Math help needed: combining percentages

General Questions
#1

For my new shop, I did my state sales tax filing this weekend for my first month in business, and although I got through it, it threw me for a loop. (States don’t seem to want to give you all the information you need up front, but make you dig for it.)

I’m in Virginia, and I knew that our sales tax rate was 4.3%. I also knew that the local tax for Loudoun County was 1.7%, so I configured my shop to collect that on all Loudoun County, Virginia sales. (To be precise, the county tax is 1% and there is a regional transportation tax of 0.7%.) I got one order last month, so the problem I’m going to describe didn’t have a huge impact. But I need to fix it before my sales increase, also increasing the scope of the problem. (I over-collected by 2 cents.)

It was only in the online tax filing that they revealed a 1.116% dealer discount (for sales under a certain amount, which I qualify for right now). Based on the state’s computation, I can tell that the discount is applied to the resulting tax, not to the taxable sales.

To summarize using a $100 sale example:

$100.00 - Taxable sales
$4.30 - State 4.3%
$1.70 - county&transport tax 1.7%
$6.00 - total tax
-$0.05 - minus the dealer discount 1.115%
$5.95 - total tax owed

Got it? It’s not that hard, but my shopping platform only allows me to create tax exceptions with positive numbers. I can’t enter a negative percentage or discount. I fiddled with a calculator to see if I could somehow combine the tax rates with the discount rate to end up with the correct amount of taxes collected, but couldn’t figure it out. So asking for help here. How do I:

4.3% + 1.7% - 1.116% and using the example above end up with that 5 cent discount? It doesn’t seem to be as easy as 4.3% + .584%. It can’t be this hard, but I’m missing something.

#2

Keep your numbers straight.

Is the discount 1.115% or 1.116%?

Why is the discount 5 cents instead of 7 cents?

The discount is applied to the tax not the full value so your formula is:

(4.3 + 1.7)*(100-1.116) = 5.9304%

which is the correct payable on your $100 sales…$5.93 total tax.

#3

Also, in most states the dealer discount is money you get to keep as a commission for your efforts as a tax collection agent.

So in your $100 example (errors and all) you should collect $6.00 from the customer(s), send the state $5.95, and keep the nickel for yourself.

If your website is typical they don’t want to know anything about the discount. They’ll pay you $6.00 and you’ll send the state a check for $5.95 along with your paperwork.

You definitely need to make sure VA works as I’ve described. Most states have decent help available for these kinds of questions from budding businesspeople. Call and ask.

#4

As an aside…I just find it funny that the discount tax rate is defined to one part in 10 thousand. That’s some pretty fine hair splitting there.

#5

Sorry, the discount is 1.116%. When I put this example into the state’s computation page, they came up with a discount of 0.05 on 100.00. I suspect they’re rounding from a few more decimal places out than they’re displaying.

Ugh that’s stupid and just makes things difficult. Quickbooks doesn’t account for this in the sales tax liability, that I know of. I guess I need to get myself to an accountant for advise on how to handle this.

#6

Maybe I don’t get it, but is it not as simple as this?:

You collect 6% sales tax, which as I understand it is what you are currently doing.

When it comes time to file and remit said sales tax, you calculate the total taxes collected for the given period (i.e., 6% of taxable sales), then deduct 1.116% from that amount of tax, and send the state a check for the remaining 98.884%.

You don’t change a thing on the collection end. You merely use simple arithmetic to adjust the “amount to pay the state” figure from the “amount collected for sales tax” figure.

Am I missing something?

#7

I agree with Gary T. You’re suppose to collect from the customer 6% of the taxable sales. Then, when it’s time to settle up with the state, they get 98.884% of the tax you collected and you get to keep 1.116% of the tax you collected. You are not expected to pass on that discount to the customer. In fact, it’s probably illegal for you to do so. Otherwise, you could have companies promising customers that they could pay lower tax rates at this store compared to that store.

#8

Okay, so that’s what I’m currently doing. I just don’t know how to do the bookkeeping for it. That remaining 5 cents (using the above scenario) didn’t get paid on to the state, so it stays in my tax liability category. I’ll have to check with an accountant to see what they do with this. (For example, do I move it to a “commission” income category, or what.)

#9

This.