23VAC10-210-250. Cash and trade discounts.
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:
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| Amount Billed | $105.30 |
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| Sales Price | $100.00 |
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| Tax | $5.30 |
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| Less | $10.00 discount |
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| Sales price discount | 100.00 x l0% = 10.00 |
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| 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:
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| Amount Billed | $105.30 |
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| Sales Price | $100.00 |
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| Tax | $5.30 |
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| Less | $10.00 discount |
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| $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:
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| Amount Billed | $155.30 | |
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| Sales Price of Parts | $100.00 | |
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| Separately Stated Repair | $50.00 | |
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| Sales tax | $5.30 | |
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| Less $10.00 discount attributed as follows: | ||
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| Attributable to Parts: (100 / $150) x $10.00 = $6.67 | |
|
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| $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.
Historical Notes
Derived from VR630-10-18 §§ 1-3; revised July 1, 1969; January 1, 1979; January 1, 1985; amended, eff. July 1, 1993; Virginia Register Volume 25, Issue 11, eff. March 4, 2009; Volume 32, Issue 22, eff. September 12, 2016.