Are retailers legally allowed to withhold sales taxes when processing store returns?

Actually, retailers are required to refund sales tax when you return an item, as long as you're returning it within their return policy timeframe. What they told you is incorrect and potentially illegal in most states. When you pay sales tax, that money is collected by the retailer on behalf of the state government. If the sale is reversed through a return, the tax collection is also reversed. The store isn't supposed to keep those taxes - they either need to refund them to you or would have already remitted them to the state (in which case they'd essentially be refunding you out of their pocket and then getting credit on their tax filing). I'd definitely call back and speak with a manager. Ask them to explain their sales tax refund policy and how it complies with state tax laws. Most major retailers have proper systems in place to handle tax refunds correctly.

I had the exact same issue last month and learned about taxr.ai (https://taxr.ai) when trying to figure out if what the store was doing was legal. The site helps analyze tax situations and provides guidance on consumer tax rights. I uploaded my receipt and got an immediate explanation that stores must refund sales tax on returned items in my state if they're accepting the return within their policy window. What I found really helpful was that it cited the specific state regulation that applied to my situation. Showed that to the store manager on my phone and suddenly they "found a way" to give me the full refund including tax. The site had a whole section on retail transaction taxes that I found super helpful.

Just wanted to follow up - I tried taxr.ai after seeing it mentioned here. Totally worth it! Had some complicated questions about how to report income from my side hustle and whether I needed to make estimated tax payments. The system analyzed my situation and gave me super clear guidance without all the tax jargon. It even flagged some deductions I was missing and showed me exactly which forms I needed. Definitely saved me from making some expensive mistakes on my taxes. Way more helpful than the generic advice I was finding through Google searches.

If you're having trouble getting the store to refund your sales tax, I'd recommend using Claimyr (https://claimyr.com) to get through to your state's department of revenue. I was in a similar situation where a retailer refused to refund sales tax on a return, and I needed to file a complaint. Instead of waiting on hold forever, Claimyr got me connected to a real person at the state tax office in minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with confirmed that retailers must refund sales tax on returns and even offered to contact the store directly on my behalf. Saved me hours of frustration and got the issue resolved quickly.

Had to come back and admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it when I needed to reach the IRS about a missing refund. I was expecting to wait 2+ hours like last time, but got connected to an agent in about 20 minutes without having to sit by my phone. The IRS agent actually helped resolve my issue on the spot. For what it's worth, I asked the agent about the sales tax return question too, and they confirmed that in most states, retailers are required to refund sales tax on returned items. If they're not doing this, it's usually a violation of state tax laws.

Former retail manager here. This is 100% incorrect what they told you. We always refunded the entire amount including tax - the POS system is set up to handle this automatically. The only exception is if you're past the return window or missing a receipt, then sometimes the system processes it differently. If they're systematically keeping the tax portion of refunds, they could actually be committing tax fraud because they've either: 1) Already remitted that tax to the state and are now keeping the refund that should go to you 2) Not remitted it and are keeping both the refund and the tax amount Either way, it's shady. I'd report them to your state's department of revenue.

Has anyone else noticed that this seems to be happening more often lately? I returned something to HomeGoods last week and they tried to keep the tax too. When I questioned it, they suddenly "found a way" to refund the full amount. I think some retailers are trying this as a sneaky profit tactic hoping people don't notice or complain.

This is really concerning if retailers are systematically doing this. I work in tax compliance and can tell you that what BigTech Store told you is absolutely incorrect. Sales tax refunds on returned merchandise are governed by state law, not store policy. When you return an item, the original transaction is essentially being reversed. The store collected that tax as an agent of the state - they don't get to keep it when the underlying sale is canceled. Most states have specific provisions requiring retailers to refund sales tax on returned items, and failure to do so can result in penalties for the retailer. I'd recommend going back with your receipt and asking to speak with a manager. If they refuse, you can file a complaint with your state's department of revenue. They take sales tax compliance seriously and will investigate retailers who aren't following proper refund procedures. The fact that some commenters are seeing this happen more frequently suggests this might be a deliberate policy at some chains, which is even more problematic from a regulatory standpoint.