Could a South Carolina retailer deduct an early-payment cash discount after reporting sales tax on the full price in the month of sale?

Plain-English summary

South Carolina Private Letter Ruling 89-8 allowed a retailer to deduct a cash discount on a later sales tax return once the customer actually took the discount.

XYZ sold pumps and piping used in irrigation systems to farmers, builders, homeowners, and other customers. It offered certain customers a discount for paying within a specified period, but the discount reduced only the goods' price—not the sales tax initially charged.

The ruling separated the sale month from the later payment month. Under the historical statutes, sales tax was due for the month in which the sale occurred, so XYZ initially reported tax on the full sales price even if it had not yet received payment.

If the customer later paid on time and took the offered discount, the discount then became both “allowed and taken.” Historical Section 12-35-30 excluded that amount from gross proceeds of sales. XYZ could therefore deduct the discount on a return filed after the original reporting month.

How the timing worked

The ruling used an April sale as its example:

1. Report sales tax on the full sales price on the April return because the sale occurred in April.
2. Wait to see whether the customer actually pays within the discount period.
3. If the customer takes the allowed discount, deduct that discount amount on a subsequent return.

An offered discount alone was not enough. The statutory exclusion required a cash discount that was both allowed by the seller and taken by the customer.

Common questions

Q: Could XYZ reduce the tax base immediately when it offered the discount? No. Tax was due on the full sales price for the month of sale before the company knew whether the customer would take the discount.

Q: When did the discount become deductible? When the customer paid within the specified period and actually took the discount.

Q: Where was the deduction reported? On a sales tax return subsequent to the return for the month of sale.

Q: What kind of discount did the ruling address? A deduction from the billed price allowed for payment within a specified time.

Q: What did XYZ sell? Pumps and piping used in irrigation systems.

Q: Can another retailer rely on PLR 89-8? No. The ruling says it applies only to the specific facts or circumstances in the request and has no precedential value.

Citations and references

• S.C. Code Ann. § 12-35-30 (historical gross-proceeds definition and exclusion for cash discounts allowed and taken)
• S.C. Code Ann. § 12-35-510 (historical sales tax measured by gross proceeds of sales)
• S.C. Code Ann. § 12-35-570 (historical monthly sales-tax payment deadline)
• S.C. Code Ann. § 12-3-170 and SC Revenue Procedure 87-3 (authority identified in the ruling)
• Black's Law Dictionary, Fifth Edition (cash-discount definition quoted in the ruling)
• 68 Am. Jur. 2d Sales and Use Tax § 14 (statutory-construction principle quoted in the ruling)

Subject

Cash Discounts Allowed and Taken/Gross Proceeds of Sales

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR89-8.pdf

Original ruling text

SC PRIVATE LETTER RULING #89-8

TO:

XYZ, Inc.

SUBJECT:

Cash Discounts Allowed and Taken/Gross Proceeds of Sales
(Sales Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-30 (1976 and Supp. 1988)
S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-570 (Supp. 1988)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request. Private Letter Rulings have no precedential value
and are not intended for general distribution.

Question:
May XYZ, Inc. take a deduction on its sales tax return for cash discounts allowed and taken by
its customers, pursuant to Code Section 12-35-30?
Facts:
XYZ, Inc. is in the business of making retail sales of pumps and piping used in irrigation
systems. Their customers include farmers, builders, home owners, etc.
The company has a policy of allowing a discount for certain customers who pay within a
specified time period. However, such customers have not been allowed a discount on the sales
tax. The discount has only been allowed on the price of the goods.
Discussion:
Code Section 12-35-510 imposes "upon every person engaged or continuing within this State in
the business of selling at retail any tangible personal property...an amount equal to [five] percent
of the gross proceeds of sales of the business" (emphasis added).

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The phrase "gross proceeds of sales", the measure of the sales tax, is defined at Code Section 1235-30 and reads, in part:
The term "gross proceeds of sales" means the value proceeding or accruing from the
sale of tangible personal property (and including the proceeds from the sale of any
property handled on consignment by the taxpayer), including merchandise of any
kind and character without any deduction on account of the cost of the property sold,
the cost of the materials used, labor or service cost, interest paid or any other
expenses whatsoever and without any deductions on account of losses provided, that:
(1)

Cash discounts allowed and taken on sales shall not be included; (emphasis
added).

Black's Law Dictionary, Fifth Edition, defines "cash discounts" as [a] deduction from billed price
which seller allows for payment within a certain time; e.g. 10% discount for payment within 10
days".
Further, Code Section 12-35-570 reads, in part:
The taxes levied under the provisions of this article [Article 5: "Sales Tax"], except as
otherwise provided, are due and payable in monthly installments on or before the
twentieth day of the month next succeeding the month in which the tax accrues.
"The intention of the legislature is to be gathered from a consideration not of a single clause,
sentence or section in the act, but from a consideration of the statute as a whole, including
amendments, and the courts must, if possible, give effect to every word the statute contains and
reconcile the terms employed therein so as to render it consistent and harmonious." 68 Am. Jurs.
2d Sales and Use Tax Section 14.
In summary, reading the aforementioned code sections together, the measure of the tax ("gross
proceeds of sales") does not include cash discounts "allowed and taken". However, the tax is due
on the return for the month in which the sale occurs. For example, if a sale occurs in April, then
tax is due on the full sales price on the April return, even though payment has not been received.
If, upon payment, the discount "allowed" is now "taken" by the customer, the discount then
would be "allowed and taken", thereby, excluded from the measure of the tax. Therefore, on a
return subsequent to the reporting month, a deduction would be allowed for the amount of the
discount.
Conclusion:
XYZ, Inc. may take a deduction on its sales tax return for cash discounts allowed and taken,
pursuant to Code Section 12-35-30.

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SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
May 3
, 1989

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