Did an online deal-of-the-day business owe Illinois sales tax when it sold restaurant vouchers, and what amount was taxed at redemption?

Plain-English summary

An Illinois online business proposed selling discounted promotions redeemable for food and alcohol at unrelated bars and restaurants, similar to a deal-of-the-day voucher.

IDOR separated the voucher sale from redemption. The website sold an intangible right to redeem, not tangible personal property, so its voucher sale was not subject to Retailers' Occupation Tax.

The restaurant's sale of food or drink when the voucher was redeemed was taxable. If the retailer knew the amount the customer paid for the voucher, that paid amount was the voucher portion of the tax base. If the retailer did not know the paid amount, it could use the voucher's full face value. Extra food or drink purchased beyond the voucher was added to the tax base.

For example, a $50 food voucher bought for $25 produced a $25 tax base when the restaurant knew the purchase price, but a $50 base when it did not. If the customer also bought $10 of additional food, the respective bases became $35 or $60.

Common questions

Did the deal website owe sales tax on selling the voucher? No, under the 2012 guidance.

Was redemption taxable? Yes, because the restaurant transferred food or drink.

What if the restaurant did not know the discount price? It could tax the full voucher value.

Citations and references

• 35 ILCS 120/1 and 120/2-10

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/sales-tax/2012.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/sales-tax/2012/st-12-0009.pdf

Original ruling text

ST 12-0009-GIL 02/28/2012 SALE AT RETAIL
This letter discusses deal-of-the-day transactions. 35 ILCS 120/1. (This is a GIL.)

February 28, 2012

Dear Xxxxx:
This letter is in response to your letter dated January 7, 2012, in which you request
information. The Department issues two types of letter rulings. Private Letter Rulings (“PLRs”) are
issued by the Department in response to specific taxpayer inquiries concerning the application of a
tax statute or rule to a particular fact situation. A PLR is binding on the Department, but only as to the
taxpayer who is the subject of the request for ruling and only to the extent the facts recited in the PLR
are correct and complete. Persons seeking PLRs must comply with the procedures for PLRs found in
the Department’s regulations at 2 Ill. Adm. Code 1200.110. The purpose of a General Information
Letter (“GIL”) is to direct taxpayers to Department regulations or other sources of information
regarding the topic about which they have inquired. A GIL is not a statement of Department policy
and is not binding on the Department. See 2 Ill. Adm. Code 1200.120. You may access our website
at www.tax.illinois.gov to review regulations, letter rulings and other types of information relevant to
your inquiry.
The nature of your inquiry and the information you have provided require that we respond with
a GIL. In your letter you have stated and made inquiry as follows:
My client has requested that I research possible taxes applicable for to [sic] a
prospective business venture. The business would be an e-commerce website,
conducting all of its business online. The company would be based in Illinois, and all of
its business would be done in Illinois. The business would sell discounted promotions
for alcohol (and food) at various bars and restaurants.
Customers would purchase the promotion on the website and redeem their deal from
the establishment, similar to Groupon. There would be no exchange of tangible
products between my client and the buyer. All products would be provided by the third
party.
The arrangements between my client and the establishments may vary. Some
establishments may require my client to purchase the right to sell these promotions for a
certain dollar amount, i.e. $5. Others may provide the deals free of charge to my client,
and treat it as a payment for marketing services, to bring additional customers into their
bar or restaurant.
We would like to know what taxes, if any, my client would be obligated to pay. This is
for the sale of discounted promotions to a third party for use at an unrelated
establishment. It is my understanding that there is no sales or use tax on the sale of
intangibles. My client would be selling the right to go to a bar and get drinks for a

discounted price. It is not selling a product; it is selling a right to participate, which is
clearly an intangible.
I don’t find anything equivalent on the Department of Revenue website, or in your past
letter rulings. We want to set this up properly, and not have a tax problem down the
road. Do you agree that my client is not responsible for a sales or use tax? If you don’t
agree, please provide me with a definitive answer and the basis for your position.

DEPARTMENT’S RESPONSE:
The Department is in the process preparing a bulletin to explain the treatment of Deal-of-theDay sites. The following guidance was provided at a practitioners’ meeting held by the Department in
Chicago on February 2, 2012.
Section 2-10 of the Retailers’ Occupation Tax Act imposes tax “at the rate of 6.25% of the
gross receipts from sales of tangible personal property made in the course of business.” 35 ILCS
120/2-10. Section 1 of the Retailers’ Occupation Tax Act defines “gross receipts” as “the total selling
price or the amount of such sales, as hereinbefore defined.” 35 ILCS 120/1. Section 1 also defines
“selling price or the amount of sale” as “the consideration for a sale valued in money whether
received in money or otherwise, including cash, credits, property, other as hereinafter provided, and
services . . . and shall be determined without any deduction on account of the cost of the property
sold, the cost of materials used, labor or service cost or any other expense whatsoever . . .”
In a typical Deal-of-the-Day-type transaction, a Deal-of-the-Day voucher for $50 of food is
offered to customers for $25. When the customer redeems the Deal-of-the-Day voucher, that
transaction is taxable because it involves the sale of tangible personal property (in this case, food). If
the retailer knows the amount that the customer paid for the voucher, then the amount that the
customer paid for the voucher is taxable when the voucher is redeemed. The Department realizes
that in some cases it may be difficult for a cashier to know at the time of sale/redemption of the Dealof-the-Day voucher how much the customer paid for the voucher. As a result, retailers that do not
how much the customer paid for the voucher may calculate tax on the full value of the Deal-of-theDay voucher.
The above transaction would be taxable as follows:

Example 1:

$50.00 customer orders $50 of food; presents $50 voucher
$25.00 subject to tax if retailer knows customer paid $25 for voucher
TAX BASE IS $25

Example 2:

$2.00

Total paid by customer (8% tax on $25)

$50.00
$50.00

customer orders $50 of food; presents $50 voucher
subject to tax if retailer does not know what customer paid for
voucher

TAX BASE IS $50
$4.00

Total paid by customer (8% tax on $50)

Example 3:

$60.00 customer orders $60 of food; presents $50 voucher
$25.00 subject to tax if retailer knows what customer paid for voucher
+$10.00 receipts paid by customer for the additional food
TAX BASE IS $35
$ 2.80 (8% tax on $35)
$12.80 Total paid by customer

Example 4:

$60.00 customer orders $60 of food, presents $50 voucher
$50.00 subject to tax if retailer does not know what customer paid for
voucher
+$10.00 receipts paid by customer for the additional food
TAX BASE IS $60
$ 4.80 (8% tax on $60)
$14.80 Total paid by customer

In contrast to the retailers who are selling the food or other items when the Deal-of-the-Day
voucher are redeemed, the persons who are engaged in the business of selling cards or coupons, or
vouchers, which entitle purchasers to the right to redeem those cards for tangible personal property,
are not engaged in selling tangible personal property. Rather, they are making sales of intangibles.
Such sales are not subject to the Retailers' Occupation Tax.
I hope this information is helpful. If you require additional information, please visit our website
at www.tax.illinois.gov or contact the Department’s Taxpayer Information Division at (217) 782-3336.

Very truly yours,

Richard S. Wolters
Associate Counsel
RSW:msk