United States

Minnesota: Court of Appeals Holds that Receipt with Car Wash Code is not a Gift Certificate

Apr 27, 2015
From KPMG TaxWatch

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The Minnesota Court of Appeals recently reviewed a district court decision addressing whether a receipt containing a car wash code purchased from the defendant gas station qualified as a gift certificate.  Under Minnesota law, it is unlawful for a person to sell a gift certificate that is subject to an expiration date. The car wash code expired after a 30-day period. However, when presented with an unused code, the gas station typically provided the customer with a new code or refunded the amount paid for the car wash. The plaintiff filed a class-action suit alleging that the gas station was violating Minnesota law regarding gift certificates by selling car wash codes that expired.

Under Minnesota law, a “gift certificate” is defined as “a tangible record evidencing a promise, made for consideration, by the seller or issuer of the record that goods or services will be provided to the owner of the record to the value shown in the record…and for which the value is decreased upon each use.”  The dispute arose over the interpretation of the phrase “value shown in the record.” The district court, observing that the car wash receipt met many of the statutory elements of a gift certificate, ultimately concluded that the receipt was not a gift certificate because it had no cash value. The plaintiff argued on appeal that the term “value” was not limited to cash “value,” but could include non-monetary value, as well. The appellate court, largely relying on the fact that the car wash code could not be redeemed for any other product or service, ultimately ruled in favor of the gas station. The court found it significant that the gas station collected sales tax on sales of car wash codes, but did not collect sales tax on sales of gift certificates because it could not determine at the time of purchase whether the holder of the gift certificate would ultimately purchase a taxable good or service. For additional questions on Wells v. Holiday Companies, Inc., please contact Brad Randall at 612-305-5283.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.