Groupon’s Gray Legal Status

I was under the impression that vouchers were a different legal product than prepaid cards. 

The amount of negative articles, blogs, etc. about Groupon is absolutely amazing.  I’ve never seen so much negative press pointed at one company in a short period of time.  Ofcourse, the idea that VCs have cashed the founders out of $400mm, and now are looking for a way to dump the shares on to the public, probably has something to do with it.

Undoubtedly, we’ll see the shares trade 10 times over on the day of the IPO, as firms and “friends and family” with IPO allocations will dump them right into the market within minutes of the IPO, circa 1999. 

This is no different from any other prepaid coupon or ticket. State abandoned property (escheatment) and gift card laws apply. The issue is whether Groupon has properly accounted for the potential liability.

If I remember back a couple years to my economics courses, a sales tax is generally split (not always evenly) between consumer and merchant. If tax is calculated after the voucher is applied, it would seem the merchant would become responsible for a larger portion of sales tax. An important aspect to remember is that we are dealing with several transactions here and the order in which transactions take place matters. First a merchant (M) decides it wants to offer a deal to consumers (C) through Groupon (G). As C exchanges money for vouchers with G a transaction has occurred through which sales tax should be applied. Example: $10 paid for $20 voucher. A portion of this revenue goes back to M, say $5. From here, the voucher is exchanged for goods or services, but the cash transaction has already taken place.

In the cases where total bills are greater than the face value of the Groupon vouchers (often at restaurants), I would think tax should only be applied to the excess amount since tax on the voucher has already been applied through the Groupon transaction. Of course tips should be calculated from the total value of goods and services.  An interesting secondary question–if Groupons are like gift cards, would merchants be required to cash out remaining balances? Using a $20 voucher for $18 dollars of good and $2 change. Not likely since the typical purchase must be greater than or equal to the face value of the voucher which was purchased at a discount originally. You can’t get $10 worth of goods and $10 back if you only paid $10 in the first place.

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