As with all things Sales Tax related, there are complexities when it comes to refunds and sales tax! This will not be released for another month or so, but we have begun development on how sales tax refunds are handled. This blog will explain the concepts – a later blog will go thru all the details in the system once released.
Purchases from a customer may have multiple items (race/walk/ride registration, nonprofit tickets, merchandise, membership fees, processing fees, etc.) that are taxed differently, potentially in different states. If a total refund is issued, then things are pretty simple and all the sales tax is refunded as well (although there are extra complications discussed below).
An example of that is when someone signed up for a race ($25) and bought a shirt ($15) in a state where race fees are not taxed and merchandise is taxed at 5%. The participant paid a total of $45.75, not including processing fees. If you issue a refund for the full $45, then there is a credit from the state for the $0.75 and we refund the customer $45.75 on their credit card.
Partial Refunds
Complications start coming in when we talk about partial refunds. RunSignup is implementing an algorithm that will calculate this automatically in a conservative methodology. We essentially refund the least taxed items first.
An example is someone signed up for a race ($25) and bought a shirt ($15) in a state where race fees are not taxed and merchandise is taxed at 5%. The participant paid a total of $45.75, not including processing fees. Issuing a refund of say $15. With our default algorithm there is no way to know that the refund was for the shirt or the race fee. Hence we do not refund any sales tax.
In addition to our default, we also have a way to saying how much of each type of taxable items were refunded. So you could specify that the refund is for the shirt and the $0.75 tax would be refunded.
The way we are implementing it will allow you full control over splitting the amount refunded across the various sales tax items:
Marketplace States Payment Flows
For Marketplace states (see our taxability matrix from the webinar), RunSignup collects and remits the sales tax. This means we will be handling the refund of the sales tax portion, but the rest of the refund specified will come out of your refund reserve.
Non-Marketplace State Payment Flows
For non-Marketplace states if your race or event has turned on sales tax calculation we will be calculating and collecting the sales tax, but paying you the sales tax so you can pay your state. In that case, when a refund is issued, the sales tax will be taken out of your refund reserve along with the refund amount specified. You will get a negative sales tax paid on the report of sales tax transactions in RunSignup, so you would get an offset in your next month’s tax payment. So it is a slight negative cash flow impact that is eventually evened out with the credit on the next tax payment you make.
Remember: you can not control the tax amount refunded – that is automatically applied depending either on our algorithm or the items you select to refund.