When a mobile-home manufacturer gives dealers a price reduction, is the sales tax based on the reduced price, and can tax already charged on the full price be refunded?

Plain-English summary

Titan Homes, Inc., a mobile-home manufacturer, must charge New York State and local sales tax when it sells a mobile home to a New York dealer. It cut the base price of each home by $1,000 and gave dealers two ways to apply the reduction:

• Method #1 — the $1,000 reduction is shown on the invoice, lowering the subtotal before tax. Tax (7%) is figured on the reduced subtotal.
• Method #2 — the invoice shows the full price, tax is charged on that full price, and the $1,000 is refunded afterward by a separate check.

The Department held that Method #1 taxes the sale correctly, and that Method #2 overcharges tax — so the dealer is owed a refund.

• Tax is on the "receipt." Section § 1105(a) taxes the receipts from retail sales of tangible personal property, and § 1101(b)(3) defines the receipt as the sale price valued in money.
• A price reduction is deductible. Under § 526.5(d)(2), "discounts which represent a reduction in price are deductible in computing receipts." A $1,000 cut in the price of the home is exactly that.
• Method #1 is correct. Because the reduction lowers the invoiced subtotal, the 7% tax is figured on the reduced price — the right result.
• Method #2 over-collects. Taxing the full price and then rebating only the $1,000 leaves the dealer having paid tax on money it never really owed for the home. The dealer is entitled to a refund of the tax attributable to the $1,000, so the refund check should have been $1,070, not $1,000.
• How to fix past Method #2 sales. Titan can refund the excess tax to dealers and either claim a credit on its quarterly return (ST-100, line 2a) or claim a refund on form AU-11 (keeping records proving the money was refunded); alternatively a dealer who isn't reimbursed can claim the refund directly from the State Tax Commission. Claims must be made within three years (§ 1139(a)).

What this means for you

Show the discount on the invoice. A genuine price reduction only reduces the tax if it actually reduces the taxable price the customer is billed. Bake it into the invoiced subtotal and you tax the right (lower) number the first time.

Taxing the full price and rebating later creates a refund problem. If you compute tax on the pre-discount price and hand back the discount separately, you've collected too much tax — and you now owe your customer a refund of the tax on the discounted amount, plus the paperwork to reclaim it.

Refund mechanics run on a three-year clock. The seller can rebate the tax and take a credit on the ST-100 or a refund on the AU-11, or the buyer can claim it directly — but only within three years of when the tax was payable, and only with records substantiating the refund.

Common questions

Q: Does a manufacturer's price cut reduce the sales tax?
A: Yes — but only if it reduces the price the dealer is actually billed. Shown on the invoice (Method #1), the tax is figured on the lower price. Charged on the full price and rebated separately (Method #2), too much tax is collected.

Q: We used Method #2 in the past. What do we do?
A: The dealer is owed a refund of the tax attributable to the $1,000 reduction. You can refund it and claim a credit on your ST-100 (line 2a) or a refund on form AU-11, or the dealer can claim directly — within three years (§ 1139(a)).

Q: Is an early-payment discount treated the same way?
A: No. This opinion involves a true reduction in the selling price. Discounts merely for paying early are not deductible from receipts — a separate rule the Department addressed in companion 1983 opinions.

Citations and references

Statutes and regulations:

• Tax Law § 1105(a) — tax on receipts from retail sales of tangible personal property
• Tax Law § 1101(b)(3) — definition of "receipt"
• Sales and Use Tax Regulations § 526.5(d)(2) — discounts that represent a reduction in price are deductible in computing receipts
• Tax Law § 1139(a) — credit or refund of overpaid tax; three-year limit

Forms referenced:

• ST-100 (quarterly Sales and Use Tax Return), line 2a — credit for refunded tax
• AU-11 — application for credit or refund of sales/use tax

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1983.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a83_10s.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-83(10)S
Sales Tax
March 8, 1983

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S830118A

On January 18, 1983 a Petition for Advisory Opinion was received from Titan Homes, Inc.,
5573 East North Street, Dryden, Michigan 48428.
The issue raised is the proper application of the sales tax to certain transactions.
Petitioner is a mobile home manufacturer and as such is required to charge New York State
and local sales taxes when it sells a mobile home to a New York dealer. On June 14, 1982, Petitioner
lowered the base unit price of each mobile home by $1,000.00. The dealers have been given an
option as to how this price reduction is to be effectuated, as described in the following:
Method #1 - The price reduction is shown directly on the original invoice, as follows:
Base Unit Price

$10,500.00

Unit Options

500.00

Price Reduction

(1,000.00)

Subtotal

$10,000.00

NY Sales Tax @ 7%

700.00

Freight Charges

200.00

Total Invoice Price

$10,900.00

Method #2 - The price reduction is not included on the original invoice. A check for the price
reduction is subsequently sent to the dealer. Using this method tax is computed by Petitioner as
follows:
Base Unit Price
Unit Options
Subtotal

$10,500.00
500.00
$11,000.00

NY Sales Tax @ 7%

770.00

Freight Charges

200.00

Total Invoice Price

$11,970.00

ROBERT W. BOUCHARD, ACTING COMMISSIONER
GABRIEL B. DiCERBO , DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR
TP-8 (8/82)

-2­
TSB-A-83(10)S
Sales Tax
March 8, 1983
Check sent to dealer
Total dealer cost

(1,000.00)
$10,970.00

Section 1105(a) of the Tax Law imposes a sales tax on the receipts from every retail sale of
tangible personal property, except as otherwise provided. The word "receipt" is defined, in section
1101(b)(3) of the Tax Law, as "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 . . . ." Section
526.5(d)(2) of the Sales and Use Tax Regulations provides that "Discounts which represent a
reduction in price are deductible in computing receipts."
Under Method #1, described above, the sales tax is computed correctly. However, where
Method #2 is utilized the dealer is also entitled to a refund of that portion of the tax which is
attributable to the $1,000.00 price reduction. In such case the check sent to the dealer should be in
the amount of $1,070.00.
Accordingly, in each case where Method #2 has been employed in the past, the dealer would
be entitled to a refund of a portion of the tax paid. Such refund may be made by Petitioner, who may
thereupon claim a credit for such tax refunded to his customers on its quarterly Sales and Use Tax
Return (ST-100), at line 2a, page 1, or it may claim a refund of such amount, apart from the filing
of a return, using form AU-11. In either instance, Petitioner must maintain appropriate
documentation to substantiate that the amount so claimed was in fact refunded to the dealers. Tax
Law, § 1139(a). Alternatively, a dealer who does not receive a refund from Petitioner may claim such
a refund directly from the State Tax Commission. Such credits and refunds must be claimed within
three years from the date the tax collected was payable to the State Tax Commission.

DATED: February 17, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau