Question About Taxes and Discounts

[CalDisneyMomof2]

Is there an actual law that states how orders must be taxed when they're discounted? I was under the assumption that if I get a discount on something it is taxed AFTER the discount.

I ask because I've ordered off DoorDash a few times and often use a promo code of some sort. I noticed after checking out today that I was taxed on the full price and THEN it was discounted the $5. Then I went back to another order and sure enough same thing.

Just curious if this is an actual law (I'm in California if that makes a difference) or it's just customary?

 

[DLgal]

Is there an actual law that states how orders must be taxed when they're discounted? I was under the assumption that if I get a discount on something it is taxed AFTER the discount.

I ask because I've ordered off DoorDash a few times and often use a promo code of some sort. I noticed after checking out today that I was taxed on the full price and THEN it was discounted the $5. Then I went back to another order and sure enough same thing.

Just curious if this is an actual law (I'm in California if that makes a difference) or it's just customary?

Yes, in California the law is that sales tax is based on the pre discounted price, always.

 

[CalDisneyMomof2]

Yes, in California the law is that sales tax is based on the pre discounted price, always.

Interesting. My Target order today (and all others) had a discount and the tax came after. Same with the Kohl's order I'm working on. Both store pick up.

I looked into it further and found this:

https://www.boe.ca.gov/formspubs/pub113/

"Nontaxable discounts and coupons
Prompt payment cash discounts
As a retailer, your total taxable sales are reduced by the amount of cash discounts you offer your customers for prompt payment by that customer. If the customer does not make prompt payment, your taxable sales are the amount billed.

Excess tax reimbursement for cash discounts
If you allow discounts for prompt payment, but charge customers sales tax computed upon the prices before the discount is deducted you are collecting excess tax reimbursement. For example:

A sale is made for $100 plus $8.25 sales tax. Upon prompt payment for the item the purchaser is allowed a discount of two percent of the sales price of $100. Since you are deducting the amount of the discount, $2, from taxable gross receipts, you are charging tax of $8.09 (8.25 percent of $98) to your customer.

When a discount of two percent is offered for prompt payment and an error is made and the discount of two percent is excluded from the computation, excess tax reimbursement of $0.16 will be collected from your customer ($8.25 - $8.09 = $0.16). The excess tax reimbursement should be returned to your customer or must be paid to the state."

 

[DLgal]

Interesting. My Target order today (and all others) had a discount and the tax came after. Same with the Kohl's order I'm working on. Both store pick up.

I looked into it further and found this:

https://www.boe.ca.gov/formspubs/pub113/

"Nontaxable discounts and coupons
Prompt payment cash discounts
As a retailer, your total taxable sales are reduced by the amount of cash discounts you offer your customers for prompt payment by that customer. If the customer does not make prompt payment, your taxable sales are the amount billed.

Excess tax reimbursement for cash discounts
If you allow discounts for prompt payment, but charge customers sales tax computed upon the prices before the discount is deducted you are collecting excess tax reimbursement. For example:

A sale is made for $100 plus $8.25 sales tax. Upon prompt payment for the item the purchaser is allowed a discount of two percent of the sales price of $100. Since you are deducting the amount of the discount, $2, from taxable gross receipts, you are charging tax of $8.09 (8.25 percent of $98) to your customer.

When a discount of two percent is offered for prompt payment and an error is made and the discount of two percent is excluded from the computation, excess tax reimbursement of $0.16 will be collected from your customer ($8.25 - $8.09 = $0.16). The excess tax reimbursement should be returned to your customer or must be paid to the state."

This refers to retailers giving customers a discount for paying with cash vs.using a credit card. Not the same thing.

It matters whether the manufacturer or the establishment is giving the discount. If it's a manufacturer rebate, you pay tax on the original price. If the retailer is offering the discount, you pay tax on the discounted price.

I was wrong about CA law before. I was thinking about rebates/manufacturer incentives.

 

[dhardawa]

Pretty sure this varies by state. Check your state tax laws.

 

[slpeters]

In Illinois it's the difference between something being considered a discount or a mode of payment. Sales tax is on purchases after discounts and before all modes of payment. I remember from my couponing days thinking it was interesting that while cents off manufacturer coupons were considered a mode of payment "free" manufacturer coupons were considered a discount