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Some businesses charge a “restocking fee” when their customers return merchandise for a refund of the selling price.  If so, the restocking fee is subject to thebusiness and occupation (B&O) tax under the service and other activities classification.  The seller may take a returns and 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.

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.

  • You sold a vehicle part for $85 dollars and collected $7.65 in sales tax (9% rate).

 

  • When the customer returns the part, you charge them a restocking fee of $10.
  • 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

  • Under the retailing B&O tax classification, report a deduction for $85 using the “returns and allowances” explanation on the deduction detail. 

 

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

 

For additional information, see WAC 458-20-108.