# Are The Terms of These Group Deals Even Legal?



## deal_king (Dec 28, 2010)

Many of these group deal terms state: "Taxes and gratuities not included". How is this even legally possible?

Let's say you pay $100 for a $200 restaurant credit. You go to the restaurant and spend $200, but get charged 15% taxes ($30). The only problem is that you only really spent $100, yet you are getting charged 15% on taxes for an additional phantom $100.

Someone correct me if I'm wrong, but you are only supposed to charge taxes on the actual amount of money changing hands. So where does that extra $15 go? To the government or to the business owner?


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## Cal (Jun 17, 2009)

I've never heard of this....can you post a link from a participating restaurant to show?


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## deal_king (Dec 28, 2010)

Cal said:


> I've never heard of this....can you post a link from a participating restaurant to show?


http://livingsocial.com/deals/16556-50-off-chez-cora

Click on "other conditions apply". It seems like many group deal sites have the same conditions- even though it doesn't make sense.

I'm curious to know whether it is legal or not.


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## Addy (Mar 12, 2010)

I'm guessing there's probably on the CRA or Provincial sites addressing this. It wouldn't surprise me if it has to be charged in full then the amount (discount) taken off, similar to a coupon. It would be interesting to know for sure though, anyone here have some insight?


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## plen (Nov 18, 2010)

Not sure about coupons but when we provide terms discounts to our customers, it can not discount the taxes.

For example, goods are $200 + $26HST = $226
Terms discount (pay before 20 days) is on the $200 @ 2% meaning $4 discount.

Final bill = $200 - $4 + $26 = $222


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## MoneyGal (Apr 24, 2009)

Here is the relevant circular from the Ontario Ministry of Revenue (the province where I live): 

http://www.rev.gov.on.ca/en/guides/rst/511.html

See especially the section on "Coupons Issued by Retailers" as follows:

For RST [retail sales tax] purposes, a retailer's discount coupon:

- offers a discount on the purchase of a specific product at the retailer's store(s), and
- does NOT specifically state that the retailer will be reimbursed by a third party, such as a manufacturer.

[snip] ...Some discount coupons appearing in a retailer's advertising material may actually be manufacturer's discount coupons. *If the coupon is a manufacturer's discount coupon, the customer is required to pay RST on the full selling price before the value of the coupon is deducted.*

(bold added by me)


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## OhGreatGuru (May 24, 2009)

deal_king said:


> Many of these group deal terms state: "Taxes and gratuities not included". How is this even legally possible?
> 
> Let's say you pay $100 for a $200 restaurant credit. You go to the restaurant and spend $200, but get charged 15% taxes ($30). The only problem is that you only really spent $100, yet you are getting charged 15% on taxes for an additional phantom $100.
> 
> Someone correct me if I'm wrong, but you are only supposed to charge taxes on the actual amount of money changing hands. So where does that extra $15 go? To the government or to the business owner?


The gratuity I can understand. It is a voluntary "extra" to the bill. It should come out of your pocket, not from the coupon, which is money pre-paid to the restaurant.
On the GST/HST, this is a "value-added tax". My guess is the restaurant has to collect GST/HST on the full value of service provided, not a discounted value. (You may ask,"Well what about sale prices at a store - I only pay GST/HST on the actual sale price." But a store is selling goods, not services. The service cost of a discounted meal is the same as for non-discounted meal. So I suspect the restaurant, by the nature of its business, has to collect full freight to pay to CRA.) 

But you are right - there does seem to be an opportunity for creative accounting here. In theory they served you meals to a cost of $200, and accepted a $200 coupon in payment. But how do they account for the fact that they ony received $100 for that $200 coupon originally?


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## deal_king (Dec 28, 2010)

MoneyGal said:


> [snip] ...Some discount coupons appearing in a retailer's advertising material may actually be manufacturer's discount coupons. *If the coupon is a manufacturer's discount coupon, the customer is required to pay RST on the full selling price before the value of the coupon is deducted.*
> 
> (bold added by me)


But these are not "coupons" that we're talking about. Coupons are usually free. We're talking about credits which are purchased: "pay $100, get a $200 credit at the restaurant".


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## deal_king (Dec 28, 2010)

OhGreatGuru said:


> On the GST/HST, this is a "value-added tax". My guess is the restaurant has to collect GST/HST on the full value of service provided, not a discounted value. (You may ask,"Well what about sale prices at a store - I only pay GST/HST on the actual sale price." But a store is selling goods, not services. The service cost of a discounted meal is the same as for non-discounted meal. So I suspect the restaurant, by the nature of its business, has to collect full freight to pay to CRA.)
> 
> But you are right - there does seem to be an opportunity for creative accounting here. In theory they served you meals to a cost of $200, and accepted a $200 coupon in payment. But how do they account for the fact that they ony received $100 for that $200 coupon originally?


There are two issues here:

1. Only $100 in real-world cash is changing hands. The retailer is selling $200 of food for $100. So how do they get away with charging tax on $200?

2. Your suggestion is that the restaurants should charge tax on amounts before discounts. This doesn't make any sense and I've never seen it happen before. If McDonald's gives a 10% discount to seniors, they charge tax on the post-discount amount.


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## MoneyGal (Apr 24, 2009)

deal_king said:


> But these are not "coupons" that we're talking about. Coupons are usually free. We're talking about credits which are purchased: "pay $100, get a $200 credit at the restaurant".


For retail sales tax purposes, these are coupons. If you read the link I provided, the full definition is provided there. I understand that this may not be what is commonly understood as a "coupon" (i.e., "usually free"), but for the purposes of calculating RST, these are, in fact, classified as manufacturer's discount coupons. 

The generic meaning of the word "coupon" is "negotiable certificate" - there's no requirement for a coupon to be free in order for it to be considered a coupon, especially for the purposes of sales tax.


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## deal_king (Dec 28, 2010)

MoneyGal said:


> For retail sales tax purposes, these are coupons. If you read the link I provided, the full definition is provided there. I understand that this may not be what is commonly understood as a "coupon" (i.e., "usually free"), but for the purposes of calculating RST, these are, in fact, classified as manufacturer's discount coupons.
> 
> The generic meaning of the word "coupon" is "negotiable certificate" - there's no requirement for a coupon to be free in order for it to be considered a coupon, especially for the purposes of sales tax.


Wow that's bizarre. Whenever I've used a McDonald's coupon, I get charged tax on the post-discount amount. How do you explain that?

To be honest, I wonder if you are categorizing it properly according to the link you gave us. This type of credit seems to fall under the category below, rather than a manufacturer's coupon:

"Free Taxable Goods with Purchase of Other Taxable Goods

A coupon that is issued by either a retailer or a manufacturer may provide for free taxable merchandise to be given with the purchase of other taxable merchandise. The customer pays RST on the total amount paid for the merchandise, which includes the free merchandise. For example, when a coupon offers two chocolate bars for the price of one, RST is payable by the customer on the price paid for one. In this case, the person bearing the expense of the free merchandise is not required to pay RST on the cost of the free merchandise."​
In this case, we are paying $100 to receive $200. Does my logic make sense or am I off-track?


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## deal_king (Dec 28, 2010)

Just found this: http://www.cra-arc.gc.ca/E/pub/gp/rc4036/rc4036-10e.pdf

Scroll to page 12:

"Other coupons 
Any coupon that does not come within the definition of 
a reimbursable or a non-reimbursable coupon is treated 
as reducing the selling price (the GST/HST is calculated 
on the selling price net of the coupon value). 
Example 
Two customers present a two-for-one coupon for their 
restaurant meals. They pay $9.95 for one meal and get the 
second meal free. You charge the GST/HST on $9.95. "​
"Other coupons 
Any coupon that does not come within the definition of 
a reimbursable or a non-reimbursable coupon is treated 
as reducing the selling price (the GST/HST is calculated 
on the selling price net of the coupon value). 
Example 
Two customers present a two-for-one coupon for their 
restaurant meals. They pay $9.95 for one meal and get the 
second meal free. You charge the GST/HST on $9.95. "​
Can you check out the original document and let me know what you think?


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## MoneyGal (Apr 24, 2009)

deal_king said:


> Wow that's bizarre. Whenever I've used a McDonald's coupon, I get charged tax on the post-discount amount. How do you explain that?


The situation you are describing is one in which the manufacturer is offering the discount directly - there is no third party intermediary. That is an example of a retailer's discount coupon. (See "coupons issued by retailers" -especially the section which reads, "The retailer who issued the discount coupon for a specific product is actually selling the item at a reduced price.")

In the case of Groupons and all other third-party coupons (i.e., the consumer pays the coupon issuer, NOT the manufacturer directly), these are defined as manufacturer's discount coupons, whether or not the coupon explicitly says that a third-party intermediary will pay the manufacturer or not. 

I realize my posts seem like assertions which are not necessarily upheld by fact, but through a circuitous route I know a fair amount about Ontario sales taxes.


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## deal_king (Dec 28, 2010)

MoneyGal said:


> The situation you are describing is one in which the manufacturer is offering the discount directly - there is no third party intermediary. That is an example of a retailer's discount coupon. (See "coupons issued by retailers" -especially the section which reads, "The retailer who issued the discount coupon for a specific product is actually selling the item at a reduced price.")
> 
> In the case of Groupons and all other third-party coupons (i.e., the consumer pays the coupon issuer, NOT the manufacturer directly), these are defined as manufacturer's discount coupons, whether or not the coupon explicitly says that a third-party intermediary will pay the manufacturer or not.
> 
> I realize my posts seem like assertions which are not necessarily upheld by fact, but through a circuitous route I know a fair amount about Ontario sales taxes.


Thanks for sharing your knowledge. So how does a Groupon credit fulfill the second criteria below? :

"Manufacturers' Discount Coupons
For RST purposes, a manufacturer's discount coupon:

1. offers a discount on the purchase of a specific product, and
2. specifically states that the retailer WILL be reimbursed by a third party, either directly by the manufacturer or through a coupon clearing house."​


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## MoneyGal (Apr 24, 2009)

From my first post in this thread:



MoneyGal said:


> Here is the relevant circular from the Ontario Ministry of Revenue (the province where I live):
> 
> http://www.rev.gov.on.ca/en/guides/rst/511.html
> 
> ...


I realize this seems circuitous. However, these types of coupons are ALL defined as manufacturer's discount coupons for the purpose of the retail sales tax, *whether or not* they specifically state that the retailer will be reimbursed by a third party (such as Groupon). 

As far as I know, Groupons and the like *can* state that tax is included - however, my understanding is that this is not the norm, and that whatever the coupon states or does not state, tax is due on the retail value (not the discounted value) of the good or service. If you read the circular to which I linked in its entirety, this should be clear.


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## LondonHomes (Dec 29, 2010)

Traditionally you do not buy coupons you cut them out of a newspaper or they are handed out for free. These Groupons act much more like gift certificates or store credits.

If your cousin gave you a $200 gift certificate to a store for Xmas and you used it to purchase a $200 cell phone you would expect to pay tax on the full $200. It should not make a difference if your cousin worked for the store and was able to get the gift certificate at 50% off.


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## deal_king (Dec 28, 2010)

LondonHomes said:


> Traditionally you do not buy coupons you cut them out of a newspaper or they are handed out for free. These Groupons act much more like gift certificates or store credits.
> 
> If your cousin gave you a $200 gift certificate to a store for Xmas and you used it to purchase a $200 cell phone you would expect to pay tax on the full $200. It should not make a difference if your cousin worked for the store and was able to get the gift certificate at 50% off.


I wouldn't say its a gift certificate either. Gift certificates aren't usually discounted. This is more of a "Buy $100 of credit, get $100 credit free" type of deal.

This is very interesting. I had always thought that tax should only be charged on actual money that changes hands.

In this case, the government ends up with double the amount of taxes it would normally be getting. Or I wonder if these restaurants end up pocketing the taxes for the phantom $100?


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## MoneyGal (Apr 24, 2009)

deal_king said:


> In this case, the government ends up with double the amount of taxes it would normally be getting.


Nope. The amount of discount is properly recorded as a discounted sale on the books of the participating business. Any other route is viewed as tax evasion.


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## deal_king (Dec 28, 2010)

MoneyGal said:


> Nope. The amount of discount is properly recorded as a discounted sale on the books of the participating business. Any other route is viewed as tax evasion.


I don't understand. So what happens to the tax that the merchant collects on the second phantom $100? Does it go to the government or go to the merchant?

Correct me if I'm wrong, but if the taxes are 15%, the govt is collecting 30% on what is essentially a $100 transaction.

p.s. Out of curiosity- is there a way for group sites to do the transaction to avoid this from happening?


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## MoneyGal (Apr 24, 2009)

It is not a $100 transaction. 

In the example you are using, the merchant is offering a discount equivalent to $100 for a total sale of $200. In this example, the customer pays $100, and the merchant enters a debit of $100 on the store's books. 

Here's a basic explanation thanks to Google: 

http://bizfinance.about.com/od/Exam...ng-entry-when-you-offer-discount-on-sales.htm


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## MoneyGal (Apr 24, 2009)

deal_king said:


> p.s. Out of curiosity- is there a way for group sites to do the transaction to avoid this from happening?


Not legally.


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## Cal (Jun 17, 2009)

Sounds like a discounted gift card of sorts....

It would be nice if the banks caught on to these...I give them $1 and they credit $2 into my account.


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## Plugging Along (Jan 3, 2011)

The transaction is still for $200, and the taxes go to the government. There was no tax charged on the initial groupon. Therefore it's not double taxing. 

It is the payment that has been 'discounted'. This is no different than Canadian Tire money, Superstore Bucks (or gas bucks), or Gift Cards. These are all being used as a form of payment in lieu of cash and gets taken off the total amount of the bill. In these cases it's a little different that a coupon or a percentage off. With a coupon or percentage off, it comes off the cost of the product, therefore there is no tax on that amount, here the discount is on the payment form.

Often at Christmas stores give additional gift certificate amounts as a bonus, ei Buy $25 GC get an extra $5 gift card. You could give the second gift card to someone else, as it is like cash, and the second person would still have to pay cash.

Hope that makes more sense.


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## PoolAndRapid (Dec 3, 2013)

..


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## PeterOceanicX (May 14, 2013)

Isn't this like spending $100 to buy a giftcard with a $200 balance. And when you buy a $200 tablet, you'll pay tax on the $200?


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