Retailers: Don’t Overlook Sales Tax on Rebates
Are you a retailer that sells merchandise with a manufacturer’s rebate?
If so, make sure that you are charging sales tax on the amount of the rebate as well. If you are undergoing a sales tax audit, call us to discuss rebates.
Transcript
Understanding the Sales Tax Implications
What are the sales tax implications of manufacturers’ rebates? I’m Mansoor Ansari with Nexus Tax Defense.
We’re all happy when we see the sign “rebate”, obviously, because we know we’re going to get a big discount. But the tax implications work differently.
A Common Misconception
For example:
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A machine costs $100,000
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You receive a $20,000 rebate
One would think you only need to pay tax on $80,000.
Assuming a tax rate of 8%, that would seem to equal:
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$80,000 × 8% = $6,400
The Correct Tax Calculation
But that’s not true. What you really need to do is:
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$100,000 × 8% = $8,000
From this example, you can see that you’re actually off by:
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$8,000 − $6,400 = $1,600
Why It Matters During Audits
If you are undergoing an audit for a period where you had manufacturers rebates, you want to make sure that you were charging tax on the actual amount before rebate.
Otherwise, you might end up paying those taxes yourself.
Give us a call if you have any questions.