Restocking fees for returned merchandise

What is a Restocking Fee?

A restocking fee is a fee charged to a customer when merchandise is returned for a refund.

Are restocking fees subject to tax?

Yes. The restocking fee is subject to business and occupation (B&O) tax under the Service and Other Activities classification. 

Can a business take a return and allowance deduction on their excise tax return?

Yes. If products are returned, a business may take a “return and allowance” deduction on their excise tax return. The deduction detail must match the tax classification of the original sale. The deduction amount is the total credited for the return, not including the restocking fee.

If a restocking fee was charged, how should the refund be calculated?

The customer will be credited the total amount of the purchase (selling price and sales tax), after the restocking fee is applied. For more information, see the example below.

Example:

Stan bought a vehicle part from XYZ for $85. Sales tax on this purchase was $7.57. Once Stan got home, he realized he purchased the wrong part. Stan returned the part to XYZ and was charged a restocking fee of $10. The total amount Stan was credited was $82.75.

  • $85.00 (selling price) + $7.57 (sales tax) - $10.00 (Restocking fee) = $82.75.

Reporting the refund and restocking fee on the excise tax return:

Using the same example as above, a business will report the following information on their excise tax return:

  • Under the Retailing B&O tax classification, the business would claim an $85 “returns and allowances” deduction.  
  • For Retail sales tax, the business would claim an $85 “returns and allowances” deduction.
  • Under the Service and Other Activities B&O tax classification, the business would report $10. 

More information on returned goods and restocking fees can be found in WAC 458-20-278.