If a pest-control company gives customers a 10% discount for paying an entire year's service contract up front instead of paying after each visit, can it exclude that discount from the receipts it charges sales tax on?

Plain-English summary

Terminix sells one-year pest-control service contracts under which it periodically inspects a customer's premises and applies insecticides, traps, or other pest-control measures on a monthly, bimonthly, or quarterly schedule. Customers can either pay after each service visit (with the charge accruing only when that visit happens) or pay the entire year's charges up front when they sign the contract, in which case they get a 10% discount off what the pay-as-you-go total would have been.

Pest-control services are taxable services under New York's tax on maintaining, servicing, or repairing real property. The question was whether the 10% discount for paying in advance could be subtracted before computing the tax, or whether it was a non-deductible "early payment discount" -- a discount New York's regulations treat as a reward for paying an already-fixed bill faster than its normal due date (like 2% off a $100 camera if you pay within 10 days instead of 30), which does NOT reduce the taxable receipt.

The Department drew the line based on timing and purpose: an early-payment discount rewards prompt payment of an amount that has already become due; here, by contrast, the 10% discount changes the price itself, at the moment the contract is signed, before any service is even performed or any charge has accrued. Because the discount is baked into the transaction at its outset rather than tacked onto an existing fixed bill, it's a genuine price reduction, not an early-payment discount -- so sales tax applies only to the discounted amount actually paid.

What this means for you

Pest-control, lawn-care, and other real-property service contractors

If you offer customers a choice between pay-per-visit and prepay-for-the-year pricing, the discount for prepaying is generally deductible from taxable receipts as long as it's structured as a genuinely different (lower) contract price set at signing -- not as a reward for paying an already-billed amount ahead of its due date.

Any business offering "pay in advance and save" pricing

The dividing line the Department drew here (discount fixed at the moment of sale/contract signing vs. discount for paying a set bill faster) applies beyond pest control to any taxable service or tangible-personal-property sale that offers a prepayment or volume-style discount. Structure and document the discount as part of the original price-setting, not as an incentive layered onto an already-accrued charge.

Accountants and tax professionals

The key regulatory distinction is 20 NYCRR § 526.5(d)(1) (early-payment discounts, not deductible) versus § 526.5(d)(2) (trade, volume, and cash-and-carry discounts, which ARE deductible). Watch how the contract itself frames the discount -- here, the contract literally offered "10% Discount One Year in Advance" as an alternative pricing structure, not a rebate for beating a due date.

Common questions

Q: Are all "prepay and save" discounts deductible from sales tax receipts?
A: Not automatically -- it depends on whether the discount changes the actual price at the time of sale (deductible) versus rewarding fast payment of an already-fixed bill (not deductible, per 20 NYCRR § 526.5(d)(1)).

Q: What's the difference between this discount and a non-deductible early-payment discount?
A: An early-payment discount assumes a bill is already due and reduces it only if paid within a shorter window (e.g., 2% off if paid in 10 days instead of 30). Here, the amount due under the pay-as-you-go plan never even accrues until each service is performed -- there's no pre-existing bill to pay early. The 10% instead sets a genuinely different total price at signing for customers who choose to prepay.

Q: Can another service business rely on this ruling?
A: No. It binds the Department only as to Terminix and the facts described. Businesses with different contract or billing structures should compare their own facts before assuming the same treatment.

Citations and references

Statutes and regulations:

• Tax Law § 1101(b)(3) (definition of "receipt"; early-payment discounts not deductible)
• Tax Law § 1105(c)(5) (tax on maintaining, servicing, or repairing real property)
• 20 NYCRR § 526.5(d) (discounts: early-payment discounts vs. price-reduction discounts)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_2000.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a00_25s.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-00(25)S
Sales Tax
May 31, 2000

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. S000128C

On January 28, 2000, the Department of Taxation and Finance received a Petition for
Advisory Opinion from The Terminix International Company, L.P., 860 Ridge Lake Blvd.,
Memphis, TN, 38120-9417.
The issue raised by Petitioner, The Terminix International Company, L.P., is whether the
discount described in the facts of this Petition is deductible from the computation of receipts subject
to sales tax.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
Petitioner operates a licensed pest-control services business in New York State. Petitioner
enters into contracts with either new or existing customers wherein, in exchange for a sum certain,
Petitioner agrees to periodically inspect customer’s premises and, if need be, apply insecticides,
traps, or other devices intended to rid the premises of any pest infestation.
Upon entering into such a contract, Petitioner offers the customer the choice of (1) paying
periodically as services are rendered, or (2) paying in full at the time of entering into the contract.
When customers elect to pay periodically as services are rendered, the amount due does not accrue
until the service is rendered.
When a customer elects to pay in full at the time of entering into the contract, the total
amount due under the contract accrues in advance of the time that the services are rendered. A
customer who elects to pay in full at the time the contract is executed receives a 10% discount from
the amount that would otherwise be paid if he or she elected to pay on a service to service basis.
A copy of the standard contract used by Petitioner and its customers entitled “TerminixResidential Pest Control Service Agreement” (the contract) was submitted as part of this Petition.
The contract sets forth that it is a “one year agreement automatically renewed on a service to service
basis.” Service is available on a monthly, every other month, or a quarterly basis. The “Method of
Payment” portion of the contract sets forth that a “10% Discount One Year in Advance” is available
to customers who pay the total amount that is due under the contract in one payment, rather than
making a prorated portion of the total due at each service interval. A “CONTRACT
VERIFICATION” form attached to the contract provides, in part:
You may receive your monthly statement prior to service, but your bill is not
due until service has been rendered. If you prefer we can handle the initial 12

-2TSB-A-00(25)S
Sales Tax
May 31, 2000

months all at once and offer you a 10% discount. The savings to you with postage,
check and envelopes is almost equal to one month’s free service.
Applicable Law and Regulations
Section 1101(b) of the Tax Law provides, in part:
When used in this article for the purposes of the taxes imposed by
subdivisions (a), (b), (c) and (d) of section eleven hundred five and by section eleven
hundred ten, the following terms shall mean:
*

*

*

(3) Receipt. The amount of the sale price of any property and the charge for
any service taxable under this article, valued in money, whether received in money
or otherwise, including any amount for which credit is allowed by the vendor to the
purchaser, without any deduction for expenses or early payment discounts....
Section 1105 of the Tax Law provides, in part:
On and after June first, nineteen hundred seventy-one, there is hereby
imposed and there shall be paid a tax of four percent upon:
(a) The receipts from every retail sale of tangible personal property, except
as otherwise provided in this article.
*

*

*

(c) The receipts from every sale, except for resale, of the following services:
*

*

*

(5) Maintaining, servicing or repairing real property, property or land, as such
terms are defined in the real property tax law, whether the services are performed in
or outside of a building....

-3TSB-A-00(25)S
Sales Tax
May 31, 2000

Section 526.5(d) of the Sales and Use Tax Regulations provides, in part:
Discounts. (1) Discounts which are granted by a vendor, for the purpose of
encouraging prompt payment on an account, known as “early payment discounts”
are not deductible from receipts.
Example 1:

A vendor grants a purchaser a 2 percent discount for paying the price
of a $100 camera within 10 days, and expects payment of the full
price within 30 days. The sales tax, in a 7 percent area, is $7 on the
taxable receipt of $100, whichever method of payment the customer
chooses.
DISCOUNT METHOD
$100 Price
7 Tax
$107
2 Discount
$105 Due

FULL PRICE METHOD
$100
7
$107

(2) Discounts which represent a reduction in price, such as a trade discount,
volume discount or cash and carry discount are deductible in computing receipts.
Opinion
The pest control services provided by Petitioner to customers in New York are subject to
sales tax under Section 1105(c)(5) of the Tax Law. Customers of Petitioner enter into a contract
which provides that Petitioner inspect for and treat pest infestation for a period of one year, at certain
stated intervals. Depending on the plan purchased, Petitioner performs its service on a monthly,
every other month, or a quarterly basis. The contract requires that customers pay a prorated portion
of the contract after each service is rendered and sets forth that when customers pay on that basis,
each prorated portion of the amount due under the contract accrues when each service is rendered.
When a customer elects to purchase a year’s worth of service in advance, Petitioner offers a 10%
discount off the total yearly charge that a customer is required to pay if the services were paid on
a service to service basis.
In Petitioner’s situation, the 10% discount reduces the price of the service contract at the time
of sale, when the contract is executed. It does not represent a discount from a set selling price for
payment within a prescribed period. Therefore, based on the facts of this Petition and the cited terms
of the contract, the 10% discount offered by Petitioner does not constitute an early payment discount
as provided in Section 1101(b)(3) of the Tax Law and as described in Section 526.5(d)(1) of the
Sales and Use Tax Regulations. In the case of customers who pay the full amount due under the

-4TSB-A-00(25)S
Sales Tax
May 31, 2000

contract in advance and receive the 10% discount, sales tax is computed on the actual amount paid,
and such 10% discount is not considered part of the receipts subject to sales tax.

DATED: May 31, 2000

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.