I have a couple questions about Mattress Mac's furniture give-a-way....

For those not familiar with it, here are the details:
-Spend 6k+ on furniture and if Seattle wins the super bowl, get your furniture free.
-I was told that you would only receive the price of the furniture and would not receive the delivery fee and sales tax back
-I was also told I would receive a 1099 for the amount of the furniture paid back

Ex. with $'s:

-Buy $7,000 in furniture
-Pay 8.25% sales tax + $150 delivery fee
-Total = 7,000*(1.0825)+150= $7,727.50
-Seattle Wins!!
-Claim prize at store and receive credit of $7,000
-Receive 1099 for $7,000 furniture as winnings
-Forfeit sales tax and delivery of $727.50


I completely understand not getting the delivery fee back and this was clearly stated. What I am trying to understand is the tax implications. In my simple mind I would expect to EITHER pay the sales tax and receive the furniture free(similar to a rebate) and not receive a 1099 for the $7,000 OR be credited back for the sales tax as the tax base of the purchase becomes $0 and receive the 1099 for the $7,000.

What say you tax pros?

Ummm... no. you will receive a 1099 for $7000 and have to pay the sales tax. its like that on any giveaway. The rules are pretty straightforward.

For instance, if i win a car, there will still be sales tax on the value of the car. Either I or the dealership will pay it. if i pay it, it is not included in the 1099. if they pay it, it is. but sales tax will be owed no matter what.

There is no free lunch.

The gubmint always gets their cut.

Just think of it as getting 60% off instead of free.

Completely ok with how it works out either way...MUCH less than what we would have paid.

Just curious about the double taxation. Thanks for the info

What Mack isn't telling us is that he put $20MM on Seattle to win, so he's laughing all the way to the bank.

It's taxation on two different things. I'm not sure I would call it double taxation. You were given "taxable income" and you used that "income" to buy something, and you paid sales tax on that purchase. It's pretty much like any other transaction.

Why aren't things like price matching discounts considered taxable income? For example- I buy something from Best Buy for $5k and then see it advertised at Fry's for $1k, so I go back to Best Buy and they refund the difference...some places will refund more than 100% of the difference. What's the distinction between that and the Gallery Furniture deal? Because Gallery Furniture's deal is for free stuff instead of discounted? If that's the case they should've just discounted everything to $1.

[This message has been edited by lostinla07 (edited 2/5/2014 2:46p).]

technically, when you give something away, you are supposed to give them a 1099 for YOUR cost, not what you would sell it for.

as far as the discounts go, that would be impossible to enforce. but i can bet that if the store was audited and they saw a lot of $1 sales, then there would be some serious explaining to do.

[This message has been edited by gigemhilo (edited 2/6/2014 9:49a).]