Discounts/rebates
Discounts/rebatesWhat is a discount?
A discount is an amount or percentage taken off of the actual selling price. The balance is the amount on which the retail sales tax is charged.
How should a discount be reported on the excise tax return?
When the dealer gives a true discount (not reimbursed by the manufacturer or anyone else), the amount the retail customer is actually charged is subject to the retail sales tax and the Retailing business and occupation tax. If the sale is a wholesale sale, the amount the customer is charged is subject to the Wholesaling B&O tax classification.
The amount of the sale, before the discount is subtracted, should be reported in the gross amount column of the excise tax return. When the discount is given, the amount of the discount may be deducted in the deduction column. Discounts on retail sales are deductible under both the Retailing B&O and Retail Sales classification, when the discount is subtracted before retail sales tax is added. Discounts on wholesale sales may be deducted under the Wholesaling B&O tax classification.
Early pay discount
Dealers often will reduce a bill for a customer who pays early. This is also a discount.
Example
Dealer A sells parts to a used car dealer who, in turn, uses these parts to repair vehicles for resale. Dealer A will give the used car dealer a 10% discount if the total bill is paid in full by the 10th of the following month. If the discount is taken, the full amount of the sale should be reported under Wholesaling and a deduction for the discount should be taken on the return.
Senior citizen discount
A typical discount given by new automobile dealers is to senior citizens. With proof of their age, a percentage will be removed from the cost of repair labor and parts.
Example
Dealer A gives persons over 65 years of age a 10% discount. The repair labor and parts total $100. Removing the 10% discount would lower the cost to $90. Retail sales tax and the Retailing B&O tax would be due on $90.
If the repair labor and parts are covered by a warranty or maintenance agreement, the senior discount will not apply to any part of the charge (including the deductible).
References
Washington Administrative Code (WAC) 458-20-107
Washington Administrative Code (WAC) 458-20-108
Revised Code of Washington (RCW) 82.04.160
What is a rebate?
A rebate is a refund given to the buyer by the manufacturer, the distributor or the dealer.
How is a rebate used?
The customer may use the rebate as a portion of the down payment on the vehicle or may take the rebate as cash and not apply it to the vehicle sale. Many manufacturers require that the rebate be used against the purchase price of the vehicle.
How are rebates taxed?
Rebates from the manufacturer or distributor are part of the selling price of the vehicle. The amount of the rebate may not be deducted from the selling price before retail sales tax is charged, nor may it be deducted before computing the B&O tax.
Rebates from the dealer are considered discounts and are not part of the selling price. These rebates/discounts are not subject to the Retailing B&O tax or the retail sales tax.
Example
Manufacturer A offers a $1,000 rebate for the purchase of a new pickup truck. The customer may elect to use the $1,000 as part of the down payment or take the $1,000 cash and spend it in some other manner. The agreed selling price of the pickup truck is $15,295. In either case, the amount subject to retail sales tax is $15,295. When using the rebate as part of the down payment, the customer will only finance or pay $14,295 plus interest. When taking the rebate for cash, the customer will finance or pay $15,295 plus interest.
What is the difference between discounts and rebates?
With a discount, the customer does not have the option to receive the cash and the seller is actually taking a loss. With a rebate, the amount is given to the customer to be used as a part of the sale or to take as cash. The seller does not take a loss.
Manufacturers may also give discounts to dealers. See Factory Flooring for more details.