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.
Thanks for reading!
All the Best-
Disclaimer: We spend hours researching and writing our articles and strive to provide accurate, up-to-date content. However, our research is meant to aid your own, and we are not acting as licensed professionals. We recommend that you consult with your own lawyer, accountant, or other licensed professional for relevant business decisions. Click here to see our full disclaimer.
Product or company names, logos, and trademarks referred to on this site belong to their respective owners.