The Washington Department of Revenue (DOR) has released a determination regarding resales of unused gift cards. The taxpayer protested an assessment of Washington Business & Occupation (B&O) tax on the selling price of the resale of gift cards. The taxpayer argued that it does not have nexus in Washington and that the state’s regulations on gift cards and gift certificates state that B&O tax and sales tax are only due upon redemption of gift cards and gift certificates.
The taxpayer purchases unused gift cards at less than face value then resells the gift cards at a higher price but less than face value. The DOR audited the taxpayer, determined that the taxpayer established substantial nexus in Washington for a number of years, and issued an assessment.
The taxpayer argued that it is not required to register for and remit B&O tax because its physical operations are out of state and that it has no involvement in the redemption of gift cards.
The DOR found that the taxpayer’s gross income from sales of gift cards to Washington customers is attributable to Washington, and that the taxpayer established substantial economic nexus for a number of years.
The DOR rejected the Taxpayer’s reliance on the DOR’s published guidance that B&O and sales tax only apply upon redemption of a gift card as well as the taxpayer’s reasoning that the guidance is directed at businesses that issue gift cards, not resellers that buy and resell cards that they didn’t issue. The DOR was not persuaded by the taxpayer’s argument regarding the issuance of gift cards and stated that because no specific tax law addresses the reselling of gift cards, the DOR correctly imposed the B&O tax on the taxpayer’s business’s activities. (Det. No. 24-0035, 45 WTD 150 (October 16, 2026), Washington Department of Revenue)