Are restocking fees charged when a customer returns merchandise subject to Texas sales tax?

Plain-English summary

A company asked the Comptroller whether the restocking fees it planned to charge customers who return merchandise would be subject to Texas sales tax. The company explained the fees would be nominal, calculated as a percentage of the returned items, and charged to cover the cost of putting the returned items back into resale inventory.

The Comptroller ruled that restocking fees are not taxable. To handle a return correctly, the retailer should:

1. Separately state and identify the charge as a "restocking fee."
2. Credit the customer the original purchase price plus the sales tax paid on that original purchase, producing a total refund amount.
3. Deduct the restocking fee from that total refund amount.

The letter notes this opinion is based on the facts presented, and could change if the facts are different.

What this means for you

Retailers who charge restocking fees

If you charge a fee to restock returned merchandise, don't treat that fee as taxable, and don't bury it inside the refund calculation. Show it as a separate line item labeled as a restocking fee, so it's clear to both the customer and to any later audit that the fee itself was not taxed.

Handling the refund and the sales tax already collected

The correct sequence is to first credit the customer for the full amount they paid (the item's price plus the tax charged on it), and only then subtract the restocking fee from that combined total. Don't calculate the restocking fee as a percentage of price alone while ignoring the tax already refunded, and don't apply tax to the restocking fee itself.

Accountants and tax professionals

This letter is a short, fact-specific opinion rather than a rule of general applicability, and it explicitly says a different fact pattern could produce a different answer. Use it as a starting point for advising clients on how to structure and label restocking fees, but confirm current guidance since STAR letters are not necessarily current policy.

Common questions

Q: Is a restocking fee charged on a returned item subject to Texas sales tax?
A: No. The Comptroller ruled that restocking fees are not taxable.

Q: Does it matter how the restocking fee is presented on the receipt or invoice?
A: Yes. The ruling says the fee should be separately stated and identified as a restocking fee.

Q: How should the refund itself be calculated when a restocking fee applies?
A: Credit the customer the original purchase price plus the tax paid on that purchase to get the total refund amount, then deduct the restocking fee from that total.

Q: Does the size of the restocking fee matter to this ruling?
A: The taxpayer described the fees as nominal and based on a percentage of the returned items, but the ruling's holding is about taxability and refund mechanics, not about any particular fee amount.

Q: Can other businesses rely on this letter for their own restocking fee policies?
A: This opinion is based on the facts presented to the Comptroller, and the letter itself notes that additional or different facts could change the opinion. STAR letters can generally be relied on only by the taxpayer to whom they were issued.

Citations and references

No specific statutes or rule numbers were cited in this letter.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9605L1414C02

Original ruling text

May 31, 1996

Dear ****:

I am responding to your letter questioning the taxability of restocking fees.
Restocking fees will be charged to cover your company's expense in returning
the items to resale inventory. You stated that these fees will be nominal and
a percentage basis of the returned items.

Restocking fees are not taxable. These fees should be separately stated and
identified as restocking fees. The customer should be credited the original
purchase price plus tax on the original purchase price creating the total
refund amount. The restocking fee may then be deducted from the total refund
amount.

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

Sincerely,

Tax Policy Division

NOTE: Previous Accession Number 9605303L