Can we talk about the sales tax?
I finally bought my first Groupon today. I’d been meaning to try it out for months, but the time had finally come when I saw a Groupon Now!Deal for a neighbourhood restaurant that I’d been vaguely curious about.
|This was a Groupon Now! Deal
I’d only just learned about Groupon Now from an article in Vanity Fair last month.
“We want to change the way that people buy and discover from local businesses in the same way that Amazon has changed the way that people buy products,” (Groupon founder) Mason explained.
Groupon Now—which launched in Chicago in May, and has already expanded to several other cities—is an app that allows customers to access real-time deals on their mobile devices based on their location and previous buying trends. They can hit one of a few buttons, like “Eat Something” or “Have Fun.” Groupon Now will recommend nearby restaurants or entertainment venues running offers at that time.
“We’re giving customers access to more relevant deals that they can use on the fly, at the moment impulse strikes them.”
For merchants, the service is designed to act as an inventory-management system, allowing them to offer deals to fill up empty seats during slow periods or use up inventory toward the end of a night. Groupon doesn’t take as large a cut of these deals, and merchants retain more control over the timing and substance of the deals. Mason calls it “the holy grail for merchants.”
Bill Jacobs, the owner of Piece Pizzeria and Brewery, a popular Chicago restaurant, had always rebuffed Groupon salespeople. “We would never do the regular Groupon,” Jacobs says. “It’s such a busy place we’d basically be shooting ourselves in the foot.” But with the launch of Groupon Now, he decided to try the service to fill seats during slow times. Now Piece can configure its own deals and respond more immediately to sluggish periods. If business slackens on a Tuesday at two P.M., Jacobs can log on to his Groupon Now account and post a deal instantaneously, offering, say, 30 percent off pizza until 5:30. Customers in the area have access to the deal within seconds through the Groupon Now app on their smartphones and can redeem the offer, which typically expires within hours. Jacobs keeps around 75 percent of the revenue.
From here, Mason says, he sees Groupon expanding into every sphere of local commerce, from analyzing customer behavior and offering customer reviews to scheduling reservations.
So, how was my Groupon Now experience?
- I had huge problems getting Groupon to accept my credit card, but after a long series of back and forths, it turned out it was my bank and not Groupon that was at fault. My bank had put a fraud alert on my card but hadn’t bothered to tell me. A lot of time could have been saved, however, if Groupon had been able to tell me this right away instead of leading me down a number of false trails. (I didn’t just give up because I really want to test Groupon out and it does appear to have some great deals.)
- The food at La Passione was fine, but I’m not sure I would return. While Yonge and St. Clair has several good Italian restaurants, they’re pricy and I was looking for something that offers more value so I thought this would be a good time to give La Passione, which is less fancy looking, a shot. My reasoning was that it couldn’t have survived in this neighbourhood for as long as it has if it weren’t decent. Surprisingly, its prices were not much lower than the other places although portions may have been slightly bigger. The pizza I had definitely wasn’t as good as my Capocaccia favourites, the Guiseppe and the Dante.
- I was charged full sales tax for $40!!! While I knew the Groupon couldn’t be used to cover tax and tip, how does it work that they charge me tax on $40 when I only spent $20?
|Click to enlarge
I was uncharacteristically speechless while paying the cheque, but when I got home, I looked up the whole taxation issue and found a very interesting article in Forbes on this very subject. It asked:
When you handed over your coupon, did the merchant collect tax from you? Did he calculate the tax based on the full face value of your purchase, or the discounted amount you paid for it? Did he force you to ante up any tax in cash, or did he allow you to apply your coupon towards the full bill, including tax?
These aren’t academic questions–the answers could affect the attractiveness of Internet-based social coupon programs to consumers, merchants, and state tax collectors. Ultimately, the question of how social coupons should be taxed is likely to end up in court, says Veranda Smith, interim executive director of the Federation of Tax Administrators, which represents state tax officials.
I then looked for information specific to Ontario and found this piece written by Kent Mewhort, who is presently the Law Foundation of Ontario Public Interest Fellow at CIPPIC. He writes:
In the U.S., as well as for most cases for Groupon deals under Canadian tax law, merchants should only collect tax on the amount actually paid (not the regular-priced “value”).
Groupon leaves the collection practices up to the individual merchants, who may or may not follow proper procedure in calculating the tax. Perhaps Groupon should take more initiative in properly educating its partners, but it is centainly not at fault per se for any miscollection of tax.
In fact, overall, Groupon’s policies appear quite commendable from a consumer perspective. Their stated return policy is wide in scope: “if your Groupon experience ever lets you down, let us know and we’ll refund your purchase. Period.”
Unfortunately, this conflicts with a recent article, written by Benjamin Edelman, an assistant professor at the Harvard Business School, and Paul Kominers, in which they argue that Groupon’s policy of leaving tax issues up to the merchants makes no sense:
We are struck by Groupon’s attempts to push all responsibility to merchants. On every relevant question — discounting alcohol, honoring expiration dates, providing cashback — Groupon’s historic contract and current Merchant Terms of Service claim merchants are responsible. In our view, this approach invites confusion and non-compliance. Voucher services are far better positioned than merchants to determine what the legal system requires: Voucher services can research regulations centrally, once for each state in which they operate, then notify affiliated merchants of applicable requirements. In contrast, Groupon’s current approach asks each individual merchant to conduct its own research. If merchants actually conducted such research, it would be duplicative and potentially wasteful — thousands of small businesses re-researching the same questions. But in fact merchants typically ignore the questions, rationally concluding that these questions are too difficult for them to address on their own. Thus, by pushing merchants do to the work individually, voucher services virtually assure that the work is not done at all.
Importantly, the legal and regulatory questions flagged in this article are questions that arise distinctively in the context of discount vouchers: a merchant would never confront such questions were it not for discount vouchers. Having created the transactions giving rise to this regulatory complexity, we think discount voucher services should be expected to achieve compliance.
I will now be contacting Groupon to tell them I am unhappy with being charged sales tax on the full amount and we’ll see how they respond.