Are Gift Cards Taxable in California?

Gift cards are a popular way to give flexible spending power, but they also come with a lot of confusion around sales tax.

Here’s the short version:

Buying a gift card? No sales tax.
Using a gift card? Sales tax applies to the purchase just like any other form of payment.
Getting a “bonus” gift card as part of a deal? That’s where the rules get tricky.

Let’s break it down.

Gift Cards Are Not Taxable at the Time of Purchase

When you buy a gift card, you are not purchasing a tangible good—you’re purchasing store credit. California does not impose sales tax on the sale of store credit.

Example:
You buy a $100 Visa gift card or a $50 Target gift card. You pay no sales tax on the gift card itself. (Though you may pay an activation fee, which is not a tax.)

Sales Tax Applies When the Gift Card Is Used

Once the recipient spends the gift card, the usual sales tax rules kick in. The gift card is treated as cash—and the taxable amount is based on the items purchased, not the payment method.

Example:
You use a $50 gift card to buy clothing. If the state sales tax is 8%, and your total is $54, you’ll owe $4 in tax (and have to pay $4 out-of-pocket if the card only covers $50).

Gift Card Promotions and Tax Implications

Some stores run promotions like:

“Spend $100, get a $10 gift card”
“Buy a $50 gift card, get a $10 bonus gift card”

These bonuses do not reduce the taxable price of the original item. They are treated separately—just like store coupons or loyalty rewards.

Gift Card Tax Summary Table

Gift Card Scenario	Sales Tax Applied?
Buying a gift card	No
Using a gift card to pay	Yes—on purchased goods
Promotional gift card (e.g. “get $10 with purchase”)	Yes—full item price still taxable
Bonus gift card when buying a card	No tax on cards; bonus has no effect

FAQs

Q: Can I avoid sales tax by using a gift card?
No. The gift card is treated like cash. Tax applies to the value of taxable items, regardless of payment method.

Q: What about prepaid Visa/Mastercard cards?
Same rules. No sales tax on the purchase of the card, but you may pay a service fee or activation fee.

Q: Do I pay tax when I use a store gift card for a promotion?
Yes. If you're using a gift card to buy an item, the full sales tax still applies based on the item’s retail price.