Resulting tax base if I take the 2% discount
I have a vendor offering 2%/10-Net 30. They are allowing a deduct off the sub-total of 2%, but they are taxing 100% of the sub-total (pre-discount). The tax rate is 5.75%. For example, I have an invoice with a sub-total of $1000, tax of $57.50 and a Grand Total of $1,057.50. However, they’re offering a deduct of $20 and saying my total amount due, if paid by the 10th day, is $1,037.50. Is this correct or should the net tax base be $980 resulting in a tax due of $56.35…rather than $57.50?
I believe your vendor is correct. Sales tax is generally paid on the GROSS Sales amount. In your example, that would be $1000 times 5.75% or $57.50. If they charged you on the Net Sales amount ($980 times 5.75%) then they would be on the hook to pay the sales tax difference of $1.15 ($57.50 – 56.35). While this might not sound like a lot of money, if you multiply it times the # of customers that they have it can add up. I don’t know any business that would be willing to “eat” the sales tax on top of giving the customer a discount.
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