SALES TAX;

TAXES - SALES;

You asked whether a retailer that has a policy of requiring a customer who returns a damaged item to receive a refund and then buy a replacement item is administering the sales tax properly when it charges sales tax on the replacement purchase even when it has not refunded the tax on the original purchase.

State law imposes a tax of 6% of the gross receipts of any retailer from retail sales of tangible personal property. The retailer is required to collect the tax from consumers and remit it to the state on a quarterly basis (CGS § 12-408). Among other things, the law excludes the following from a retailer’s taxable gross receipts: (1) refunds in cash or store credit for merchandise returned within 90 days of its original sale and (2) credits to customers for property of the same kind, as long as the retailer intends to resell the property the customer brings back (CGS § 12-407(9)(B)(ii) and (iv)).

The law does not mandate that a retailer handle refunds or exchanges in any particular way. In the case you describe, the retailer did not refund the sales tax on the original purchase. This could have been because the item was returned more than 90 days after the original purchase or was returned without a sales slip to prove that the return occurred within 90 days. In either case, the retailer would not be able to deduct any tax it refunded from its taxes remitted to the state. Therefore, the retailer may choose not to incur the expense of refunding the tax to customer.

In the case you describe, the retailer did not exchange the item but refunded the purchase price. If the customer still wanted the item, he had to buy it again. When he did, the store charged sales tax on the purchase. The law allows a retailer to exchange two items of the same kind without charging sales tax, but only if he intends to resell the returned item. In this case the item was damaged, so the retailer probably could not resell it. Instead, the retailer refunded the customer’s money (less the original tax as already described). The customer decided to buy a new item exactly like the one he returned. Because the second sale is a separate transaction and because the situation does not fit the nontaxable exchange provision of the law, it is taxable.

JL: ro