Virginia Administrative Code › Title 23 - TAXATION › Agency 10 - DEPARTMENT OF TAXATION › Chapter 210 - RETAIL SALES AND USE TAX › Section 23VAC10-210-250 - Cash and trade discounts

Current through Register Vol. 40, No. 24, July 15, 2024
A.
				The following words and terms when used in this section shall have the
				following meanings unless the content clearly indicates otherwise:
"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.
B. Cash or trade discounts taken
				on sales are not includible in the sales price for purposes of computing the
				tax. The amount of such discounts may be deducted from gross sales provided the
				discounts have been included in gross sales.
C. In computing the amount of a discount that
				may be subtracted from gross sales, the discount must be allocated between
				sales price and sales tax. The following examples illustrate the application of
				this concept.
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.
D. Hampton Roads Region and Northern Virginia
				Region. The total rate of the state and local sales and use tax in localities
				that fall within these regions is 6.0% (4.3% state, 0.7% regional, and 1.0%
				local). The provisions of this section apply to transactions sourced to the
				Hampton Roads Region and the Northern Virginia Region, mutatis mutandis. For
				definitions of the "Hampton Roads Region" and the "Northern Virginia Region"
				see 23VAC10-210-2070.
Statutory Authority: § 58.1-203 of the Code of
					 Virginia.