paying tax twice

[snowberry]

Hello everyone - My fiance and I recently changed my diamond engagement ring to a new one. (My fiance picked out the ring, and although I felt badly about it, I wanted something more my style.) We went back to the store about a month or so after the original purchase and they said we could pick out a new setting and a new stone. The details of how this would work money-wise weren't discussed. We were glad we could get a new ring and stone, so we didn't want to seem pushy about the money.

We picked out a new setting and diamond, and they told us it would be $1500 extra. They said we'd get credit for the cost of the original diamond, but otherwise didn't explain how they arrived at this number (e.g. cost of stone, cost of setting, etc.). My fiance didn't ask questions, and neither did I since he was paying and I felt awkward about the money aspect. After doing some research at home, I think the amount extra was probably roughly in the ballpark of expected, though it's hard to know for sure.

When we picked up the ring, they asked us to pay the $1500, plus $700 tax. I was surprised by the tax amount. They gave us $10k from the original ring, so I thought we would have paid tax on the $1500 extra we paid them, which would have been about $90. But instead they had us pay about $700 in tax, so it was on the full value of the new ring ($11,500). I asked "So... we're paying tax twice?" and they said "This is just how we do it here". Is there a logical explanation for why we would pay tax on an amount of money we didn't actually give them? This doesn't feel fair but maybe I'm missing something. (This is from a reputable family-owned store in a large city.)

Thanks so much for your feedback!

 

[yssie]

Go back.

Ask for an itemised list of costs, expenses, and trade-in contributions - ie. ask them to outline, with numbers and descriptions, exactly how they arrived at 1500 + 700. Tell them that you are uncomfortable with how the transaction was processed. This is precisely the time to be pushy about money.

If they processed it as a refund and a new purchase the sales tax should have been refunded (credited) as well. In NY and many other states if it's a trade-in, sales tax credit is given for the portion of the trade that will be re-sold (the diamond, presumably). Which still doesn't make paying tax on the whole thing again make any sense, unless you're in a state with some really strange rules (of which there may be some). Check your state's Department of Revenue page.

 

[Karl_K]

In some states when you trade in you have to pay tax on the full price not just the difference.
I would check with your state taxing department to see what the law is first.

 

[yssie]

In some states when you trade in you have to pay tax on the full price not just the difference.
I would check with your state taxing department to see what the law is first.

CA is apparently one of these states.
But then, CA *is* a really strange state

 

[denverappraiser]

This wouldn't be the first example of a state doing things in an odd way but it should be easy enough to get to the bottom of it. Check out the taxman's website and you should be able to tell if it's their rules or the jewelers'. My guess is that the jeweler is just doing what the reveneurs are requiring them to do.

 

[diamondseeker2006]

Sounds like another good reason to buy from out of state vendors to me. No way would I pay the tax twice. That is crazy.

 

[MissGotRocks]

That's the way it is in the State of Maryland. I was shocked to learn this but did verify with the comptroller of the treasury's office. I think they feel it's fine to basically tax twice as it is a luxury item. Sales tax is of course not charged on out of state purchases but in reality it is your responsibility to claim and pay the tax for your out of state purchase. I'm sure few do this but that's the law. . . .

 

[Chloegal]

Wow, I`m really surprised that the store couldn`t treat the first sale as a total return (especially as it is within a month from sale date) and refund all relevant taxes, and then process the new sale. I`m sure they would have a measure of discretion to do this instead of what they are doing in treating the return as a credit note.

I would be upset over this `if` it was avoidable.

 

[denverappraiser]

I would be upset over this `if` it was avoidable.

I agree. I would be too. If it's the state that's the heart of the problem I would expect it to apply to all returns and/or tradeins, not just jewelery and it would apply to all merchants in the whole state, not just these guys. I don't trade stuff in very often but I think it would make my radar if my own state of Colorado had rules like this. I'm pretty attentive when I get popped for this sort of thing. Back when I was a merchant, returns for refund or credit also refunded the tax. If you bought something else with the credit, tax would apply to your new purchase. In effect you only pay the tax once and only on the purchase you ended up with. The difference would be if you sell something to a jeweler (or anyone else), you don't get a refund of the taxes you paid when you bought it. As with the above, when you spend the proceeds you would owe tax on whatever you bought so, in this case, you would be paying tax twice.

 

[aviastar]

Wow, I`m really surprised that the store couldn`t treat the first sale as a total return (especially as it is within a month from sale date) and refund all relevant taxes, and then process the new sale. I`m sure they would have a measure of discretion to do this instead of what they are doing in treating the return as a credit note.

I would be upset over this `if` it was avoidable.

This might be what they did, actually; if they refunded the whole first purchase, including taxes, with the $10,000 credit (Do we know how much the first purchase was, the first time he paid for it?), then they do have to charge tax on the "sale" of the new ring and you are really only paying the tax once, because the first tax was credited back to you.

It's the same with gift cards (in VA, anyway)- the tax is calculated on the total amount of the sale, then any credits, gift certificates, coupons are subtracted from the total including the tax. So it sounds to me like they charged you for a new ring, calculated the tax, came up with a total, then subtracted your $10,000 credit from the first purchase. It also sounds like they didn't present that information very well.

Merchants has incredibly strict rules they have to follow for the taxes they collect for the state- they might be misinterrpreting the rules, but more likey they are doing it right and presenting it to you in a crappy way- or the sales associate doesn't really know the ins and outs and just does what she is told, but then can't explain it very well when asked. Ask to talk to a manager who can go over their calculations with you for clarification.

 

[yssie]

Good point aviastar, I think we were all assuming that the 10k was the original pre-tax cost but there's nothing in OP's post to indicate that that was actually the case.

 

[snowberry]

Thanks everyone for your replies on this! Just to clarify, the original tax amount was NOT refunded to us. Otherwise there would be no issue.

I'll have to look into whether my state has requirements about charging full tax again, but if that were the case, when I asked about paying tax twice, I would have expected an answer like "The state requires us to do it that way" rather than "This is just how we do it here". It was a confusing answer and I would have liked some explanation of why they do it that way.

The transaction was not complete within 30 days of the original purchase, because it took us about 30 days or so just to go back to the store and ask about getting a new ring, and then on subsequent visits picked out the setting, then the stone, then got a sample setting, then had the whole thing made - it took a long time. So maybe this could not be considered a return. Still, I would have thought it would be like a store credit that we apply to a new ring.

 

[yssie]

What state are you in, out of curiosity?

 

[snowberry]

Thanks everyone for your responses & the advice to call the state tax department. So that is what I did. For MA, the Department of Revenue said that what I did was a trade in. For only certain types of things (including boats & cars) can you trade in the item and pay sales tax only on the difference. So, for my ring, per state rules I had to pay the full tax again (as if I paid the full $11,500 for the new ring instead of just the $1500 extra that I actually paid). I wish the jewelry store had just explained that to me instead of giving me a vague explanation and then I worried about the whole thing.

The state rep said that if an item is returned within 90 days it can be considered a refund. That would allow you to avoid paying full tax twice since you'd get the first tax refunded. I wish the store had told us "If we can get this done in 90 days you won't have to pay tax twice". The whole process took a while (> 90 days) but we could have rushed it if we knew we had $700 at stake. Then again I don't know if the jewelry store would have considered it a refund anyway.

To make this even more complicated, I'm wondering about getting a different stone again as the one I have is yellower than I thought it would be, but that will be in a separate post!

Thanks again for your help.