This Ruling has been revoked by PS 96(2)

Ruling 89-39

Cash Discounts

You have inquired whether a company doing business in Connecticut may decrease the taxable sales price of catalogs and other advertising materials [hereinafter, "materials"] it sells to dealers by discounts it grants to such dealers.

Alternative 1

Under the first alternative, the sales tax should be computed on the "normal" selling price of the materials. The reasoning behind this is that the "discount" earned by each dealer is not allowed by the "company" nor is it taken by the "dealers" at the time of sale. Instead, the discount is either accumulated on a monthly basis and is taken by a dealer subsequent to the time of sale or it is "credited" to a dealer's account at the end of the discount period. Since, at the time of sale, the amount to be collected must be known, the cash discount is included in the measure of the sales and use taxes. In order for the cash discount to be excluded, it must be allowed and taken at the time of sale.

The fact that a dealer's account is being "credited" for an unused discount when the unused discount does not exceed the amount a dealer paid for materials during the year, does not change the above conclusion, but only further supports the contention that at the time of the sale, the discounts are neither being allowed nor taken.

Alternative 2

Under the second alternative, the measure of the sales tax is the "normal" selling price of the materials. For the same reasons addressed under Alternative 1, i.e., since no discount is being allowed to a dealer at the time of the sale, the measure of the sales tax is the "normal" selling price of the materials. Alternative 1 differs from Alternative 2, however, in one aspect. Namely, any unused discount that is not greater than the amount of the materials purchased during the previous year would be credited to the dealer's account at the end of the discount period (December 31) instead of being forfeited. This aspect, however, does not militate against computing the tax on the "normal" selling price of the materials.

Again, at the risk of being repetitive, only discounts allowed by the company and taken by the dealer at the time of the sale are excluded from the measure of the sales and use taxes. Conversely, discounts "accumulated" by the company on a monthly or yearly basis whether or not taken by the dealer at the end of the month, year or the following year are included in the measure of the sales and use taxes.

LEGAL DIVISION

August 4, 1989