How should I tax a discount where the full price can be later charged if they breach contract?

Overview

We have contract with new customer where we discounted the selling price of an item from $65.00 to $1.00. That customer will have to pay $64 if they break the contract before the contract term. 

Environment

Avalara Avatax

Resolution

• Typically tax is calculated on the post discount amount.
• If they then later break contract you will create a separate invoice for that breach of contract.
• Tax is calculated on that amount at that time.

NOTE* This is not legally binding tax advice rather a typical break down of what usually happens in these situations. For a CPA or tax expert's official stance on this in relation to your specific business you'll need to speak with the Department of Revenue / Board of Equalization or a CPA.