Sales, Use and International Tax Activity Update - April 2009

Washington Takes Stock of Restocking Fee Taxes

The Washington Department of Revenue has published a guidance regarding restocking fee charged by the seller for returned merchandise. The restocking fee is not taxable per the Sales and Use tax, however is taxable for the business and occupations (B&O) tax. The seller may take an allowance deduction for the tax classification that was used when reporting the original sale. The amount deducted is the amount credited for the goods returned, excluding any adjustment for restocking fees.

The reporting calculations are explained as the following:

Calculating the Refund – Retail Sales

The correct way to calculate the refund and report it on your excise tax return is outlined in the example below.

1. You sold a vehicle part for $85 dollars and collected $7.65 in sales tax (9% rate).
2. When the customer returns the part, you charge them a restocking fee of $10.
3. The amount refunded to the customer is $85 (selling price) + $7.65 (sales tax collected) - $10 (restocking fee) = $82.65.

Reporting the Refund and Restocking Fee – Retail Sales

1. Under the retailing B&O tax classification, report a deduction for $85 using the “returns and allowances” explanation on the deduction detail.
2. Under the retail sales tax, report a deduction for $85 using the “returns and allowances” explanation on the deduction detail.
3. Deduct $85 from the local sales tax section of the return as well, using the location code the sale was originally reported to.
4. Under the service and other activities B&O tax classification, report the $10.

The full publication can be viewed on the Washington State Department of Revenue Website.

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