from your store as per usual, with the only difference being the payment method that’s used. In this case, the payment method would be a gift card. Charging tax on the gift card and continuing to charge tax on your products would effectively be double-charging customers sales tax, since the gift card is simply a payment method.
That being said, there are some European countries that require merchants to charge VAT when single-use vouchers are purchased. For example, let’s say you run a spa and a customer purchases a voucher for a manicure. Because this voucher is for a particular service, the tax rate would be known at the time of purchase, so you would need to charge taxes.
However, Shopify gift cards are considered multiple-use vouchers. This means that Shopify gift cards can be redeemed for any service or product you sell, which could all have different tax rates. For this reason, it’s not possible to charge taxes on standard gift cards through Shopify.
My apologies for any previous confusion, but hopefully this clears things up! If you have further questions about gift card taxes, I suggest checking in with a local tax expert.
I am trying to get a little clarification on gift cards/taxes.
I added a gift card through the “Gift Card” section under products. There is no box to un-click charge taxes on this product so I assumed this was automatically a digital product and thus no taxes would be charged. But when I went to complete a fake purchase it was definitely charging taxes on the gift card. I am new to shopify, trying to get my shop setup and ready to go and I am just a little perpelexed on how to properly setup gift cards.
We have a help doc that outlines how to add gift cards as products; as long as you’re following those steps, it should be set up correctly.
It’s quite odd that you’re being charged sales tax on the gift card. Out of curiosity, when testing this out in your online checkout and entering your shipping address, which country are you entering? If you’re in the United States, which state are you entering?
I’d also love to test this out here on my end. Do you mind sharing the link to a gift card product on your online store?
We also have confusion about gift cards and taxes/processing fees.
Our gift cards are not for physical products, those are for services. So when someone purchases a gift card equal in price to a type of service, they pay the price of that service. But when we receive a payout Shopify deducts a percentage which lowers a price of a service a lot.
At the same time, if a person would purchase the same gift certificate at the venue (which we are actually mailing to people even if bought online) paying with a credit/debit card, they would pay even more including processing fee which leaves us with an original profit from the service.
We thought of including Shopify commission in the price if purchased online. But if people would pay a price higher than it is in a price list they would leave a staff member without a tip for the service.
Those are concerns that we would like to solve, otherwise, there is no point for us selling gift certificates via Shopify. Which is sad before the holidays.