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Say I buy a $10 Groupon that lets me buy $20 worth of food at a restaurant. I go to the restaurant and order items that add up precisely to $20 (based on the menu price). If the state sales tax is 6% (specifically in Michigan if that matters), then how much in sales taxes should I pay (if any)?

Assume it's takeout and I choose to pay ZERO tip.

What should I pay? $0? $0.60? $1.20 (6% on the full $20 value)?

It's quite possible that there simply isn't any legal clarity on this issue, as I've been charged varying amounts.

In the above scenario, I am sometimes charged $0 and sometimes $1.20. My question here is what LEGALLY should be the proper thing for the restaurant to do (and not what they usually or actually do).

6

It depends on the State law, but in most sales tax is applied before any discount by the merchant, but after manufacturer's discount.

However, Groupon voucher in this case is not a discount, it is a credit, i.e.: form of payment. It doesn't affect the price. Thus the sales tax would apply to the whole amount ($20) and added to the total bill. You should be charged $21.60, of which the Groupon voucher would cover $20.

Restaurants that give you the $0.00 bill are essentially absorbing the sales tax, or making a mistake (if the the $1.60 never make it to the state) which may cost them if audited.

Keep in mind, also, that food is exempt from sales tax, and depending on the type of restaurant and the type of food served (hot vs cold, for example) - sales tax may not apply. That may also explain the different experiences. For restaurants, sales tax applies on the service (warming up, serving, seating), but if you're taking a to-go cold sandwich - that may be exempt by your state.

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  • In my state (Massachusetts) both eat-in restaurants and take out charge our sales tax, 6.25%. – JTP - Apologise to Monica Nov 16 '14 at 21:41
  • @JoeTaxpayer in California cold take-outs are not taxed. – littleadv Nov 16 '14 at 22:16
  • Got it. Sort of "supermarket food". I was looking at a restaurant bill and take out pizza. Interesting distinction. I recall, in NYC, a bagel had no tax, but a sliced bagel, nothing on it, taxed. – JTP - Apologise to Monica Nov 17 '14 at 0:31
  • @JoeTaxpayer That was a penalty for slicing your bagel, not a tax. :) – dg99 Nov 18 '14 at 18:19
  • It should essentially work the same way as if you were using a pre-paid debit card. – JAGAnalyst Nov 19 '14 at 17:23
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These deals do not account for tax, unless it's for an online purchase. e.g. a deal for a piece of tech hardware, shipped, would have to account for tax, if it applies.

In this case, the restaurant would present you with the bill for $21.60, show the $20 credit, and expect you to pay $1.60 for the tax, and add a tip, based on the $20 worth of food you ate.

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