Is it mandatory to add sales tax to a deposit on a purchase subject to sales tax?


The answer will depend on the kind of purchase and what you mean by "deposit," but in a general sense, no, it is not mandatory to add sales tax to a deposit on a taxable purchase. Most business-to-business transactions are governed by an agreement between two companies on terms, and if the terms of your agreement specify that sales tax will be added to a deposit or to incremental payments, then, yes, in that case it would be mandatory.

Some examples may help. If a company has a construction program, it will likely have progress billings whereby part of the construction cost is paid at various construction milestones. Typically taxes would be included in those kinds of payments. Or you may have entered a contract in which you agree to make a series of payments over time. More typically, the tax would not be added to the periodic payments but added to the last payment (calculated on the total, of course).

An example from the retail world: say you issue a PO for $100,000 in goods, which will be delivered in batches. You receive an invoice covering each batch delivery for $20,000. Our retail expert says she would not expect tax to be added to that $20,000 invoice, but at the final payment. Taking a business-to-consumer example, if you were to put $1,000 down on a car, tax would not be added to that. The $1,000 would eventually be deducted from the balance due, but the sales tax would be paid on the total when the balance was paid.

In a different kind of consumer example, if you purchase a gift card, tax is not added to it; the tax is applied when the card is redeemed and merchandise ownership changes from the retailer to the purchaser. So again, the general answer would be no. But it will really depend on what you are buying, governed by what terms. That will depend on your industry, the respective power of your vendor versus your company, and the negotiating skills of buyer and seller.

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