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How does a retailer in Nevada charge tax when a gift card is…

Customer Question
How does a retailer...

How does a retailer in Nevada charge tax when a gift card is used for merchandise? The $50 gift, bought in a previous month, is given as a gift and the customer comes in to spend the gift card in Jan. Tax is 8.25% on the $50-- how should this tax be handled on a non POS system?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

No tax is charged on the $50 at time of sale. It is not legal to charge a tax but can there be a fee to help cover the tax that will be spent or do we charge the tax when merchandise is spent?

Submitted: 1 month ago.Category: Tax
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1/3/2018
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 1 month ago
Mark Taylor
Mark Taylor, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2,395
Experience: Certified Public Accountant
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Hi, my name is Mark. I will be happy to help you with your questions. When the gift card is sold there is not any sales tax. This would be a liability for the company that is selling the gift cards (deferred income). Once the customer redeems the gift card sales tax is charged on the merchandise. Let's assume that the sales tax rate is 10% and the customer purchases an item for $40. The sales tax on the transaction would be $4 and the customer would have $6 left on his or her gift card.

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Customer reply replied 1 month ago
my client claims this does not balance out her register at the end of the day. She claims that the $40 throws off her total but I see the $40 as having been sold and I put it into a liability line. How can I explain it to her in a way she understands, that the merchandise bought off the gift card is charged sales tax and that would be what she is responsible for paying? She is confusing the gift card amount with a sales for that merchandise. I cannot get a reasonable answer that she understands
Customer reply replied 1 month ago
is there documentation?
Customer reply replied 1 month ago
It is against the law to charge tax on a gift card-- should she charge a fee with each card sold to cover the sales tax? But seems she should be charging tax and reporting it
Customer reply replied 1 month ago
Why were we disconnectef?
Tax Professional: Mark Taylor, Certified Public Accountant (CPA) replied 1 month ago

You could charge a fee when selling the gift cards. A gift card is similar to using cash. If only $44 is used, instead of receiving cash back there would be a balance retained on the card.

I could see the gift card purchases throw a wrench in balancing out the register. You are correct that the gift card purchases should be used to offset the liability.

If you are charges sales tax on the purchase of a gift card you would be subject to double taxation. Once when you purchased the card and once when you use the card.

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