96-108

Response July 9, 1996

Request

May 24, 1996

Utah State Tax Commission

201 North 1950 West

Salt Lake City, Ut 84314

ATTN: Audit Division

RE: Request for a Letter Ruling

Mr./Ms.:

XXXXX is currently looking to implement a restocking fee for customers that return unused products. The fee will be used to cover the time and expense in returning the items to resale inventory. In billing this fee the amount will always be stated separately. The fee itself will be nominal and percentage based. The same percentage will be applied to all returned items for customers throughout the country.

We are requesting a Letter ruling from the State of Utah regarding the application of sales tax to this fee. I have enclosed a self-addressed stamped envelope for your convenience.

Sincerely,

XXXXX

July 9, 1996

XXXXX

Advisory Opinion - Application of sales tax to restocking charge.

Dear XXXXX

Your request for information regarding the taxability of a restocking fee has been referred to our office for an advisory opinion. We find as follows:

Sales tax is imposed on the sales price of the item(s) purchased. If the vendor allows its customers to return merchandise for a refund, the refund should include the sales tax paid on the original transaction. If the sales tax has already been reported and remitted, the vendor is eligible for an adjustment credit on his or her next sales tax return. Utah Admin. Rule R865-19S-20.

A fee charged to the customer for restocking returned items is not a taxable transaction. However, if the purchase price refunded to the customer is prorated and a portion of the sales price retained as a charge for the customer’s temporary use of the item, the amount charged is considered a taxable rental payment.

Please contact us again if you have additional questions.

For the Commission,

Alice Shearer,

Commissioner