Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
295.0000 GROSS RECEIPTS
295.0965 Price Adjustments. An "Enterprise Agreement" provides for price reductions or credits for meeting and/or exceeding a dollar amount of purchases for a specific period of time. However, failure to meet the incentives will result in an upward adjustment.
There appears to be essentially three possible outcomes: (1) Company A achieves the revenue commitment and applies the amount (described as a credit) as a volume discount to reduce the purchase price on future purchases; (2) Company A again achieves the volume commitment but takes the amount as a credit to reduce outstanding accounts receivable, accumulated pursuant to purchases made under the contract; and (3) Company A fails to meet revenue commitments and owes Company B the difference between the actual revenue attainment and the agreed upon revenue commitment.
An amount deducted from the initial computation to reach the agreed price is not part of the taxable measure because there was never an obligation to pay that amount. Company A may use its volume discount to reduce the purchase price of future purchases from Company B. The amount of the reduction that was based on taxable purchases of tangible personal property is not included in the measure of tax. Price adjustments may be excluded from taxable gross receipts if they are part of a single integrated agreement that contemplates price adjustments. The price adjustment can be taken if the customer is actually given a refund in cash or discount in an amount equal to the agreed upon adjustment.
Assuming Company A's volume discounts are part of a single integrated agreement, the amounts taken to reduce outstanding accounts receivable accumulated from purchases made under the contract are not included in the measure of tax to the extent that the amount of the reduction was acquired from taxable purchases of tangible personal property. However, any upward adjustment charges paid by Company A to Company B must be used in the calculation of the measure of tax. When Company A pays Company B such adjustment charges, these payments increase Company B's gross receipts and must be included in the measure of tax. 10/4/93.