No discount on sales tax or delivery charges

Dear Thea,

We have never allowed customers to take their discount on sales tax or delivery charges. We don’t allow the discount on sales tax due to the fact that we have to remit the full amount to the state, not the discounted amount. I understand it could be said it is part of the cost of doing business, but I believe if we can recoup the cost in the beginning we should. This saves the company some expense when it comes to sales tax.

Delivery charges are a fixed cost and I know we are not the only company that doesn’t allow the discount to be applied. Is there a standard accounting rule that applies to these situations? I have a customer who is saying she isn’t being treated fairly due to the discount issue.

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Signed, Disallowing the Drama in Dalton

Dear Disallowing,

I am just going to put this as politically correct as I possibly can. Your customer sounds like the combo platter of bully and greedy piggy. Everyone knows that you don’t get a discount on sales tax. No one offers it because it is a government-required item to collect and not part of an optional program. I am going to assume said customer mentioned that it was part of the “cost of doing business” in support of her “fair” treatment argument.

Since she is over the age of five, she should be familiar with the phrase “life isn’t fair so get used to it.” We would all LOVE to get a discount on sales tax. I shop like a starving woman presented with a chocolate buffet on tax-free weekend but alas, that is the only way I or anyone else is going to get a “discount” on sales tax. Since it is governed by state law you could offer your customer the advice that she take it up with her local state representative and ask for a reduction in those taxes. Otherwise, we are all in the same leaky little boat, sister.

Delivery charges, while not governed by anything but your company policy, are another category that typically does not fall in the discount item bin. Delivery charges fall into the same line as surcharges—they are not discountable, occasionally waived, but not discountable.

Discount applies to products purchased. Service-related items normally do not fall into that category. Most credit managers have experienced that same argument that you are getting from your customer. The customer wants to take the discount off the “total due” line on the invoice and not the products purchased. Which is why the discount is usually deducted prior to the sales tax and delivery charge being added to the bottom line of the invoice. All manner of chaos ensues once the pushback starts. I expect the next argument from your customer will be that the allotted discount period isn’t long enough and not fair to her since she has other office responsibilities and keeping track of due dates on your invoices is impeding her ability to do her other tasks.

You have a few options on the delivery charge issue: Pass on to sales to solve, write off the small difference on the discount on delivery charges, increase the delivery charge so the deduction makes it a wash, or depending on the customer and their value—suck it up.

I have occasionally tried to float the idea of PIA (Pain in Area) charge as a line item on the invoice. I will allow a discount on said items my dear customer in exchange for enacting a PIA charge that will meet or exceed the discount you have taken. We all go home happy. Solution provided. Problem solved. I am going to leave it to your imagination how it went over (spoiler alert: while the PIA charge got a chuckle, it did not make the cut for line item offerings.)

As mentioned in the past and contrary to popular belief, the customer is not always right, but they are always the customer. You might inquire as to why they are not tax exempt. Most B2B transactions are sales tax exempt, so unless your customer is retail, there has to be some other reason. Try walking your customer through the process, all the while pushing the logic and reason buttons. It may not work but it is worth a shoot. Ask her if other vendors are allowing a discount on sales tax. The law is pretty clear: become tax exempt in your state or pay the piper. Try a different voice. If you have a tax manager, connect the customer to them for an explanation. Sometimes a different voice explaining it from another view solves the issue.

Make sure your sales rep is aware and ask them to get involved. While sales tax is non-negotiable, the sales rep may be able to work something out on the delivery charge or take the entire matter up with someone above your fairness-obsessed point of contact.

Everyone wants to do the best they can by their compan in the eyes of fairness and profitability. But keep in mind: pigs get fat, hogs get slaughtered.

 

With more than 30 years of credit management experience in the LBM industry, Thea Dudley consults with companies on a wide range of credit and financial management issues. Contact Thea at theadudley@charter.net.

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