For a mobile-home manufacturer's sales to dealers, which discounts reduce the taxable receipt, and are transportation charges taxable?

Plain-English summary

Redman Homes, Inc., a mobile-home manufacturer, sells homes to dealers and asked whether various discounts and freight charges are exempt from New York State and local sales tax. The Department sorted them into three buckets.

The holding: trade/volume discounts and separately stated freight reduce the taxable receipt; early-payment discounts do not.

• The sale to a dealer is a retail sale. By statute, a manufacturer's sale of a mobile home to a dealer is a retail sale (§ 1115(a)(23)), so ordinary sales-tax rules on receipts apply.
• Trade and volume discounts are deductible. Under § 526.5(d)(2), discounts that represent a reduction in price — trade, volume, and cash-and-carry discounts — are deductible in computing receipts. The manufacturer should not collect tax on the portion of the charge identified as a trade or volume discount. (The regulation's examples: a 30% volume discount on 1,000 bulbs and a 10% cash-and-carry discount are each taxed on the discounted price.)
• Early-payment discounts are NOT deductible. Under § 526.5(d)(1), discounts granted just to encourage prompt payment of an account are not deductible from receipts. Tax is due on the full price regardless of whether the customer pays early and takes the discount. (Example: a $100 camera with a "2% if paid in 10 days" term is taxed on $100 either way — a $7 tax in a 7% area.)
• Separately stated transportation is excluded. Under § 526.5(g), the cost of transporting the goods to the purchaser, if separately stated in the written contract (if any) and on the bill, is excluded from the taxable receipt. So Redman should not collect tax on separately stated freight for delivering the home to the dealer.

What this means for you

A discount only cuts the tax if it cuts the price. Trade and volume discounts genuinely lower what the buyer pays for the goods, so they lower the taxable receipt. An early-payment (prompt-pay) discount is treated as a financing incentive, not a price cut — the tax is figured on the full price whether or not the buyer earns it.

Separately state your freight. Delivery charges to get the goods to the buyer are excludable, but only if you break them out on the contract and the bill. Bury them in the price and they become part of the taxable receipt.

Label discounts accurately on the invoice. Because early-payment discounts don't reduce the tax while trade/volume discounts do, how you identify a discount on the bill directly affects how much tax you must collect.

Common questions

Q: Do I charge tax on the full price or the discounted price for a volume discount?
A: The discounted price. Trade, volume, and cash-and-carry discounts reduce the taxable receipt under § 526.5(d)(2), so you don't collect tax on the discounted amount.

Q: What about a "2% if paid in 10 days" early-payment discount?
A: Tax is due on the full price regardless. Early-payment discounts are not deductible from receipts (§ 526.5(d)(1)), so the tax doesn't change whether or not the customer pays early.

Q: Is freight to deliver the home taxable?
A: Not if it's separately stated in the written contract (if any) and on the bill — separately stated transportation to the purchaser is excluded from the taxable receipt (§ 526.5(g)).

Citations and references

Statutes and regulations:

• Tax Law § 1115(a)(23) — a manufacturer's sale of a mobile home to a dealer is a retail sale
• Sales and Use Tax Regulations § 526.5(d)(1) — early-payment discounts are not deductible from receipts
• Sales and Use Tax Regulations § 526.5(d)(2) — trade, volume, and cash-and-carry discounts (reductions in price) are deductible
• Sales and Use Tax Regulations § 526.5(g) — separately stated transportation to the purchaser is excluded from receipts

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_6s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-83(6)S
Sales Tax
February 17, 1983

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX DEPARTMENT
ADVISORY OPINION

PETITION NO. S830104A

On January 4, 1983, a Petition for Advisory Opinion was received from Redman Homes, Inc.,
P.O. Box 428, Ephrata, Pennsylvania 17522.
The issue raised is whether discounts, such as early payment discounts, trade discounts and
volume discounts, and freight or transportation charges, are exempt from New York State and local
sales taxes. Petitioner raises this issue within the context of sales, by a manufacturer, of mobile
homes to dealers.
Section 526.5(g) of the Sales and Use Tax Regulations provides, in part, that, "The cost of
transportation of tangible personal property, sold at retail, which is separately stated in the written
contract, if any, and on the bill rendered to the purchaser is excluded from the receipts subject to tax.
(2) To qualify for the exclusion transportation costs must be for the delivery of the tangible personal
property to the purchaser . . . . "
The sale of a mobile home by Petitioner to a dealer is, by statute, a retail sale. Tax Law,
§§1115(a)(23) Accordingly, Petitioner should not collect sales tax on that portion of its charges to
the dealer which represent transportation charges and which are separately stated in the written
contract, if any, between Petitioner and the dealer, and on the bill rendered to the dealer.
Section 526.5(d) of the Sales and Use Tax Regulations provides, in part that: "(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% discount for paying the price of a $100.00
camera within 10 days, and expects payment of the full price if paid within 30 days. The sales tax,
in a 7% area, is $7.00 on the taxable receipt of $100.00, whichever method of payment the customer
chooses.
DISCOUNT METHOD

FULL PRICE METHOD

$100.00 Price

$100.00

7.00 Tax
$107.00

7.00
$107.00

2.00 Discount
$105.00 Due
(2)

Discounts which represent a reduction in price, such as a trade discount, volume

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-83(6)S
Sales Tax
February 17, 1983
discount or cash and carry discount are deductible in computing receipts.
Example 2: A vendor grants a purchaser a 30% discount for purchasing 1,000 light bulbs.
The taxable receipt will be the discount price. The bill in a 7% area, should be similar to:
1,000 Bulbs at 50¢

$500.00

Less 30%

150.00

Tax at 7%

$350.00
24.50

Due

$374.50

Example 3: A vendor grants a purchaser a 10% cash and carry discount. The taxable
receipt will be the discounted price. The billing in a 7% area should be similar to:
Merchandise

$50.00

Less 10%

5.00

Tax at 7%

$45.00
3.15

Due

$48.15"

Accordingly, when Petitioner offers a dealer an early payment discount, such discount is not
considered to be a reduction in the selling price and is not to be deducted from the taxable receipts.
Petitioner must collect sales tax on the total charge to the dealer, including the early payment
discount.
When Petitioner allows the dealer a trade discount or a volume discount, such discount is
considered to be a reduction in the selling price. Accordingly, Petitioner should not collect sales tax
on that portion of the charges identified as a trade discount or volume discount.

DATED: February 2, 1983

s/FRANK J. PUCCIA
Director
Technical Services Bureau