On returns and sales tax, an Oscar tribute – Wacky Tax Wednesday

Like many Americans, I hunkered down on Sunday evening to watch the Oscars. The kids started early, so as not to miss any of the Red Carpet fun, but my husband and I waited until the incomparable Jimmy Kimmel took the stage. For me, it was one of the most enjoyable Oscars ever until the confusing and heartbreaking conclusion, when our hearts simultaneously leapt for Moonlight and bled for La La Land.

The Best Picture snafu surprised me. It also made me ponder the sales tax implications of returns, welcome or unwelcome. What happens to the sales tax when something given must be returned?

The answer depends on the scenario and the state, as is usually the case with sales tax. Read on for a sampling.

Owners of Volkswagen diesels that qualify for the emissions recall (there are approximately 550,000 of these vehicles in the United States alone) can opt to have Volkswagen buy back the affected diesels. Those that do, including yours truly, receive 112% of the vehicle’s value as of September 2015.

The process was easy for me: I made an appointment, brought the vehicle to our dealership, signed a few pieces of paper, and received the promised funds from Volkswagen a few days later. The state of Washington, however, did not refund the sales tax I had paid when I originally purchased the car.

We used the money we were given to purchase another VW (even with the scandal, I remain brand loyal like “A Man Called Ove”). But we did not receive a trade-in allowance to reduce the amount of sales tax owed on our new car. Although we purchased our new VW from the same dealership where we both bought and offloaded our dirty diesel, the buyback and the buy are two separate, entirely unrelated transactions.

Delivery charges, which include the cost of crating, handling, packing, postage, shipping, and transportation, are considered part of the “price” of a sale in Ohio. When the delivered goods are taxable, the shipping charges are subject to sales tax, too.

This impacts refunds. In the event a customer returns goods, the vendor must refund the full charge of the transaction — including delivery charges — for a customer to receive a refund of the sales tax paid. The Ohio Department of Taxation explains, “If the charge for the delivery is not refunded to the customer, the sales tax collected from the customer will not be refunded by the Ohio Department of Taxation.”

The La La Land lot didn’t get a chance to see what the Best Picture Oscar looked like on their shelves; the trophy was both given and taken away in a few surreal moments. If the mistake had been revealed after the ceremony had concluded, would the experience have been more, or less, confusing and awful for them?

How quickly an item is returned affects the sales tax refund in Connecticut. If the return is made within 90 days of the original purchase (with a receipt), a full refund is allowed. If the return is made after 90 days from the date of purchase, no refund will be given. Customers who are unable to present the original receipt are also not entitled to a sales tax refund, no matter when the return occurs.

Restocking fees can complicate the return/refund process. In Washington and California, any business that charges a restocking fee must be sure to deduct it from a refund of the purchase price and sales tax. For example, if a vehicle part that sold for $85.00 plus $7.65 in sales tax is returned, the vendor must refund to the customer the $85 selling price, plus the $7.64 sales tax, minus the $10 restocking fee, for a total refund of $82.65.

Not many movies are made about sales tax (even The Accountant avoided the topic), and most of us would rather watch a terrible movie than immerse ourselves in the dos and don’ts of sales tax compliance. But sometimes, even small errors like handing someone the wrong envelope can have tremendous consequences — as the world witnessed on Sunday evening.

The best way to ensure small errors don’t turn into a negative audit finding (or the talk of the town) is to use tax automation software like Avalara AvaTax.