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CAT 2006-04 - Commercial Activity Tax Cash Discounts, Defined
- Issued April, 2006; Revised May, 2006; Revised June, 2006
This is version 3 of a draft rule to clarify that cash
discounts are to be excluded from a taxpayer’s gross receipts
in calculating its commercial activity tax (CAT) liability.
This rule has been updated to reflect the language of the
rule as filed, including language to clarify that rebates
from a car dealership are incentive-based. Please direct any
questions you may have to the Commercial Activity Tax
Division of ODT at 1-888-722-8829.
Reason for rule. The Tax Commissioner is
promulgating this rule in order to clarify that certain
rebates and discounts may be excluded from a taxpayer’s
calculation of its gross receipts for purposes of the
commercial activity tax.
Proposed Rule 5703-29-14 Cash discounts,
defined.
(A)(1) For purposes of the commercial activity tax, "cash
discounts" (i.e., reductions in gross revenue) are deducted
from a taxpayer's "gross receipts" pursuant to division
(F)(4)(a) of section 5751.01 of the Revised Code.
(2) For purposes of this rule, "cash discounts" include the
following, provided they are only based on making timely
payments or volume purchases:
(a) "X per cent, y-day" discounts, where the purchaser may
take a percentage cash discount on the invoice price if
payment is made within a specified period of time of the
invoice date; otherwise the entire invoice price is due by
the net date;
(b) Incentive-based rebates received by a purchaser, but not
the purchaser’s customer; and
(c) Discounts allowed and taken by a purchaser, but not the
purchaser’s customer.
(B)(1) For example, an Ohio retailer purchases its products
from the manufacturer and receives an invoice with a two-ten,
net-thirty cash discount option. If the retailer pays the
invoice within ten days of the invoice date, the retailer may
deduct from its payment to the manufacturer two per cent of
the invoice price. In such case, the manufacturer would be
entitled to a deduction for such amount for such reduction in
the invoice and could report the ninety-eight per cent of the
invoiced price that it received from the retailer as a gross
receipt. While technically a deduction, the manufacturer may
either choose to report ninety-eight per cent or, if the
purchase occurs outside of the current period, may take a
deduction from its taxable gross receipts from a previous
period. If the retailer fails to pay the invoice within ten
days, the entire invoice amount is due within thirty days of
the invoice date and the manufacturer would report the one
hundred per cent of the invoiced price that it received from
the retailer as taxable gross receipts.
(2)(a) As another example, for promotional purposes and in
order to boost its sales, a car manufacturer announces that
it will provide an incentive-based rebate of one thousand
dollars per "Model A" car to all dealers that sell at least
one hundred "Model A" cars in a given quarter. A car dealer
located in Columbus, Ohio sells two hundred "Model A" cars in
the first quarter of 2006. In accordance with its incentive
program, the manufacturer sends the dealer a check for two
hundred thousand dollars. The two hundred thousand dollar
incentive-based rebate does not have to be included in the
dealer's gross receipts for purposes of the commercial
activity tax and the manufacturer can reduce its gross
receipts by such amount as a deduction.
(b) In contrast, assume a manufacturer provides an
incentive-based rebate to the car dealer's customers and that
the customer, whether required to or not, signs the rebate
over to the car dealer. This incentive-based rebate may not
be deducted by the manufacturer or the car dealer as a cash
discount, as such rebate was paid to the purchaser's customer
and not to the purchaser.
(3)(a) As another example, a hardware store accepts a
manufacturer's coupon for a one dollar discount of two boxes
of "X Brand" nails. The hardware store remits the coupon to
"X Brand" Manufacturer and "X Brand" Manufacturer reimburses
the hardware store the one dollar discount taken, plus the
eight-cent handling fee. When the hardware store receives the
one dollar and eight cent rebate from the manufacturer, it
must include that amount in its gross receipts for purposes
of the commercial activity tax. "X Brand" Manufacturer may
not claim any reduction (i.e., deduction) from its gross
receipts for such reimbursement because the reimbursement
goes to the retailer that accepted a coupon from its customer
and not a reimbursement directly to the retailer. It is also
not a reimbursement to the purchaser based on timely payment
or volume purchases.
(b) Assume, however, that the Ohio hardware store advertises
a one dollar discount on two boxes of "X Brand" nails, and
provides a store coupon for a one dollar discount on purchase
of the two boxes of "X Brand" nails. The store is not
reimbursed by "X Brand" Manufacturer for any such coupons
tendered. When the customer purchases the nails and is given
a one dollar discount, the hardware store is not required to
include that one dollar in its calculation of gross receipts
for purposes of the commercial activity tax.
(4) As another example, for services rendered, assume a
discount store receives a monthly shelving allowance/fee from
certain manufacturers for displaying the manufacturer's
products in a prime location in the discount store. The
discount store is required to include this allowance/fee in
its calculation of gross receipts for purposes of the
commercial activity tax. In addition, the manufacturer may
not deduct such allowance/fee from its calculation of gross
receipts for purposes of the commercial activity tax.
(5) As another example, a fast food franchise receives a flat
fee or a variable fee based on the number of products sold
(e.g., hamburgers sold) for providing local advertising. The
franchise may not exclude this type of fee from its
calculation of gross receipts because such reimbursement is
for an expense and is not based on making timely payments or
on volume purchases.