With holding tax base amount for 1099 vendors with discounted payment term

Question

Hi Friends,
We have a below situation for 1099 vendors,
Some of the 1099 vendors are set-up in the system with payment term with discounts i.e. 2% if paid within 10 days
As per config, system posts with holding tax base amount at the time of posting payment.
With holding tax rate is 0%,
Based on modified net amount calculation
and
Cash discount calculation before w/tax calculation
When we have vendor with input tax, system excludes tax amount at the time of payment but for the with holding tax base calculation amount system does not exclude input tax type.
Which causes difference in 1099 – misc vendors
Below is the example of how system calculates the amount.
Invoice $ 1000, payment term 2% if paid within 10 days. Input tax 7.25%
Payment going out=
$1000- $ 72.5(tax 7.25%) = $ 927.5 – 18.55 [2% discount] = $ 908.95 (payment amount)
With holding base calculation =
$ 1000 – 100 (2% discount) = $ 900
Difference between payment going out and with holding tax base = 908.98 – 900 = 8.98
Can some one please tell me how to get rid off this difference?
Moreover, please tell me if it’s normal to have 1099 vendors with discounted payment term.
Any thoughts on above situation will be helpful
Edited by: Shefford William on Jan 28, 2008 11:36 PM

Answer 1

Dear All
i am also having the same problem. The example is
Net invoice Value   = $ 100,000
Input Tax @ 15%   = $  15,000
Total Invoice Value = $ 115,000
Cash Discount = 20% with in 20 days
On payment the system behavior should be
Debit  Vendor invoice Value   = $ 115,000
Debit  Cash Discount @ 20%    = $   20,000   ( 20% of the Net Invoice Value that is 20% of $ 100,000)
Credit  W/H Tax deduction @ 3.5% = $ 3,325  ( 3.5% of 95,000 the Inv Value - Cash Discount that is $ 115,000 - $20,000)
Credit Bank Account  = $ 91,675 ( Inv value - Cash Dic - W/H tax that is $ 115,000 - 20,000 - 3325 = 91,675)
However at the time of payment system is calculating tax as follows
Debit  Vendor invoice Value   = $ 115,000
Debit  Cash Discount @ 20%    = $   20,000   ( 20% of the Net Invoice Value that is 20% of $ 100,000)
Credit  W/H Tax deduction @ 3.5% = $ 3,220  ( 3.5% of 92,000 the Inv Value - Cash Discount that is $ 115,000 - $23,000. This $ 23,000 is only calculated for W/H tax calculation that is 20% of $ 115,000 )
Credit Bank Account  = $ 91,780 ( Inv value - Cash Dis - W/H tax that is $ 115,000 - 20,000 - 3220 = 91,780)
this is not the common practice when using the net base value in the system.
Can any one help me in this regard. I really have been stucked in this problem for many days
Regards
Bilal Athar