Sales Tax Questions

I have a couple of questions regarding sales tax.

  1. What is the correct method for calculating sales tax for a US based business/website - by entire order total or by individual line item (i.e. order subtotal * tax rate versus sum(line item * tax rate))? From everything I’ve seen, it’s by order total, not by line. Can anyone confirm?

  2. If you’re calculating sales tax based on order total, when issuing a return do you simply recalculate tax based on the remaining order total, after subtracting the return, and then take original tax - new tax and refund the different along with the line item(s) being returned?

  3. If a sales tax rate is changed for a given area/zip code and a return is being issued, would you refund the customer based on the sales tax rate of when the order was purchased, or the sales tax rate that is currently in effect at the time of the return? (I’m assuming it would be based on the rate when the order was originally purchased)

  1. The total order. I should add, however, that shipping may or may not be taxable, all depending upon the state (nothing like every state making up its own rules, is there?).

  2. No matter which way you go, the most you are going to be off is one cent here. If you want to do it the correct way, though, you would refund the difference between the portion of the order that was kept (plus tax) and what was returned. In other words, if the total on a $100 order was $107 including tax (7%) and a customer returned a pre-tax $40 item, the new total would be $60 + 7% tax = $64.20. Subtract $64.20 from the original amount ($107) and the refund would be $42.80. (I don’t think I have had to do this EVER!)

  3. When the order was purchased.