"Sales price" and "purchase price" mean the same thing. They mean the price a buyer pays. Tax is due on the sales price or purchase price no matter how the buyer pays the seller:
- Cash, check, credit card, PayPal, electronic payment methods
- Financing agreement – including I.O.U., or other promise to pay
- Barter – paying with goods the buyer owns
What the sales price includes
Charge tax on the following even if you list them separately on the invoice:
- Inbound transportation – fees charged for shipping the goods to the retailer
- Manufacturer's or importer's excise tax – U.S. federal taxes that are charged to the retailer before the retail sale, but may still be a separate item on the bill to the buyer
Examples: Taxes on cars, beer, wine, and cigarettes
- Services performed by the seller as part of the sale
Examples: Fee to assemble an item; clothing alteration charge
- Surcharge for paying with a credit card or gift card
- Prompt payment discounts encouraging the buyer to pay the bill on time, such as a 2% discount if a bill is paid within a certain number of days. Charge tax on the amount before the discount is given.
- Manufacturer's coupon or rebate deduction amounts are included in the amount tax is calculated on if the manufacturer reimburses the retailer or the buyer for the discount given to the customer.
Example #1: You sell cereal for $4.50 to a customer who gives you a manufacturer's coupon for 50¢.
|Sales price for cereal||$4.50|
|Manufacturer's coupon – doesn't reduce sales price||.50|
|Charge tax on||$4.50|
Example #2: You sell a computer for $800 that's eligible for a $50 rebate* from the manufacturer.
|Sales price for computer||$800|
|Manufacturer's rebate* – doesn't reduce sales price||50|
|Charge tax on||$800|
* Both mail-in and instant manufacturer's rebates are part of sales price.
Special rules apply to rebates for motor vehicles.
What the sales price doesn't include
Don't charge tax on the following if you list them separately on the invoice:
This is the value of goods traded in on other goods, whether in part payment, full payment, or more than full payment. The item accepted in trade must become part of the seller's inventory.
Example: You sell a stove for $800, and accept $250 as trade-in allowance on an old stove. You deliver the stove to your customer for $25.
|Sales price for stove||$800|
|Trade-in allowance – reduces sales price||(250)|
|Delivery to the buyer – not taxed if separately stated||25|
|Charge tax on||$550|
Trade discounts offered by a retailer
This discount can be a retailer's coupon, a marked-down price, or a customer discount offered to a good customer.
Example: You sell lumber for $2,000 to a customer who's a contractor with a $50 retailer coupon. You give a 15% contractor discount of $300 and an early payment discount of 2%. The customer pays within the early payment discount period.
|Sales price for lumber||$2,000|
|Good customer discount – reduces sales price||(300)|
|Retailer coupon – reduces sales price||(50)|
|Early payment discount – doesn't reduce sales price||34|
|Charge tax on||$1,650|
The retailer can't receive money or reimbursement from a third party for a discount on the purchased item. A prompt payment discount offered by a manufacturer can't reduce the taxable sale price.
Interest, carrying charges, service charges, or financing charges on goods sold
Example: You sell a diamond ring for $1,000 to a customer who will pay the bill over six months with 18% interest. The customer is late on a payment and you charge a $5 late fee.
|Sales price for ring||$1,000|
|Interest – not taxed if separately stated||90|
|Late fee – not taxed if separately stated||5|
|Charge tax on||$1,000|
Special rules apply to interest, service, and financing charges on leases — see our guide, Renting and Leasing Tangible Personal Property.
Other examples of what the sales price doesn't include:
- U.S. federal excise taxes that are charged to the customer at the time of the retail sale. The retailer pays the supplier the tax when buying the items for resale, then charges and separately states the excise tax on the invoice
Example: New large tractor-trailer units
- Shipping and handling charges for shipping the goods directly to the consumer. You must separately state the charges.
- Installation labor, such as the labor to install a television in a home. You must separately state the labor.
- Repair labor to repair a customer's goods isn't taxable when separately stated, but the parts sold to make the repair are taxable.
- Insurance charges on goods rented or sold – when separately stated
Separately state sales tax on the invoice
You must separately list the amount of tax on the sales invoice. Customers must know how much tax was charged and be able to show they paid tax.
You can't offer to pay the tax yourself or advertise that you won't charge tax.
How to calculate the tax
Calculate the sales tax by either:
- Using the sales tax "bracket card" that we mail to you with your permit, or
- Multiplying the total taxable sales amount by the tax rate in effect.
Tax is calculated on the total of taxable items in a sale. For example, if you sell three taxable items totaling $10.50 together, tax is calculated on the total, rather than the individual prices of the three items in the sale.