When a customer returns merchandise, gives a late resale/exemption certificate, or was billed tax in error, how does a seller get back the sales tax it already remitted to Texas?

Subject

Returned Merchandise, Late Certificates, and Erroneous Billings — Sales Tax Refund Procedure

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9310L1273A06

Plain-English Summary

A taxpayer asked the Comptroller about the proper procedure for getting back sales tax it had already remitted to the state, in three situations: merchandise is returned, a purchaser who was initially charged tax later provides a resale or exemption certificate, and tax was billed in error.

The Comptroller explained that the taxpayer may request a refund from the Comptroller of any tax it remitted but that was not actually due. Critically, the state will not refund that tax to the seller until the seller has first either refunded the tax to its customer or credited the customer's account for the amount collected in error — the seller cannot keep a state refund while the customer is still out the tax it paid.

The refund can be handled in one of two ways:

1. Amended returns — filing amended Sales and Use Tax Returns for the periods in which the tax was originally remitted; or
2. Credit on a future return — taking a credit on the next return due for the amount refunded or credited to the purchaser.

Either way, the taxpayer must keep specific supporting documentation: (a) copies of invoices showing the sales amount; (b) the amount of tax collected; (c) the reporting periods in which the tax was remitted; (d) properly completed resale or exemption certificates, if applicable; (e) credit memos and the customer's written consent before crediting its account for tax collected in error, if applicable; and (f) confirmation that the customer has not and will not also take credit for that same tax on its own sales tax account (to prevent the tax being refunded or credited twice).

The letter also confirms that local sales and use taxes can be refunded the same way, but only for the same local taxing jurisdiction the tax was originally remitted to.

The Comptroller noted the opinion is based on the facts presented, and could change if the facts are different.

What This Means For You

If you're a seller who over-collected or was overpaid sales tax: You have two mechanical options to get the money back from the state — amend the old returns, or take a credit on your next return. You don't get to choose based on convenience alone; either path requires you to have already made the customer whole first.

Before you file for a refund or credit, make the customer whole: The Comptroller will not release a refund to you until you've either refunded the tax to your customer directly or credited their account. Get written consent from the customer before crediting their account for tax collected in error.

Keep your paperwork in order: Invoices, the tax amount collected, the reporting period, any resale/exemption certificate, credit memos, and — importantly — written confirmation that the customer will not separately claim the same credit. Missing this last item creates a real risk of the state paying the same tax back twice (once to you, once to the customer).

Local tax follows the same rule but stays local: If local sales/use tax is part of the refund, it can only be credited or refunded back to the same local jurisdiction it was originally paid into — you can't shift a local refund to a different jurisdiction.

Q&A

Q: My customer returned merchandise after I already remitted sales tax on the sale. How do I get that tax back?
A: You can request a refund from the Comptroller, but only after you've refunded or credited the tax to your customer. You then either file amended returns for the periods the tax was remitted, or take a credit on your next return, supported by invoices, the tax amount, the reporting periods, and (if a credit) the customer's written consent and confirmation the customer won't also claim it.

Q: A customer gave me a resale certificate after I'd already charged and remitted tax on the sale. Can I still refund that tax?
A: Yes — this is one of the three situations the letter addresses directly. The same two options apply (amended return or credit on a future return), and you need the properly completed resale or exemption certificate as part of your supporting documentation.

Q: I billed a customer tax in error. What records do I need to support a refund or credit?
A: Copies of invoices reflecting the sales amount, the amount of tax collected, the reporting periods in which the tax was remitted, credit memos, the customer's written consent to the credit, and confirmation that the customer has not and will not also take credit for that tax on their own account.

Q: Does this also cover local (city/county/transit) sales tax, or just state tax?
A: Both. The letter states that local sales and use taxes may also be refunded, as long as the refund or credit goes back to the same local taxing jurisdiction the tax was originally remitted to.

Original ruling text

October 28,1993

Dear **:

Thank you for your letter of October 15,1993, regarding the proper
procedures for obtaining a refund of tax paid to the state. You have asked us
to address situations where merchandise is returned, where tax is initially
collected from the purchaser and the purchaser later issues a resale or
exemption certificate, and erroneous billings of tax.

* may request from the Comptroller a refund of any tax it has
remitted but was not due. The sales taxes remitted to the state will not be
refunded to * until these taxes have been refunded to your customer or
until *** has credited the customer's account for the amount of tax
collected in error. The refund may be handled in one of two ways:

(1) *** may file amended Sales and Use Tax Returns for the periods
in which the tax was originally remitted; or,

(2) * may take a credit on its next return due for the amount
refunded or credited to the purchaser * will need to maintain the
following documentation in support of their claims for refund or credit:
(a) copies of invoices reflecting the sales amount; (b) the amount of tax
collected; (c) the reporting periods in which the tax was remitted;
(d) properly completed resale or exemption certificates (ifapplicable);
(e) credit memos and your customer's written consent before crediting its
account for the amount collected in error (if applicable); (f) confirmation
that your customer has not and will not take credit for the tax on their
sales tax account.

*** may also receive a refund for local sales and use taxes paid
provided the refund or credit is for the same local taxing jurisdiction that
the tax was originally remitted for.

This opinion is based on the facts presented. If there are any additional
or different facts, the opinion may change.

If you have any questions or need additional information, you may call
toll free 1-800-531-5441, ext. 50037. The regular Austin number is
512-475-0037. You also may write to Tax Administration Division.

Sincerely,

Lindey Osborne
Tax Administration Division

NOTE: Previous Accession Number 9311104L.3 and/or 9311104L