City Electric Supply and 2% Discount

[Dennis Alwon]

All the suppliers around here offer a 2% discount if you pay your bill by the 10th of the month. No problem I always take advantage of that because it adds up to quite a bit at the end of the year.

All but one supplier deducts the tax and then multiplies by 2% to give us the deduction.

I am curious if others have this and whether or not the deductions are done in the following manner.

CES City Electric Supply) however does it incorrectly, IMO and I told them but they don't care. They said to just pay 98% of the bill.

So $1000 bill (for simplicity) x .98= $980 may bill from CES

However,

If we take the tax out we have 1000/1.08 = 925.93 Total without tax

1000-925.93 = 74.07 Tax amount

Now take the 2% reduction925.93 * .02= 907.41

Add 907.41+ 74.07 = 981.48

For every $1000 I should be paying $1.48 more -- This has got to add up to a lot of money if all the locations are doing the deduction as I described.

If you use City Electric Supply is that what they do where you live.

 

[69gp]

Never looked to see if the 2% included the tax. But on top of the 2% discount I would pay the bill by the 10th with a personnel credit card that pays me an additional 2% cash back. I would then wait till I get my credit card bill and pay that through the company. Depending on the cycle you could be going 60 to 90 days interest free to pay for your material. I run some pretty good monthly bills with supply houses so it pays me to do it that way.

 

[Dennis Alwon]

Never looked to see if the 2% included the tax. But on top of the 2% discount I would pay the bill by the 10th with a personnel credit card that pays me an additional 2% cash back. I would then wait till I get my credit card bill and pay that through the company. Depending on the cycle you could be going 60 to 90 days interest free to pay for your material. I run some pretty good monthly bills with supply houses so it pays me to do it that way.

I didn't know you got 2 percent with a credit card. Our other suppliers won't give 2% if you use a charge card

 

[ptonsparky]

Two of our local suppliers are owned by the same parent company. They used to offer 2% discounts if paid by the 10th, until they started to allow CC payments. Discount dropped to 1% with no discount for CC use, IIRC. I fell out of the habit of using the CC but should think rethink it because the ones I do have either give cash back at the end of the year or I get _____ points, which are even better.

 

[kwired]

I didn't know you got 2 percent with a credit card. Our other suppliers won't give 2% if you use a charge card

I believe the additional 2% he was talking about was an incentive from the credit card company not the payee.

When it comes to adjusting the amount due - what does the tax authority having jurisdiction have for rules on taxable amounts?

To the best of my knowledge the way it generally works in most places is you have an invoice, bill of sale, etc. that can have a combination of taxable and non taxable items on it. You pay sales tax based on the net of taxable items listed on the document. If you are offering a 10% off sale - like would be fairly typical at a retail store where you generally pay before you leave with the items, then they deduct the 10% from the subtotal before calculating tax - you are only taxed on the final sale price of the taxable items.

If you are purchasing on credit from the seller - which is what you have with the typical business that receives items, gets an invoice for those items, then pays all invoices that have accumulated (usually over a one month period), each invoice is an itemization of an individual sale, taxes are calculated based on what items are listed on the invoice. Any discount offered should be offered against the invoice total and is a separate transaction from the invoice itself. They are usually supposed to collect tax based on taxable items listed on sales transactions, but what they are doing is resulting in lowering the taxable amount by 2% then charging you more tax when all is said and done then they should have. Now it may not be illegal - and may depend on the actual laws where this is happening, but it doesn't seem quite right to me. They could however easily set this up a little differently with same net results and be legal if it wasn't before - just depends on what is listed as the net of taxable items and what amount of tax is charged when all is said and done.

I have to question some radio ads I hear from time to time - often from furniture and appliance stores, where they are running some campaign that gives customer some kind of discount but they claim you do have to pay the full sales tax amount - or even "give aways" but the recipient still needs to pay sales tax. I ask myself when hearing those ads - Tax on what? According to how I understand NE sales tax laws - if net taxable sales is zero on an receipt or invoice - then total tax to be charged is 5.5% of zero and you should put down zero as the tax due on the sale receipt:roll:

I promise when they file their sales tax returns those zero taxable item receipts are not counted toward their net taxable sales when filing their return, yet they collected a fee in the name of the State taxing authority - sounds like fraud to me.

 

[PetrosA]

I don't think that states collecting sales tax or even income tax on giveaway items is anything new. It happens here when you win a car/snowmobile/etc in a raffle or if you win power tools online and IIRC certain giveaways like the monthly one on Festool's site even state something to the effect that the winner is responsible for paying all applicable taxes on the prize. The question is what amount gets taxed and is it sales tax, income tax or both? Do you pay tax on the amount a dealer would pay for the item, the MSRP, the common sales price, the lowest internet price or the Grainger price? It seems like a pretty arbitrary system to me. I have also seen promotions here in PA, especially on tobacco products where there's a discount on the item but full price sales tax applies.

None of the supply houses here offer any kind of discount for payment-by-date that I know of, but they do include service charges for late payments.

 

[69gp]

I believe the additional 2% he was talking about was an incentive from the credit card company not the payee.

Yes the additional 2% is from the credit card company.

 

[Dennis Alwon]

I believe the additional 2% he was talking about was an incentive from the credit card company not the payee.

He said he wasn't sure but then said

But on top of the 2% discount I would pay the bill by the 10th with a personnel credit card that pays me an additional 2% cash back

The supply company has to pay about 2% or so to the credit card company so why would they give the extra 2%. I realize there is an incentive from the CC company.

 

[kwired]

I don't think that states collecting sales tax or even income tax on giveaway items is anything new. It happens here when you win a car/snowmobile/etc in a raffle or if you win power tools online and IIRC certain giveaways like the monthly one on Festool's site even state something to the effect that the winner is responsible for paying all applicable taxes on the prize. The question is what amount gets taxed and is it sales tax, income tax or both? Do you pay tax on the amount a dealer would pay for the item, the MSRP, the common sales price, the lowest internet price or the Grainger price? It seems like a pretty arbitrary system to me. I have also seen promotions here in PA, especially on tobacco products where there's a discount on the item but full price sales tax applies.

None of the supply houses here offer any kind of discount for payment-by-date that I know of, but they do include service charges for late payments.

The taxes mentioned in most cases are probably other then sales taxes. Sales tax is just that - a tax on the amount of the sale - if I sell an item that normally sells for around $1000 for only $1, tax is only going to be 5.5 cents (current state rate here) because that was the amount of the sale. I could legally sell a (normally$1000) item for $1, charge sales tax on that $1 sale item and then add on $999 of non taxable labor(assuming labor is non taxable according to law) to install it and still collect the $1000 - plus 5.5 cents for sales tax. All that matters should I get audited on my sales tax returns is that I did show $1 of taxable sales items on said sale receipt, and that any non taxable items on the receipt are indeed non taxable items.

Tobacco -usually has other taxes attached to it - the need to pay those would depend on the laws governing those particular taxes - but the sales tax alone would generally be based on the actual sale price of the item, and if it was free there is no sale price to tax. Similar situation may apply with a vehicle. Income tax usually doesn't apply until the value of the item given away is over a certain level - which does usually happen with vehicle give-aways. Plus with a vehicle the new owner still is responsible for paying property tax/ registration/license fees, etc. Now the party giving such vehicle can offer to include such fees as part of their give-away - but those fees may still be considered taxable income for the recipient to the IRS.

 

[kwired]

He said he wasn't sure but then said

The supply company has to pay about 2% or so to the credit card company so why would they give the extra 2%. I realize there is an incentive from the CC company.

That is totally up to the supply company how they want to handle their offering of a discount. A lot of the time it means cash or check. Cash usually is good, check is still a little risk of losing something, and any payment method still costs a little time by someone to process, but credit cards are typically approved or declined immediately so it may still be considered worth the card fee compared to having someone send you a bad check, or having to send the bill on to a third party to try to collect.

 

[JRW 70]

Interest Rates

Interest Rates

The accounting department of these utilities that
give a 2% discount take the income and invest it
in muny. bonds or something else that usually
returns an interest of say 4.5% or so.
That is why they want the payments early, so
the interest can accrue earlier, thus both the
customer gets a discount and the company can
start earning interest sooner.

I learned to do this with my check, and take part
but invest the rest in semi-stable types of
investments. And it really helps.

JR

 

[Dennis Alwon]

So does anyone else get the 2% taken off as I do?

 

[kwired]

So does anyone else get the 2% taken off as I do?

If you are asking if I have vendors that offer a discount if payment is before a certain date - yes. AFAIK though none of them adjust any sales tax or for that matter any invoice amounts, they just give you a general credit of the amount due that they record as a loss (or maybe better described as a reduction in receipts). If I do the same thing via my Quickbooks accounting software it is set up to track that discount as an expense for me via any expense account I choose to track it with. I would imagine that would be considered the normal way to track such funds to most accountants.

 

[Smart $]

All the suppliers around here offer a 2% discount if you pay your bill by the 10th of the month. No problem I always take advantage of that because it adds up to quite a bit at the end of the year.

All but one supplier deducts the tax and then multiplies by 2% to give us the deduction.

I am curious if others have this and whether or not the deductions are done in the following manner.

CES City Electric Supply) however does it incorrectly, IMO and I told them but they don't care. They said to just pay 98% of the bill.

So $1000 bill (for simplicity) x .98= $980 may bill from CES

However,

If we take the tax out we have 1000/1.08 = 925.93 Total without tax

1000-925.93 = 74.07 Tax amount

Now take the 2% reduction925.93 * .02= 907.41

Add 907.41+ 74.07 = 981.48

For every $1000 I should be paying $1.48 more -- This has got to add up to a lot of money if all the locations are doing the deduction as I described.

If you use City Electric Supply is that what they do where you live.

I'm not an accountant or tax auditor, much less aware of regulations regarding such in your area... but I used to do retail sales in my former business and see your example as incorrectly calculated (highlighted). When a 2% (or any discount) is applied, sales tax is figured on the discount price... not the before-discount price.

$1,000 ? 108% = $925.93 pre-tax sale

$925.93 - 2% discount = 925.93 ? 98% = $907.41

$907.41 + 8% = 907.41 ? 1.08 = $980

There may be a little difference between figuring 2% discount on the before-discount total with tax, because of rounding, but it always amounts to no more than a penny per sale.

 

[Dennis Alwon]

If you are asking if I have vendors that offer a discount if payment is before a certain date - yes. AFAIK though none of them adjust any sales tax or for that matter any invoice amounts, they just give you a general credit of the amount due that they record as a loss (or maybe better described as a reduction in receipts). If I do the same thing via my Quickbooks accounting software it is set up to track that discount as an expense for me via any expense account I choose to track it with. I would imagine that would be considered the normal way to track such funds to most accountants.

Yes that is what I am asking. I didn't know if it is standard operating procedure or a fluke. The supplier I use the most gives me the discounted amount as they don't give 2% on special orders. Another one also takes the 2% out ahead of time and I believe they also take 2% off the tax also- I forgot about that--I remember questioning them about it also.

I am just wondering if they have the original bill with the tax shown and you pay 2% less of the total then how does the supplier deal with it. Do they take the loss and pay the taxes on the original bill or do the rework it to cover the 2%. It was just a curiosity I had.

 

[Dennis Alwon]

I'm not an accountant or tax auditor, much less aware of regulations regarding such in your area... but I used to do retail sales in my former business and see your example as incorrectly calculated (highlighted). When a 2% (or any discount) is applied, sales tax is figured on the discount price... not the before-discount price.

$1,000 ? 108% = $925.93 pre-tax sale

$925.93 - 2% discount = 925.93 ? 98% = $907.41

$907.41 + 8% = 907.41 ? 1.08 = $980

There may be a little difference between figuring 2% discount on the before-discount total with tax, because of rounding, but it always amounts to no more than a penny per sale.

I have been to retail stores that would charge tax on the full amount then give you the $5.00 or whatever discount-- this is when you have a coupon from the paper or something like that.

If they do as you say that explains it all

 

[Smart $]

I have been to retail stores that would charge tax on the full amount then give you the $5.00 or whatever discount-- this is when you have a coupon from the paper or something like that.

If they do as you say that explains it all

Money back after the sale is a rebate, not a discount... but what it amounts to is a way for the "discount" to sound like it is for a greater amount than it actually is because the rebate includes the tax amount out of your pocket (for example, a $5 rebate amounts to a $4.63 discount when taxed at 8%).

 

[kwired]

Yes that is what I am asking. I didn't know if it is standard operating procedure or a fluke. The supplier I use the most gives me the discounted amount as they don't give 2% on special orders. Another one also takes the 2% out ahead of time and I believe they also take 2% off the tax also- I forgot about that--I remember questioning them about it also.

I am just wondering if they have the original bill with the tax shown and you pay 2% less of the total then how does the supplier deal with it. Do they take the loss and pay the taxes on the original bill or do the rework it to cover the 2%. It was just a curiosity I had.

The discount is usually just an incentive to pay your statement a little quicker, and the company offering such discount usually doesn't even put much effort into making it obvious that they will accept the discount - it may just be hidden in the invoice terms and if you don't take it they never tell you they would have accepted it. If you have a bill of $1000.00 simply send them a check for $980.00 and they automatically apply the discount. Send them a check for $980 to $1000 and they automatically apply a discount for whatever you paid them. Send them $1001 and you will have $1 worth of credit for the next billing cycle.

I have been to retail stores that would charge tax on the full amount then give you the $5.00 or whatever discount-- this is when you have a coupon from the paper or something like that.

If they do as you say that explains it all

Again local tax authority rules apply, but I think most are fairly consistent with this kind of thing. Here that coupon is deducted from the net taxable sales (if the coupon is for a taxable item) before calculating taxes.

ETA: need to make it clear a coupon or other discount is not the same thing as a gift card, store credit, etc. - those are payment methods and are equal to a cash payment for the most part and are applied after all invoice/sales items are calculated and are deducted from total amount that is considered paid.

 

[curt swartz]

All of the wholesale electrical suppliers in my area that I deal with base the Cash Discount percentage on the amount they get from the vendors.

If Square D gives them a 2% discount they offer me a 2% discount if I pay by the 10th.
If Siemens gives them a 1% discount then I get 1%
If they don't get any discount I don't get any.

All discounts are based on the before tax amount.

 

[Little Bill]

So does anyone else get the 2% taken off as I do?

I use CES and also get the 2% off when paid by the 10th. Funny I had an account there for a long time before I found out they offered the discount. There is nothing on neither the invoice or statement that says anything about the 2%. But to answer your question, I never really gave it any thought as to the 2% being on the total amount including tax.

I did notice something else. If you return something they automatically take the 2% off of the credit they give you. I was just looking for an item that I returned and noticed it wasn't on the statement. It must have missed the cut-off date for that month. Anyway, when I received the "official" credit memo I noticed it wasn't the same price that I was charged on the invoice. I was about to put it in my folder and take it with me to ask them. But I started looking back at past credits and they were all less than the invoice. So I tried the numbers out and sure enough 2% was the difference between the credit and invoice.