Sales Tax and Gift Cards: Have You Been Duped?

Have you ever been charged sales tax when buying gift cards? We look at when it happens, and what to do.
gift cards

Gift cards are a versatile gift for the recipient — and a convenient and easy purchase for the giver. They can even make a smart purchase for yourself, as with iTunes gift cards, which are almost always on sale.

Part of that convenience of gift cards is that they are tax free when purchased. But some retailers are breaking state and even their own rules on the matter, or finding loopholes, as we learned from some of our readers. If you're not careful, you could end up getting taxed twice.

While these rules are not federally mandated or explicitly spelled out in every state, we outline the best evidence we could find on tax-free gift cards, and tell you how to handle retailers that ignore them.

Why Gift Cards Aren't Taxed At Purchase

According to Tim Gagnon, Assistant Academic Specialist of Accounting at the D'Amore McKim School of Business at Northeastern University, "most states sales tax does not apply to the purchase of a gift card. The transaction is viewed as exchange of cash for cash equivalent with no additional value or service rendered."

There is no centralized list of every state's gift card sales tax policies- probably because most don't explicitly have any- but the experts agree. "To my knowledge, no states charge sales tax on gift cards," says Shelly Hunter, a.k.a. "The Gift Card Girlfriend" at

Taxing gift cards also just wouldn't make sense: though the card is bought in one state, it could be redeemed in another with a completely different sales tax. Also, it could create a potential double-whammy if both the gift card itself and the purchases made with it are taxed.

One New York state lawmaker tried to change this by taxing gift cards, but making purchases made with the card tax-exempt. However, this would likely be a huge headache for retailers. It would require a POS system that recognizes out-of-state gift cards, which won't be coming any time soon.

But It Still Happens

Many of the major players, like Amazon and Target, clearly state: "No sales tax is charged when purchasing gift cards; however, purchases paid for with gift cards may be subject to tax."

Unfortunately, some retailers don't seem to have gotten the message. GameStop is a repeat offender, perhaps because it doesn't consider prepaid Xbox cards to be the same as gift cards (they are). GameStop was caught taxing cards in Illinois in 2008; and they were still going at it in 2013.

What To Do

Unfortunately, there's really only one thing you can do if you incorrectly get taxed while purchasing a gift card: "Shoppers who have been charged sales tax when buying gift cards or gift certificates should return to the store with their receipt and ask for a refund," said Connecticut Revenue Services Commissioner Kevin B. Sullivan in 2013. If it's a small retailer, it's likely just an honest mistake, and the owner will be happy to recoup the tax when the credit is redeemed at the same location.

Have retailers charged you sales tax when purchasing gift cards? Which ones, and how did you handle it? Please let is know in the comments section below.

Related DealNews Features:
Benjamin Glaser
Contributing Writer

Ben was Features Editor at DealNews from 2014 to 2017, when his shopping insights were highlighted by Good Morning America, Reuters, the Washington Post, and more. Though no longer in consumer news, Ben still loves getting a great deal (and writing about it!).
DealNews may be compensated by companies mentioned in this article. Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).


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My Daughter purchased a gift card from recycled records for her father and was charged taxes for the gift card. II called the business and informed them that she should not have been charged taxes and tried to explain why. The employee told me that it was a gift certificate and not a gift card so therefore they could tax. I asked what the difference was and she got frustrated and passed me to the owner. The owner was rude and tried to insult me for just not wanting to pay taxes. She would not listen to reason. Long story short she called me back on the phone and said she would refund our money but we were no longer welcomed in their store. When we went into the store, she insulted me by saying "you're not to bright are you". Then she told me I was a "beast of a mother". This did not go over well with my daughter! They told us to shut up or they would not refund our money. I told her we would call 911 and she dared me to. While I was on the line she promptly gave us our money back.
Walmart in Lake Zurich Illinois tried to charge me sales tax on a $25 gift card. I opted not to purchase there and go to the restaurant but even the employee and manager were confused. If you purchase on their website no sales tax.
Brandy Melville website ( is trying to charge sales tax on e-gift cards.
I bought Visa giftcards last month at Lowe's home improvement store and I just paid the amount loaded plus the purchase fee, no sales tax.

This month, I bought the same Visa giftcards and noticed the total was higher. I found out sales tax was applied on the purchase fee. Since our tax rate is 9.75%, the additional tax easily adds up. This is ONLY limited to Lowe's for now, I want to know what gov't agency I can contact to find out if this sales tax is legit and why are they the only ones that started charging tax on the purchase fees? I tried to ask Lowe's customer service but no one knows the answer regarding sales tax charged at their store.

I have been told by my friends from Texas and Colorado that they have also been charged sales tax on the fees of Visa giftcard at Lowes so this must be store-wide policy they have started in 2017.
Just purchased an Xbox Live Gold Membership from Groupon and they are charging sales tax. After spending considerable time on email with Groupon and researching this issue, it seems as if online retailers need to be schooled in what's taxable and not and gift cards are not; this is considered a gift card; not tangible item. I will be disputing the charge on the credit card.
Ghengis Grill has a promotion... buy a gift card, get another next year... but, site tries to charge sales tax. My way around: eat at a Tex-Mex place instead.
It's so much easier here in Montana with no sales tax. I look at a price and that is what I pay.