Sales Tax Rule on Discounted Product

Offering a discount on the sale price is one of the popular ways to encourage people to buy a product from you. But, as per many tax consultants, you should not ever ignore whether the tax needs to be calculated on discounted price or price before discount. This is to avoid either paying extra tax or failing to follow the tax rules as per your jurisdiction. It would be easy to explain using an example – suppose, you have an item with a selling price of $100 and you are offering a 10% discount to your customer. So, now the question is whether you will charge tax on the actual selling price $100 or discounted price $90.

The rule may vary state to state, but for most states, it depends on whether the manufacturers or distributors are going to reimburse the discount, if they reimburse the discount then tax needs to be calculated based on original sale price i.e. before discount. And, if the discounts are being provided directly by retailers then the sales tax will be calculated on sale price after discount. The same rule is applied if your customer brings a manufacturer coupons or coupons distributed by retailers. Manufacturer coupons will be reimbursed by the manufacturer to the retailer, so the sales tax needs to be calculated on actual sale price. If the customer uses manufacturer coupons and store coupons then only the store coupon value needs to be deducted from the original sale price to calculate sale tax base price.

The rules to calculate tax also depend on how the retailer offers a discount. If retailers offer discounts like “Buy one Get one free” then tax will be calculated based on the total sale price before discount on both items. But if the retailer offers “Buy two and get 50% discount on both” then tax will be calculated based on 50% price of the total sale price before discount. The same rule applied if you advertise as “Buy two and pay for one”. So, consult with a tax expert to find the best possible way of offering a discount without violating state or local law.

In most scenarios early payment discount is not considered to calculate the sales tax i.e tax need to be calculated on full price. And also, there is no difference whether you offer a discount based by percent(%) on sales price or actual dollar amount.

Now, you understand how the discount and tax can impact your business. It is only a few steps to feed the decision in the Alnicosoft POS application and Alnicosoft will take care of the rest of it. Alnicosoft will calculate the sales tax for you.

How to set the flag in Alnicosoft –

• Login to the application as an owner, super admin or admin role.
• Open inventory management page.
  (product -> product management -> click update product image ->click update stock image)
• Check the “Disc-NoTax” check box, if sales tax needs to be applied after subtracting the discount from the sales price.