"Cash or trade discount" includes a discount for the early payment of the purchase price, a discount attributable to the value of an item taken in trade, or a discount based upon the method of payment.
Example 1: Dealer A sells an item to a customer for $100 and bills the customer $100 for the item and $5.30 for the tax. The terms of the sale provide for a 10% discount if the bill is paid within 30 days. The customer pays within 20 days and is therefore entitled to the discount, which is computed as follows:
Amount Billed | $105.30 |
Sales Price | $100.00 |
Tax | $5.30 |
Less | $10.00 discount |
Sales price discount | 100.00 x 10% = 10.00 |
Tax discount | 5.3 x 10% = $0.53 |
Therefore, the customer remits $94.77, which includes $90 in sales price and $4.77 in sales tax. Dealer A may deduct $10.00 from gross sales, and will accordingly remit only $4.77 in tax.
Example 2: Dealer B sells an item to a customer for $100 and bills the customer $100 for the item and $5.30 for the tax. The terms of the sale provide for a $10 discount if the bill is paid within 30 days. The customer pays within 20 days and is therefore entitled to the discount, which is computed as follows:
Amount Billed | $105.30 |
Sales Price | $100.00 |
Tax | $5.30 |
Less | $10.00 discount |
$10.00 / $1.053 = $9.50 sales price discount | |
$0.50 tax discount |
Therefore, the customer remits $95.30, which includes $90.50 in sales price and $4.80 in sales tax. Dealer B may deduct $9.50 from gross sales, and will accordingly remit only $4.50 in tax.
Example 3: Dealer B repairs a piece of equipment for a customer and bills the customer $100 for parts, $50 for labor, and $5.30 for tax. The terms of the sale provide for a $10 discount if the bill is paid within 30 days. B pays within 20 days and earns the discount which is computed as follows:
Amount Billed | $155.30 |
Sales Price of Parts | $100.00 |
Separately Stated Repair Labor (nontaxable) | $50.00 |
Sales tax | $5.30 |
Less $10.00 discount attributed as follows: | |
Attributable to Parts: (100 / $150) x $10.00 = $6.67 $6.67 / 1.053 = $6.33 sales price discount $0.34 sales tax reduction $3.33 attributable to nontaxable labor |
Therefore, the customer remits $145.30, which includes $93.67 in sales price for the parts, $4.96 in sales tax attributable to the parts, and $46.67 for nontaxable labor. Dealer B may deduct $6.33 from gross sales and will accordingly remit only $4.96 in tax.
Regardless of whether a cash or percentage discount is used, the discount must be allocated between the sales price and the tax to avoid overcollection of the tax.
23 Va. Admin. Code § 10-210-250
Statutory Authority: § 58.1-203 of the Code of Virginia.