Understanding Returns and Sales Tax

When a customer returns merchandise, the sales tax collected at the time of purchase must also be addressed. From a tax perspective, this creates two common scenarios:

• Returns in the same reporting period: If the return occurs in the same month (or filing period) as the original sale, the refunded sales tax cancels out with the original transaction before the tax return is filed. No additional action is needed.
• Returns in a later reporting period: If the return happens in a subsequent month, the tax collected on the original sale will already have been remitted to the state and local jurisdictions. In this case, the tax must be “recovered” and credited back against future filings.

How TaxCloud Handles Returns

TaxCloud automatically manages both scenarios. When you report a returned order through the API:

1. TaxCloud instantly recognizes the return, records it, and calculates the appropriate sales tax credit for all applicable state and local jurisdictions.
2. If the return occurs in a later month, TaxCloud applies those credits against future filings, reducing the amount remitted.
3. You don’t need to adjust filings manually, credits are tracked and applied for you.

Important Limitation

TaxCloud does not submit refund requests to states on your behalf. If you prefer not to wait for credits to offset future remittances, you may request a direct refund from the jurisdiction. If you do so, you must notify TaxCloud so that we can expire any pending credits and prevent double-counting.

Next Steps

The next guides explain how to implement returns using the API:

• Returned API Basics – how to return full or partial orders.
• Advanced Returns – partial items, fractional quantities, and the `ReturnedDateparameter.