Legal question: Charging sales tax on something other than sale price?

[SoonerDave]

I came across a curious observation the other day that kinda made me scratch my head a bit and wonder if it were really a legal practice.

Not intending to get anyone in trouble, I'll convey this in the abstract. Say a consignment or resale website offers an item for sale. They sell the item for a price *other* than that given by the consigner, but charge the *sales tax* on that original price. Is that cricket? On the surface, it seems the sales site is only going to report the actual price and remit sales tax accordingly, and quietly pocket the difference. Maybe I am being too cynical, but it almost seems dishonest.

EG Consigner posts item for sale for $100. Site sells item for $50, but computes sales tax on basis of original $100 price that was never actually paid. Doesn't seem cricket to me. Gives them a means to pocket difference between tax collected and tax actually paid.

Any legal beagles out there that can comment?

[checkthat]

I came across a curious observation the other day that kinda made me scratch my head a bit and wonder if it were really a legal practice.

Not intending to get anyone in trouble, I'll convey this in the abstract. Say a consignment or resale website offers an item for sale. They sell the item for a price *other* than that given by the consigner, but charge the *sales tax* on that original price. Is that cricket? On the surface, it seems the sales site is only going to report the actual price and remit sales tax accordingly, and quietly pocket the difference. Maybe I am being too cynical, but it almost seems dishonest.

EG Consigner posts item for sale for $100. Site sells item for $50, but computes sales tax on basis of original $100 price that was never actually paid. Doesn't seem cricket to me. Gives them a means to pocket difference between tax collected and tax actually paid.

Any legal beagles out there that can comment?

Not 100% sure, but, I believe if they are saying the price is $100, with a $50 discount, then yes, sales tax is due on the full price.

[Zuplar]

Not 100% sure, but, I believe if they are saying the price is $100, with a $50 discount, then yes, sales tax is due on the full price.

That doesn't really make sense to me. When I go to Lowes, and use a 10% off, they don't charge me tax on the price before the 10% discount.

Dave, I feel like you may have a legit complaint here.

[SoonerDave]

Not 100% sure, but, I believe if they are saying the price is $100, with a $50 discount, then yes, sales tax is due on the full price.

Hmmmm...from what I can tell, it isn't a "discount." "Receipt" doesn't say $100-$50. Just says $50 + sales tax computed on consigner's assigned value.

[SoonerDave]

That doesn't really make sense to me. When I go to Lowes, and use a 10% off, they don't charge me tax on the price before the 10% discount.

Dave, I feel like you may have a legit complaint here.

Exactly what I was thinking. Great example to illustrate the point BTW.

[jerrywall]

That doesn't really make sense to me. When I go to Lowes, and use a 10% off, they don't charge me tax on the price before the 10% discount.

Dave, I feel like you may have a legit complaint here.

I think on the consignment case, you're right, but I should point out that in most states, if the coupon is a manufacturers coupon or discount, or basically anything where the retailer will get compensated for the amount of the discount, then the tax is calculated on the original price (or legally should be). Basically, if the retailer got $90 from the customer and $10 from the manufacturer, then that's $100 in sales revenue the retailer has to remit sales taxes on. Now, some retailers may just absorb that, or not report it, or whatever. But I know when I had my shop, the register was setup to calculate sales taxes differently depending on the type of discount.

[SoonerDave]

I think on the consignment case, you're right, but I should point out that in most states, if the coupon is a manufacturers coupon or discount, or basically anything where the retailer will get compensated for the amount of the discount, then the tax is calculated on the original price (or legally should be). Basically, if the retailer got $90 from the customer and $10 from the manufacturer, then that's $100 in sales revenue the retailer has to remit sales taxes on. Now, some retailers may just absorb that, or not report it, or whatever. But I know when I had my shop, the register was setup to calculate sales taxes differently depending on the type of discount.

In the case I am describing, the "reseller" is not getting anything other than the $$ from the sale. I personally think they're hiding a simple fee in the guise/wrap of a tax assuming no one will challenge/question it.

[checkthat]

That doesn't really make sense to me. When I go to Lowes, and use a 10% off, they don't charge me tax on the price before the 10% discount.

Dave, I feel like you may have a legit complaint here.

Sales tax laws vary by state. In Oklahoma, it looks like tax is supposed to be charged on the gross receipt, rather than net:

A. There is hereby levied upon all sales, not otherwise exempted in the Oklahoma Sales Tax Code, an excise tax of four and one-half percent (4.5%) of the gross receipts or gross proceeds of each sale of the following:

http://www.oscn.net/applications/osc...?CiteID=440447

[rezman]

Sales tax laws vary by state. In Oklahoma, it looks like tax is supposed to be charged on the gross receipt, rather than net:

When my wife and I had our shop, we charged tax on the total of each sale. We never delt with manufacturers coupons or discounts, but when we offered and in store discount, then tax was charged on the discount price.

Personally, I wouldn't complain as I've bought plenty of new and used items on line and never paid a lick of sales tax. ... Others items I have.

[SoonerDave]

Let's put it in even simpler terms. Forget the consignment issue - it was for illustration. Let's say its a furniture store (it isn't). Heck, any retailer. Say they're selling sofas or bananas or gag candles (doesn't really matter). The manufacturer may have an MSRP of $1,000 on the sofa/banana/candle, but if Fred's Furniture Factory in OKC sells it for $699, they're not going to charge sales tax on $1,000. But if they *say* they charge it that way, I bet the state of OK would like to know if that's what they're getting. And, as a customer, I don't like being told I'm paying a tax I don't really owe.

That may not legally be "fraud," (false pretenses, intent to deceive) but it darned sure seems to skate the edge in my book - especially if its a site that routinely sells items well below what the MSRP might be. It would be a way to make more money in what I would say isn't a very honest way. Heck, it would encourage the "manufacturer" to inflate their prices to maximize the "tax" collected by the seller...

Say you sell the "sofa" for $100, but collect tax on $1,000. At 8%, the "real" sale would only net $8 in taxes, but computed on what we're calling MSRP, they collect $80, and the seller really only remits the $8 and pockets $72 - and the buyer gets a final bill of $180 for the sale - 80% more than the "sale price."

More I think about this, the more it kinda smells to me.

[jerrywall]

Let's put it in even simpler terms. Forget the consignment issue - it was for illustration. Let's say its a furniture store (it isn't). Heck, any retailer. Say they're selling sofas or bananas or gag candles (doesn't really matter). The manufacturer may have an MSRP of $1,000 on the sofa/banana/candle, but if Fred's Furniture Factory in OKC sells it for $699, they're not going to charge sales tax on $1,000. But if they *say* they charge it that way, I bet the state of OK would like to know if that's what they're getting. And, as a customer, I don't like being told I'm paying a tax I don't really owe.

That may not legally be "fraud," (false pretenses, intent to deceive) but it darned sure seems to skate the edge in my book - especially if its a site that routinely sells items well below what the MSRP might be. It would be a way to make more money in what I would say isn't a very honest way. Heck, it would encourage the "manufacturer" to inflate their prices to maximize the "tax" collected by the seller...

It would be tax fraud, and could get someone in trouble with the tax commission. It's very illegal to not remit collected sales taxes.

The only reason they should collect taxes for $1000 on something they sold for $699 is if they got compensated by the manufacturer for the discount (because, since they received a total of $1000 for the product, they have to pay sales tax on the $1000).

It should be noted that retailers automatically receive commission (or handling fees) as it were for collecting sales taxes and remitting them timely.

[chuck5815]

As discussed, Sales Tax is calculated on "Gross Receipts" or "Gross Proceeds." Given that, this language from the Tax Commission seems to answer the original question:

(c) Excluded items and transactions. "gross receipts", "gross proceeds", or "sales price" shall not include: (1) Discounts, including cash, term, or coupons that are not reimbursed by a third party that are allowed by a seller and taken by a purchaser on a sale.

https://www.ok.gov/tax/documents/rule6509.pdf (see top of page 10)

So the retailer cannot give a $50 discount on a $100 item, and then compute Sales Tax on the original list price of $100.

[SoonerDave]

As discussed, Sales Tax is calculated on "Gross Receipts" or "Gross Proceeds." Given that, this language from the Tax Commission seems to answer the original question:

(c) Excluded items and transactions. "gross receipts", "gross proceeds", or "sales price" shall not include: (1) Discounts, including cash, term, or coupons that are not reimbursed by a third party that are allowed by a seller and taken by a purchaser on a sale.

https://www.ok.gov/tax/documents/rule6509.pdf (see top of page 10)

So the retailer cannot give a $50 discount on a $100 item, and then compute Sales Tax on the original list price of $100.

Bingo.

If I wanted to communicate to the OTC an organization that is doing *precisely* this, how would I go about it?

[Zuplar]

Bingo.

If I wanted to communicate to the OTC an organization that is doing *precisely* this, how would I go about it?

I'd probably just contact them directly and see what they have to say. Good luck.

https://www.ok.gov/triton/contact.php?ac=281&id=257