Document Number
Tax Type
Retail Sales and Use Tax
Returned goods and repossessions; Restocking fee
Basis of Tax
Date Issued
August 30, 1996

Re: § 58.1-1821 Application: Retail Sales & Use Tax


This will reply to your letter of June 18, 1996 in which you seek a correction of the department's assessment issued to ***************(the "Taxpayer") for the period September 1994 through February 1996.

The Taxpayer states that it disagrees with the imposition of tax on restocking fees. The Taxpayer sold software on an installment basis, and collected a down payment on the purchase date. Customers had the option of returning software they found unsatisfactory. Upon returning the software, the Taxpayer retains the down payment as a restocking fee. The Taxpayer requests waiver of tax and interest assessed on the restocking fees.

For the future, the Taxpayer states that it will refund the entire purchase price including tax. A separate charge will then be made to the customer for the restocking fee. The Taxpayer states that such a separate charge is not subject to the tax.

Code of Virginia § 58.1-619 provides in part that:
    • In the event purchases are returned to the dealer by the purchaser or consumer after the tax imposed by this chapter has been collected or charged to the account of the purchaser, the dealer shall be entitled to reimbursement of the amount of tax so collected or charged by him, in the manner prescribed by the Tax Commissioner. The amount of tax so reimbursed to the dealer shall not, however, include the tax paid upon any cash retained by the dealer after such return of merchandise.

The department has previously ruled that restocking fees are subject to the tax. To aid in future compliance, the auditor provided the Taxpayer a copy of public document (P.D.) 94-188. As this document points out, a restocking fee deducted from the amount refunded to the customer on returned products is properly subject to the tax.

The change in the Taxpayer's billing practices has no impact on the department's position in this instance. The Virginia tax is computed based on the "sales price" of an article. This term is defined in Code of Virginia § 58.1-602 as "the total amount for which tangible personal property or services are sold, including any services that are a part of the sale." (Emphasis added).

The return of goods to inventory for which an incremental charge is imposed is a charge for a service in connection with the sale of tangible personal property. Such charges, therefore, even if separately stated, are tied to the sale of tangible personal property and are properly subject to the tax. Based on the information before me, I do not find sufficient cause to allow an adjustment to the department's audit. Accordingly, the balance of the department's assessment remains due and payable.

Please return your payment to the address listed on the department's assessment within 30 days to avoid the accrual of additional interest. If you have any questions regarding this matter, please contact ******** of the department's Office of Tax Policy at********.


Danny M. Payne
Tax Commissioner


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46