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When Using Group Coupons, Taxes May Damper Deals

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(credit: CBS) Liz Collin
At 15 years old, Liz Collin made her broadcast debut covering...
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MINNEAPOLIS (WCCO) - Group coupon sites can deliver steep discounts. Millions of users visit web sites like Groupon or Living Social to cash in on daily deals. But when you go to redeem that coupon, you might want to look twice at what you’re paying in taxes.

As any downtown diner knows, a night out to a nice restaurant can add up fast. But a fancy meal to mark an anniversary with friends months ago still isn’t sitting well with Lynda Kilian.

“It doesn’t add up at all to me,” Kilian said.

Like a lot of coupon-hungry customers, Lynda is a frequent visitor of Groupon. This time, the group settled on a five-course tasting menu at a downtown Minneapolis restaurant that usually goes for $280.

They got it for half off on Groupon, paying $140. But Lynda’s sharp eye for reviewing receipts caught a problem.

The restaurant based their taxes on the full-price of their food – pre-Groupon. So, by the time they factored in the higher taxes downtown and the full amount, their tax tab came to $38.50.

“I came up with what we should have paid was $23.42 in taxes,” she said.

That’s a $15 difference.

It is a complaint the Minnesota Department of Revenue is hearing more often as the popularity of these sites soars.

Businesses charge tax on the full amount rather than the discounted price, and if the customer doesn’t catch it – without an audit of the business – the state won’t either.

Tax specialist Kristen Shogren says that’s the troubling part.

“There’s really no way we would know,” she said.

Shogren doesn’t believe it’s a mistake businesses make on purpose. She says customers need to pay attention to that tax line on your receipt. The taxes might not seem like much if it’s a smaller amount. But it should jump out at you on those high-dollar purchases.

It did for Lynda, who eventually got her $15 back. But what seemed to bother her most was the fact that the restaurant didn’t seem to know where the law stands.

“Within a matter of 24 hours we got totally different information,” she said.

The state says it’s trying to do a better job letting businesses know. In the meantime, Lynda will do the math to make sure she gets the deal.

Not all Groupon deals are created equal. If a retailer is reimbursed by the manufacturer for the deal, customers must pay taxes on the full price. But that’s not usually how group coupons work.

The Department of Revenue plans to update its website to make Minnesota’s law more obvious for customers and businesses in hopes of clearing up any confusion.

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