Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains "selling price" and what is
included in the selling price when discounts, coupons, rebates, or foreign
currency are used. This rule also provides tax guidance for credit card service
fees, patronage dividends, and payments for "make ready" services.
(a)
Other rules that may apply.
Readers may also want to refer to other rules for additional information,
including those in the following list:
(i) WAC
458-20-107, Requirement to
separately state sales tax-Advertised prices including sales tax.
(ii) WAC
458-20-211, Leases or rentals of
tangible personal property, bailments.
(iii) WAC
458-20-247, Trade-ins, selling
price, sellers' tax measures.
(iv)
WAC 458-20-278, Returned goods,
defective goods-Motor vehicle lemon law.
(b)
Examples: Examples found in
this rule identify a number of facts and then state a conclusion. These
examples should be used only as a general guide. The tax results of other
situations must be determined after a review of all facts and
circumstances.
(2)
What is included in the "selling price"?RCW
82.08.010 states that "selling price"
includes "sales price." "Sales price" means the total amount of consideration,
except separately stated trade-in property of like kind, including cash,
credit, property, and services, for which tangible personal property, extended
warranties, digital goods, digital codes, digital automated services, or other
services or anything else defined as a "retail sale" under
RCW
82.04.050 are sold, leased, or rented, valued
in money, whether received in money or otherwise. No deduction from the total
amount of consideration is allowed for the following:
(a)The seller's cost of the property
sold;
(b) The cost of materials
used, labor or service cost, interest, losses, costs of transportation to the
seller, taxes imposed on the seller, and any other expense of the
seller;
(c) Charges by the seller
for any services necessary to complete the sale other than delivery and
installation charges;
(d)Delivery
charges; and
(e)Installation
charges.
(3)When
is third-party consideration included in the "selling price"? The
"selling price" or "sales price" includes consideration received by the seller
from a third party if:
(a) The seller
actually receives consideration from a party other than the buyer, and the
consideration is directly related to a price reduction or discount on the
sale;
(b)The seller has an
obligation to pass the price reduction or discount through to the
buyer;
(c) The amount of the
consideration attributable to the sale is fixed and determinable by the seller
at the time of sale of an item to the buyer; and
(d)One of the following criteria is met:
(i) The buyer presents a coupon, certificate,
or other documentation to the seller to claim a price reduction or discount
where the coupon, certificate, or documentation is authorized, distributed, or
granted by a third party with the understanding that the third party must
reimburse any seller to whom the coupon, certificate, or documentation is
presented;
(ii) The price reduction
or discount is identified as a third-party price reduction or discount on the
invoice received by the buyer or on a coupon, certificate, or other
documentation presented by the buyer; or
(iii) The buyer identifies himself or herself
to the seller as a member of a group or organization entitled to a price
reduction or discount; however, a "preferred customer" card that is available
to any patron does not constitute membership in such a group.
RCW
82.08.010.
(e)Example 1. The Sporting Goods
Store offers a 10% discount to all members of the local credit union. Dave, the
customer and credit union member, must present an identification card or other
evidence of membership in the credit union to claim the 10% discount on his
$100 purchase. As the credit union reimburses The Sporting Goods Store for the
discount of $10, the store must compute sales tax on the full price of $100.
The discount of $10 is deducted from the total price after sales tax has been
added to the purchase price. The store must compute retailing business and
occupation (B&O) tax on $100.
(4)What is not included in the "selling
price"? The "selling price" or "sales price" does not include:
(a)Discounts, including cash, term, or
coupons that are not reimbursed by a third party that a seller allows a buyer
to take on a sale;
(b)Interest,
financing, and carrying charges from credit extended on the sale of tangible
personal property, extended warranties, digital goods, digital codes, digital
automated services, or other services or anything else defined as a retail sale
in RCW
82.04.050, if the amount is separately stated
on the invoice, bill of sale, or similar document given to the buyer;
and
(c)Any taxes legally imposed
directly on the buyer that are separately stated on the invoice, bill of sale,
or similar document given to the buyer.
RCW
82.08.010.
(d)Example 2. The Good Health
Club offers a 10% discount to all members of the local credit union. Jill, the
club member and credit union member, must present an identification card or
other evidence of membership in the credit union to claim the 10% discount on
her monthly membership fee of $50. If the credit union does not reimburse the
health club for the $5 discount, the health club absorbs the $5 and it is not
part of the taxable selling price. Thus, the club must collect sales tax on a
selling price of $45 and compute retailing B&O tax on gross proceeds of
sale of $45.
(5)
Credit card service fees. When a seller allows a buyer to charge
purchases on a credit card, the institution that issued the credit card charges
a service fee to the seller. The service fee charge is a part of the seller's
cost of doing business. Because the service fee is a cost of doing business,
the seller may not deduct the fee when determining its B&O tax and retail
sales tax liabilities.
RCW
82.04.070 and
82.08.010.
(6)Foreign currency accepted by
seller. When determining the measure of tax liability, the selling price
or gross proceeds of sale must be measured in terms of the currency of the
United States. If payment is accepted in foreign currency, the payment must be
converted into United States currency. The effect of this conversion, whether
resulting in an increase or decrease in the selling price or gross proceeds of
sale, must be recognized when tax is computed.
Example 3. ABC Company (ABC) sells a sweater for
$100, plus $8 in retail sales tax, for a total of $108. ABC accepts payment in
the form of $108 Canadian. The exchange rate for Canadian dollars at ABC's bank
is 0.95 Canadian to 1 U.S. dollars at the time of the sales transaction. In
terms of U.S. currency, ABC has actually accepted a payment of $102.60 (108
Canadian x 0.95). The selling price or gross proceeds of sale for determining
the measure of tax liability is $95 ($102.60 less $7.60 retail sales
tax).
(7)Bona fide
discounts. When a sale is made subject to cash or trade discount, the
gross proceeds actually derived from the selling price are determined by the
transaction as finally completed. A sale is made subject to a discount when the
sales price is reduced under terms known to the buyer and seller at the time of
the sale, and the price reduction occurs at the time of the sale or within a
time agreed and understood by the parties at the time of the sale.
The selling price or sales price of a service or article of
tangible personal property does not include bona fide discounts actually taken
by the buyer. The amount of bona fide discounts may be deducted only if the
amount has been included in the gross amount reported.
Discounts are not deductible when the retail sales tax is based
on the selling price or sales price before the discount is taken and no portion
of the tax is refunded to the buyer.
(a)
Discount vouchers. A
discount voucher is an instrument redeemed by a customer from a seller at the
time of purchase that:
* Is obtained by the customer from a discount voucher provider
that has an agreement with the seller, and the seller determined the price of
the voucher sold;
* Allows the customer to acquire the voucher for less than its
face value;
* Is redeemable either for a specific good or service (product)
or for a certain dollar amount towards the sales price of any product sold by
the seller; and
* The seller, at the time of redemption, knows the amount paid
by the customer for the voucher.
For additional information that may apply see subsection (3) of
this rule.
(i)
Taxes apply on the
redemption of a discount voucher.
(A)The purchase of a discount voucher prior
to redemption is not taxable.
(B)The seller of a product or products
purchased using a discount voucher must include the amount the customer paid
for the discount voucher in the gross proceeds of sales or gross income of the
business, as the case may be.
(C)If
a discount voucher is redeemed by a customer for a product subject to retail
sales tax, then the amount paid by the customer is included in the taxable
sales price of the product.
(D) The
seller may not deduct advertising or similar expenses (fees) paid to the
discount voucher provider, even if the discount voucher provider "nets out"
those expenses (fees) before remitting the payment to the seller.
(ii)
Determining the amount
paid by the customer for the discount voucher. Sellers must be able to
substantiate, through documentation, the amount the customer paid for the
redeemed discount voucher and any discount applied to the sale.
(A)If a discount voucher indicates the amount
the customer paid, the seller must include that amount in the sales price of
the product purchased.
(B)If the
seller, through its agreement with the discount voucher provider, knows the
amount the customer paid for the discount voucher, that amount is to be
included in the sales price of the product purchased.
(C) If the seller does not know at the time
of sale the amount the customer paid to obtain a payment instrument and thus
does not know whether the instrument is a discount voucher, the seller must
treat the consideration paid by the customer as equal to the face value of the
instrument.
(b)
Cash discounts. A cash
discount is an incentive for the buyer to pay the seller's invoice price of
goods or charges for services on or before a specified date.
RCW
82.04.160. Cash discounts may be deducted
when determining the measure for the B&O tax.
Example 4. Mann's Lumber Shop (Mann's) sells
construction material to Ken, who builds sheds for resale. Mann's bills Ken for
$2,000.00, and offers Ken a 10% discount if he pays the invoiced amount within
ten days. Ken pays the invoice upon receipt and takes a 10% discount. Mann's
may reduce its gross sales figure by $200 when determining its wholesaling
B&O tax.
(i)
Extracting or
manufacturing. Discount deductions are allowed under the extracting or
manufacturing classifications only when the value of the products is determined
from the gross proceeds of sales. No discount is available if tax is computed
by other means authorized by
RCW
82.04.450 (e.g., gross proceeds determined by
sales in this state of similar products of like quality and character, and in
similar quantities by other taxpayers).
(ii)
Retail sales tax. Cash
discounts are not deductible for retail sales tax purposes when the seller
collects the tax on the selling price before the discount is taken and no
portion of the tax is refunded to the buyer.
Example 5. Mann's sells Richard all materials
needed for a shed that Richard wants to build for extra storage. Mann's bills
Richard for $500 plus retail sales tax at 9.5% ($500 + $47.50). Mann's offers a
10% discount if Richard pays the invoiced amount within ten days. Richard
neglects to take advantage of the offered discount even though he pays the full
invoice within ten days. Mann's gives Richard a credit for $50. Mann's may
deduct the $50 discount when reporting retailing B&O tax, but cannot when
reporting retail sales tax as no sales tax was refunded.
Example 6. Mann's sells George all the materials
needed for a shed that George plans to build for storage. Mann's bills George
for $500 plus retail sales tax at 9.5% ($500 + $47.50 = $547.50). Mann's offers
a 10% discount if George pays the invoiced amount within ten days. George takes
advantage of the cash discount and pays $492.75. Mann's must report a sale of
$450 and sales tax of $42.75 on its excise tax return.
(c)
Retail stores'
coupons. Retail stores' coupons are issued by retail stores and
redeemable only at that store or at affiliated stores of the chain. The coupons
offer a reduced price for a specific item upon presentation at the store. The
price reduction is a discount, and the retail store must report the amount
actually paid by the buyer when reporting retail sales and B&O
taxes.
(8)
What is
not a bona fide discount? Bona fide discounts do not include discounts
on the selling price to the buyer, when the buyer is required to perform a
service to receive a discount. Examples of services that may be required
include advertising, shelf placement of product, special in-store displays, and
hiring product demonstrators to promote sales.
(a)Slotting fees. Grocers
sometimes receive discounts, allowances, slotting fees, or free product from
manufacturers if the grocers provide shelf space for new products or
advantageous shelf space for display of the manufacturers' products. Grocers'
product placement or slotting activities in exchange for consideration from
manufacturers constitute business transactions.
RCW
82.04.140. Receipts received by grocers for
product placement or slotting activities are taxable income to the grocers
under the service and other activities B&O tax classification.
(b)
Manufacturers' or distributors'
coupons. Manufacturers' or distributors' coupons offer a reduction in
price of a specified amount on the customer's purchase of specified items. The
manufacturer or distributor will redeem these coupons when they are turned in
by the seller. Redemption is usually at full face value plus a small handling
charge. In this case, the seller actually receives the full retail price for
the item sold. Tax is due on the full retail price.
(c)
Manufacturers' rebates.
Manufacturers sometimes make rebates available to buyers. Normally the buyer
pays the seller the full purchase price for an item, and then sends requested
documentation with a rebate claim form to the manufacturer. The rebate is sent
directly to the buyer.
(i)
Seller's
measure of tax. A cash payment by the manufacturer to the buyer has no
effect on the selling price of the sales transaction that occurred between the
seller and buyer. The measure of the tax remains the total consideration paid
or delivered to the seller by the buyer.
(ii)
Automobile manufacturers' sales
promotions. Automobile manufacturers routinely run sales promotions
offering a rebate or cash payment directly to the buyer. As an alternative to
direct payment, these programs may allow the buyer to assign his or her right
to the rebate to the selling dealer. The assignment from the buyer to the
seller of the right to a manufacturer's rebate is a part of the consideration
paid or delivered by the buyer to the seller. In such cases, the measure of the
B&O tax and retail sales tax must include the value of the manufacturer's
rebate.
(d)
Manufacturers' incentives to retailers. Except as provided in
subsection (7)(b) of this rule regarding cash discounts, a payment or credit
from a manufacturer or distributor to a retailer that is conditioned on the
retailer making sales of services or tangible personal property to consumers,
or engaging in any activity other than making the original wholesale purchase
from the manufacturer or distributor, is not a bona fide discount.
(9)
Patronage
dividends. A patronage dividend is the distribution of a member's share
of the profits of a cooperative association based on the quantity of purchases
made by the member. The amount of a patronage dividend (rebate or refund) is
determined by:
* The expenses of doing business;
* The volume of sales to other members; and
* The proportion of business the specific member has conducted
with the cooperative.
A patronage dividend determined in this manner is simply a
redistribution of the cooperative's "profit," even though the cooperative may
refer to accounting mechanisms such as "tentative" or "delayed" invoices, or to
"deferred discounts."
A member receiving dividends may deduct the amount received
from gross income if it reports the income and qualifies for the investment
income deduction under
RCW
82.04.4281.
(a)
Exception. Patronage
dividends that are granted in the form of discounts in the selling price of
specific articles (for example, a rebate of five cents per gallon on purchases
of gasoline) are deductible from the gross income received by the taxpayer
granting the dividends.
(b)Example 7. AB Cooperative, a
nonprofit association, sells equipment to members and nonmembers. All equipment
is sold at the normal and competitive prices. At year-end the volume of
business done with members is determined, and proportionate shares of net
profit are refunded. These dividends are not discounts on the selling price of
specific articles and are not deductible from the cooperative's gross proceeds
of sales when determining taxability.
(c)
Example 8. MAX, a cooperative
selling association comprised of several franchise dealers, sets up refunds as
patronage dividends to comply with the Robinson-Patman Act. This act allows MAX
to return to its dealers net earnings resulting from trading operations in
proportion to purchases from or through the association.
Each purchase is invoiced to the dealer at the suggested
wholesale price with net price to MAX also indicated. Every month dealers pay a
regular flat fee plus a fixed percentage assessed on volume of purchases for
payment of operational expenses. Refunds of the difference between the
suggested wholesale price and the net cost are made to dealers
quarterly.
The patronage dividends are distributions of the cooperative
corporation's profits and are not deductible discounts because the discounts
were not provided as a part of the sale of a particular
article.
(10)
Payments to dealers for "make-ready" services. Equipment dealers
may be required by the manufacturer to perform or be responsible for
"make-ready" services. These services generally include the inspection,
conditioning, and necessary repair of the equipment prior to the sale by the
dealer. Payments for "make-ready" services are not bona fide cash discounts
taken by the dealer, nor do they represent any adjustment to the dealer's
purchase price of the sold equipment.
Payment for these services is a cost of doing business for the
manufacturer. As a cost of doing business, the payment may not be deducted from
the gross proceeds of sales when the manufacturer determines its B&O tax
liability. Payments or credits received by the dealer for services performed
are subject to the wholesaling B&O tax classification.
Statutory Authority:
RCW
82.32.300. 88-01-050 (Order 87-9), §
458-20-108, filed 12/15/87; 83-07-034 (Order ET 83-17), § 458-20-108,
filed 3/15/83; Order ET 70-3, § 458-20-108 (Rule 108), filed 5/29/70,
effective 7/1/70.