United States

New York: No Sales Tax Credit Allowed for Delayed Volume Discount

Mar 14, 2016
From KPMG TaxWatch

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Recently, an Administrative Law Judge (ALJ) held that a taxpayer could not reduce its New York sales tax liability to account for discounts provided to customers after sales had occurred. The taxpayer, a manufacturer of asphalt and asphalt-related products, sold its products directly to contractors. Customers loaded their trucks with product at the taxpayer’s business location on an as-needed basis. The taxpayer offered volume discounts to customers that made large purchases. Because large orders could take one or more years to fill, the taxpayer would invoice customers monthly, reflecting the pre-discounted amount and charging sales tax in full. Upon reaching the volume of purchases needed for a discount, the taxpayer issued the customer a credit notice, which accounted for the discount. The taxpayer then debited its sales tax payable account.

On audit, the Division of Taxation determined that the taxpayer had underreported $289,859.82 in sales tax based on volume discounts provided after the original sale transactions. In the Division’s view, New York’s law and regulations clearly provided that volume discounts had to be offered at the time of the sale. Although the taxpayer argued that the Division’s interpretation was unduly burdensome, the ALJ determined that the taxpayer’s position was untenable, as it would leave the incidence of the tax in a suspended state - potentially for years. Although the taxpayer’s retroactive discounts may have been good business strategy, they were not a sound tax practice in light of the law and regulations providing that the volume discounts had to be applied at the time of the sale. For more information on Prima Asphalt Concrete, Inc., please contact Judy Cheng at 212-872-3530.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.