Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2017
Sales and Use Tax Annotations
200.0000 CREDIT SALES AND REPOSSESSIONS—Regulation 1641
200.0108 Financing Transaction. Company A entered into an agreement with Company B to purchase a mainframe computer for a cash price of $4,895,800. The agreement indicated a $100,000 reduction in the cash price (labeled "credit") on the first installment payment if A used B's financing plan. The installment payment agreement shows a finance charge of $238,432.64 computed on the $4,895,800 cash price at an annual percentage rate of 10.52%. Company A requested an opinion regarding the sales tax consequences.
The $100,000 is not the type of credit referred to in section 6012 as part of the taxable measure since A would not receive additional consideration of $100,000 from B over and above the sales price for the computer. Instead, A would deduct the amount due on the first installment payment by $100,000.
However, not all of the $100,000 would constitute a nontaxable discount allowance. A portion of the $100,000 must be allocated to a reduction in the finance charges. The allocation is the difference between the finance charge on the $4,895,800 and the amount of finance charges computed based on the stated interest rate of 10.52% computed on the discounted price. 9/27/89.