Massive Sales Tax Issue for Partial Refunds on Shopify!!

Sam-123
Shopify Partner
36 0 44

Please @Shopify fix this massive TAX issue! I've made a screen recording to illustrate how big of an issue this is.

 

https://www.loom.com/share/72b89a59c6e245d78a75444da58b95d0

 

Partial refunds don't adjust the sales tax to the correct amount.

 

I've seen posts about getting this fixed from 2018-2019 and it's not fixed. The sad thing is the majority of small merchants don't even realize that their tax summary in reports are 100% wrong if any merchant issues a partial refund (since partial refunds do not change the sales tax, it's always over-reporting). If any merchants are using the tax reporting feature in Shopify to remit this tax, they are over paying sales tax that was not collected! This should almost be a legal issue in my opinion.

 

I did a test where I made a draft order for $6,000 + 12% sales tax ($720 tax) total amount $6,720 and marked it as paid. I issued a partial refund for everything except 1 dollar which would be a refund of $6719 and the reporting summary for sales tax was still $720! This goes to show how skewed and useless reporting is when giving partial refunds as it shows the original sales tax amount before the partial refund took place.  That's right, a 99% refund and it still shows $720 floating in the sales tax report.

 

In Ecommerce, it's very common for customers to forget their coupon code and reach out to the merchant to apply that coupon code to their previous purchase.

The easy fix would allow merchants to apply the coupon code to the previous order which would automatically give a partial refund. Which would give the correct refund in gross sale AND sales tax. This would also expire the coupon code for customers email address if it was a 1 time only code.
 
But we are not asking for anything fancy - just  give us merchants the ability to edit the sales tax or to adjust correctly after partial refunds. It's so unbelievable that we can't. A simple check box like "adjust sales tax to new amount" or leave it uncheck if there was ever a need for that. Or just allow Merchants to change it manually on the line item for sales tax. Any other ecommerce platform allows for this.
 
Partial refunds without the ability to include the sales tax completely skew data by understating gross revenue and overstating sales tax collected.
 

It all adds up and the discrepancy becomes larger and larger. Another example, if a customer who is exempt for sales tax, who requests a refund of JUST that sales tax. You can't isolate the tax to be refunded. So their sales receipt is wrong and the merchants reporting is completely skewed!

 

These are not small issues @Shopify

 

This means gross sales are underreporting as it only subtracts from the product amount where a portion of that refund had sales tax in it. 

 

Large businesses know this and use accounting software, but this also pushes wrong data into accounting systems resulting in merchants/bookkeepers having to make a note  of this each time in an extra spread sheet to revise every partial refund so that taxes are correct in their system!

 

For high volume merchants who constantly give partial refunds for customers who forget their coupon code (which is so common in ecommerce!). It's adds so much extra administrative burden to everyone.

 

Trust me, I rather not have to type out this rant, merchants have enough work to do trying to scale their business and this tax issue is unbelievable.

 

I greatly look forward to anyone's comments on my post and I hope this gets prioritized. Seeing how it's March 2023 and this isn't addressed yet, the future isn't looking promising in regards to getting this issue solved.

Replies 7 (7)

Sam-123
Shopify Partner
36 0 44

Hi everyone, to correct myself gross sales remains correct but NET sales is under-reporting and sales tax is over-reporting when any merchant issues a partial refund as the tax amount stays the same regardless of how much partial refund was issued to the customer. 

tongbo
Shopify Partner
12 0 0

Hi @Sam-123,

 

This is a known issue from Shopify. While we are still waiting on Shopify for a fix, the Sidr Tax app added custom logic to handle partial refunds in a prorated way. This means that the Sales Tax is also considered refunded when generating your Sales Tax report, and added to the total when you file tax. So this way you can stay compliant with the state government. I do hope that Shopify can fix it on their end too. 

Sam-123
Shopify Partner
36 0 44

Hi @tongbo, thanks for your message. Will Sidr Tax, adjust the actual reports on the Shopify Admin? Or does the Shopify Tax Reports stay the same, and Sidr Tax will make the reports on their platform?

 

Trying to understand if Sidr Tax actually makes changes on the Shopify database. 

 

If I issue a partial refund for an order on Shopify, will I be able to correctly refund the net and sales tax amount?

 

Kind regards,

Sam 

 

tongbo
Shopify Partner
12 0 0

Hi @Sam-123, third-party apps won't be able to make changes to your existing orders. The "real fix" needs to be implemented with Shopify's tax engine, because they generate the tax lines. Tax reporting apps like Sidr Tax can only help you calculate the expected tax to collect, and remit the correct numbers.

Sam-123
Shopify Partner
36 0 44

I see, thank you @tongbo . Did you also know that editing orders also skews Shopify Reports? For example if a customer purchases a $600 product and they want to change it to a $1,200 product. The merchant would edit the order remove the $600 product and add the $1,200 product.

 

But unfortunately, it will show a return of $600, and a gross sale of $1,800 which isn't correct. That means refunds are inflated and gross sales are inflated. The real number in this case should not show a return of $600 as they are simply changing their order, and gross sales should still remain $1,200 but Shopify keeps the original purchase in the gross sales so its now inflated by that amount, resulting in $1,800 gross sales.

 

So not only do partial refunds cause overstated sales tax and understated net revenue, edited orders inflate gross sales and also inflate returns. This is such a massive joke on Shopify's end to not give merchants the ability to edit line items of tax, returns, gross sale, etc. Every other Ecommerce platform allows admins this control. 

 

Does anyone even know this is happening? How can I be the only one complaining about this. Is there a work around that I'm not aware of?

 

Greatly look forward to your response, thank you. 

 

 

Sam-123
Shopify Partner
36 0 44

Here is the new video explaining the issue. https://www.loom.com/share/549f9c43e6154f0e85ea7355653b17a6 

 

I believe though, and to correct myself (as I'm not really sure what is correct from a reporting stand point) but I think it's correct to show the refund in the exchange, even though this isn't money actually being refunded which is confusing. 

 

But I still think the gross figure is inflated in this case.

 

If you refund the $600 for the original order, then your gross sales for this transaction would be $1,200, which is the total cost of the new order that the customer is purchasing. The $600 refund would not be included in your gross sales figure because it is not revenue that you earned from the sale of your product.

 

  • Original order for $600: Gross sales = $600
  • Cancelled order and refunded $600: Gross sales = $0
  • New order for $1,200: Gross sales = $1,200

 

Gross sales shouldn't be $1,800 ($600 refund + $1,200 new purchase) 

 

So, the total gross sales for this transaction would be $1,200. Your refund report would show a $600 refund, but this amount would not be included in your gross sales figure.

 

And this $600 refund wasn't money that actually got refunded to the customer even though Shopify will report this as the item was in theory returned? 

 

 

CraigPo
New Member
5 0 0

I just started using an app called Refundably. It seems to work pretty well so far. I'm still on the free trial.