State & Local Tax Blog

Big Chains Double Taxing Customers?

George Gombossy of the Hartford Courant has been writing a few articles that are probably scaring some large retailers. This is a potentially large exposure for these companies. What’s the exposure? Class-action lawsuits. Apparently some large chain retailers are taxing exchanged items twice in Connecticut.

Here’s how it happens: Customer goes to Home Depot (let’s say Joe Biden since he goes there so often) and buys some beige tile grout and pays $13 plus tax in cash. Joe gets home and prepares to regrout the bathroom floor when he realizes he should have bought the white grout. He hops on his bicycle and heads back to the Depot and tries to exchange it. Of course he doesn’t have the receipt so they give him a Home Depot store card with the $13 credited to the card. They do not give him a credit for the tax he paid. He picks up the white grout ($13 price) and goes to the register and presents his store card. They tell him he’ll have to pay tax since he didn’t have the receipt. So they end up charging him tax twice. Yikes!
This is the exact situation retailers are trying to avoid. They didn’t keep the money, they remitted it to the state. They can only get it back from the state if they refund it to their customer. But since the customers paid in cash, then who do they give the refunds to? Their best hope is that they made a record of the person requesting these exchanges and then to look for credits without tax. Then they need to refund all those customers. What a pain. But the much larger pain would be a class action lawsuit. According to this article, this is a common practice in CT. http://blogs.courant.com/george_gombossy/2008/10/chain-stores-illegally-chargin.html

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