Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains how sellers should report
business and occupation (B&O) tax and retail sales tax when goods are
returned and refunds or credits are granted.
(a)
Contract of sale. Generally,
when a contract of sale is made subject to cancellation at the option of one of
the parties or to revision in the event the goods sold are defective, the gross
proceeds actually derived from the contract and the selling price are
determined by the transaction as finally completed.
(b)
Examples. The examples in
this rule identify a number of facts and then state a conclusion. These
examples should be used only as a general guide. The tax results of other
situations must be determined after a review of all facts and
circumstances.
(2)
Returned goods. When sales are made either upon approval or upon a
sale or return basis, and the buyer returns the property purchased and the
entire selling price is refunded or credited to the buyer, the seller may
deduct an amount equal to the selling price from gross proceeds of sales in
computing tax liability. A deduction is available under the retail sales tax
classification only if the amount of sales tax previously collected from the
buyer has been refunded by the seller to the buyer. If the property purchased
is not returned within the guaranty period as established by contract, or if
the full selling price is not refunded or credited to the buyer, a presumption
is raised, subject to rebuttal by a preponderance of the evidence, that the
property returned is not a returned good but is an exchange or a repurchase by
the seller.
(a)
Example 1. Stan
sells an article for $60.00 and credits his sales account with the sale. The
buyer returns the article purchased within the guaranty period and the purchase
price and the sales tax previously paid by the buyer is refunded or credited to
the buyer. If the sale has not been reported to the department of revenue, Stan
may deduct $60.00 for the returned article from his gross sales amount. If Stan
has already reported the sale on his excise tax return, he may take a deduction
for $60.00 for the returned article on his next filed excise tax
return.
(b)
Restocking fees
charged on returned goods. A "restocking fee" is a fee intended to cover
the cost, by the seller, of restoring returned items to saleable condition and
returning them to inventory. The restocking fee is the same regardless of when
a purchased item is returned to the seller by the buyer.
If all the conditions of this subsection are met for returned
merchandise with the exception of a restocking fee, the transaction will be
viewed as a sale return and not as a repurchase. When a sale return occurs, a
deduction may be taken under the appropriate tax classification used in
reporting the original sale. However, the restocking fee is considered income
and taxable under the service and other business activities B&O tax
classification.
(i)
Example
2. Ace Auto Parts (Ace) sells a catalytic converter to Stan for $400.00
plus tax. The receipt that Ace gives Stan states that returns must be made
within 30 days and a $35.00 restocking fee will apply to returns. Stan realizes
after he gets the part home that it is the wrong one for his car. When Stan
returns the part, he finds that Ace does not have the catalytic converter that
he needs for his car. Ace computes Stan's refund of $400.00 plus sales tax
minus the $35.00 restocking fee. Ace may reduce its gross retail sales by
$400.00, but must report the $35.00 restocking fee under the service and other
business activities B&O tax classification.
(ii)
Example 3. Breen's
Department Store (Breen's) accepts returned items, in new condition, but may
discount the original purchase price based on the time elapsed since purchase.
Return within
|
Amount of credit
|
0 - 30 days from receipt
|
100% of original purchase price
|
31 - 60 days from receipt
|
75% of original purchase price
|
61 + days from receipt
|
50% of original purchase price
|
For example, Jill purchases a dress from Breen's and returns
the dress 45 days after purchase. Breen's refunds or provides a credit to her
of 75 percent of the cost of the dress. The amount retained by Breen's is not
considered a restocking fee. This is considered a repurchase by Breen's, and
thus no deductions are allowed under the retailing B&O tax or retail sales
tax classifications on Breen's excise tax return.
(3)
Defective goods.
This subsection does not apply to new motor vehicles under an original
manufacturer's warranty. See subsection (4) of this rule regarding new motor
vehicles under an original manufacturer's warranty.
When bona fide refunds, credits, or allowances are given within
the guaranty period by a seller to a buyer on account of defects in goods sold,
the seller may deduct the amount of such refunds, credits, or allowances in
computing its tax liability, if the seller has refunded the proportionate
amount of the sales tax it previously collected from the buyer.
Example 4. On April 5th, Stan sells an item to Bob
for $60.00. Stan records the sale as gross income. The item is later found to
be defective by Bob.
(a) Bob returns
the item prior to Stan reporting the sale on his excise tax return, and
remitting B&O tax and the collected retail sales tax. Stan refunds Bob the
purchase price including the retail sales tax. Stan may subtract $60.00 from
his gross income when completing his excise tax return.
(b) Bob returns the defective article and
Stan allows him a full credit of $60.00 towards another article. The new
article's price is $80.00. Bob pays, in cash, the additional $20.00 plus retail
sales tax on the $20.00. Stan records the $20.00 as gross sales. The allowance
for the defective article ($60.00) is already included in Stan's gross sales,
thus only the $20.00 ($60.00 credit and $20.00 cash = $80.00 purchase price)
should be added to the gross sales amount.
(c) Bob waits a month to return the defective
item for a refund. Stan refunds Bob the full purchase price of $60.00 plus the
retail sales tax. As Stan has already reported the sale on his excise tax
return, he may deduct $60.00 under "Returns" for both the retailing B&O tax
and retail sales tax classifications on his next excise tax return.
(d) Bob is willing to keep the defective item
but requests a partial refund to offset repair costs. Stan refunds Bob $25.00
of the purchase price, plus the applicable retail sales tax. As Stan has
already reported the sale on his excise tax return, he may take a deduction for
$25.00 under both the retailing B&O tax and retail sales tax
classifications on his next excise tax return.
(4)
Motor vehicle warranties - Lemon
law. A manufacturer that replaces or repurchases a new motor vehicle
under warranty because of a defective condition is required to refund to the
consumer the "collateral charges" (RCW
19.118.021(2)) which include
retail sales tax. The refund will be made to the consumer by the manufacturer
or by the dealer for the manufacturer. The department of revenue will then
verify calculations and credit or refund the correct amount of the tax so
refunded. For information on the lemon law, other than retail sales tax,
contact the attorney general's office.
(a)
What documentation is needed for credit or refund? To receive a
credit or refund, the manufacturer or dealer must provide the following
information to the department of revenue establishing that the dealer collected
the retail sales tax and that it was refunded to the consumer:
(i) A complete copy of the new motor vehicle
arbitration board decision including the owner signed acceptance/denied page;
or
(ii) The Lemon Law Refund
Request Verification Form completed in nonarbitrated situations; and
(iii) A statement signed and dated by the
consumer accepting the arbitration board decision or the manufacturer's
nonarbitrated repurchase offer. The statement must include the consumer's name,
repurchase offer date, total repurchase amount, sales tax amount refunded, the
name of the manufacturer issuing the refund and any other supporting documents
needed to substantiate the claim; and
(iv) A copy of the dealer invoice (purchase
order) or lease agreement, signed by the consumer, that shows the amount of
retail sales tax paid; and
(v) A
copy of the manufacturer's refund check(s) for repurchase drawn payable to the
consumer and/or lien holder; and
(vi) For the calculation of reasonable offset
for mileage provide all supporting documentation necessary to verify the
calculation used and documentation (e.g., all dealer repair records or service
records) to verify the attempted repairs to the vehicle did comply with
RCW
19.118.041.
(b)
Where can I obtain the Lemon Law
Refund Request Verification Form? The "Lemon Law Refund Request
Verification Form" is available on the department's website at dor.wa.gov, or
by calling the department's telephone information center at 360-705-6705, or
writing to:
Taxpayer Services
Department of Revenue
P.O. Box 47478
Olympia, WA 98504-7478
(c)
Where should documentation be
sent? All documentation from manufacturers for credit or refund on lemon
law refunds should be sent to:
Audit Division/Lemon Law Refund Section
Department of Revenue
P.O. Box 47474
Olympia, WA 98504-7474