(Likely) Tax Savings with Honey

April 06, 2021

Top View of Bees Putting Honey (Photo by Pixabay | pixabay.com)

Back in January 2020, Paypal acquired the company called Honey for a staggering pot of $4B in cash. Honey, which essentially started as a Chrome web browser plug-in, searches every coupon code available online and automatically tries out each code upon online shopping checkout in an e-commerce website. This plug-in makes it possible for its users to save on deals they wouldn't have otherwise known if they didn't Google-search it themselves.

After the acquisition, another revenue model seems to have bubbled up in the form of gift cards. Now, if you have read my previous post on Target's gift cards, you will already get where I'm going with this. But for the uninitiated, let me take you through my Sephora experience to explain how to get even more savings.

How to Get Extra Savings with Honey

As web browser plug-ins go, Honey pops up on the upper righthand corner of the browser to:

1) Tell you that it found coupon codes and if you want to try applying those coupon codes

2) And show that on top of the coupon code, there is an extra way to get savings on your online purchase via a gift card

Selecting Continue takes you to a Honey overlay window where you can decide how to pay for the gift card. It can be thru Paypal (of course) or credit card. Note that in this purchase, the face value of the gift card will not be the same price you will pay at the Honey checkout, but a lower value as indicated by the Extra Honey savings estimate.

After that simple purchase, it will take you back to the checkout screen and auto-fill in the gift card details in the appropriate fields. If the auto-fill is not enabled for the e-commerce website, the gift card details can be copied and pasted into the check-out page.

It's pretty straight-forward. Upon reviewing and placing the order, the Order Total will breakdown the merchandise subtotal, the other in-store discounts, tax, shipping fee, and the gift card value. 

See below how the Checkout page will look like.

The gift card details will either be auto-filled in or can easily be copied from the Chrome plug-in

Sephora (or other online shopping websites) will receive the full payment value of the gift card, while you, the consumer will be paying for the face value amount of the gift card at a discount. 

The gift card is applied upon checkout. The gift card redeemed is lower than the initial estimate because I used my Sephora points to get an additional $10

Estimated 6.5% Extra Savings

I realise that by showing these screenshots, it looks like I paid for $39.19 so let me try to break it down: In this cart, I paid for two full-priced items that costs $46, but because I have my $10 discount I'm only paying a new total of $36. In NYC, the sales tax rate is 8.875% and that will be an additional $3.19. The grand total for this is $39.19

But what I actually only paid is $36.63. In this transaction, there is a $2.56 in extra savings from using Honey. It may seem small, but this is still a 6.5% discount off the total price while using a web plug-in that's non-invasive, easy to use, and doesn't require an installation of another app. It makes me also think of the hundreds, if not thousands, I have spent on online shopping during the Covid-19 lockdowns and how much I could have cumulatively banked had I been using Honey before.

And to connect with the point that I was alluding to earlier by comparing this to Target's Gift Card Center. Based from my job working in the Tax Technology industry, I'm inferring that these "savings" are actually tax savings from buying thru a gift cards, which in the US is not liable to taxes. Even though the total discount (6.5%) is not equal to what I'm supposed to pay for in New York City (8.875%), I can see how it's likely that Honey is using the same tax savings model and taking a percentage as service fee. 

For indemnity purposes, I would like to say this merely a deduction of Honey's additional revenue segment and not something I am sure is factual. Regardless of how they are doing this model, I'm a fan of their service so I wanted to share it for everyone to also take advantage of. If you don't have a Honey account, it's very easy to sign up here.

Numbers At A Glance  

Subtotal Orders in Cart: $46
Store Discount: $10
Subtotal after Discount: $36
Sales Tax on $36: $3.19
Grand Total: 39.19
Price of Honey Gift Card: $36.63

Disclaimer: This post is not sponsored but the links to the Honey website contain a referral code that gives the author a reward for every sign up. Jennever Pelaez is not a tax consultant and this post should not be taken as tax advice. This post is not, in any way, affiliated nor endorsed by her employer Thomson Reuters. 

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