by Erica Horn and Maddie Schueler
The Kentucky Department of Revenue has completed and published the Streamlined Sales Tax Governing Board’s § 328 Best Practices Matrix, which addresses the method of taxing discounted vouchers from websites such as Groupon and LivingSocial. These “deal-of-the-day” websites feature daily coupons for goods and services from local businesses, which then are redeemable by the customer for a certain length of time. For example, a customer may pay $25 to an online company like Groupon or LivingSocial for a voucher for products and services valued at $50. The online company retains a portion of the $25 and remits the balance to the local business selling the product or service. The customer then redeems the voucher at the local business in exchange for the product or service purchased.
The Best Practices Matrix addresses how sales tax should be assessed when the customer redeems the voucher with the local business. The Matrix was effective January 1, 2014, and identifies three “best practices” with respect to discounted vouchers. First, Kentucky administers the difference between the value of the voucher allowed by the seller and the amount the customer paid for the voucher as a discount not included in the sales price, provided the seller is not reimbursed by a 3rd party, in money or otherwise, for some or all of the difference. This is the same treatment afforded in-store coupons. Second, Kentucky provides when the discount on the voucher will be reimbursed in full to the seller by a 3rd party, the seller is to use the face value of the voucher and not the price paid by the customer as the amount subject to tax. This is the same as the treatment of a manufacturer’s coupon. 3rd, and finally, Kentucky provides that costs and expenses of the seller are not deductible from the sales price and are included in the amount subject to tax. Kentucky also provides that reductions in the amount of consideration received by the seller from the 3rd party that issued, marketed, or distributed the voucher (e.g., Groupon or LivingSocial), such as advertising and marketing expenses, are costs and expenses of the seller.
Pursuant to the Matrix, Groupons and LivingSocial vouchers receive much of the same tax treatment as traditional coupons. However, the Matrix provides some clarity with respect to the taxability of these increasingly popular payment arrangements.
 See 103 Ky. Admin. Reg. 31:080.