USA Accounting for Freight Deductions on Returns

[kpips]

Hello,

I am working with a client who sells product and has high returns. On the returns, the customer will deduct freight for the return. This was not an original cost of sale, nor was it part of the original sale. Where should these costs go? Are they part of Sales Returns even though it was never an original sale? Is there anyway to argue this as an Operating Expense?

All thoughts are welcome, guidance would be amazing! Thank you!

 

[Werner Reisacher]

In general, invoiced freight charges on outgoing shipments to customers are considered sales revenue. Irrespective, whether they are included in the sales price or listed separately. Invoices from the logistics company that handled these outgoing shipments are to be booked as expenses.
The following URL gives you clear guidance by State how the Sales tax on freight charges is to be handled.

How to handle sales tax on shipping: A state-by-state guide - Avalara

Taxability on shipping varies by state and by the delivery method, whether the products being shipped are taxable or exempt, and other factors. Visit our free 2022 state-by-state report.

www.avalara.com

Freight charges you have to pay to a customer for his return shipment are additional expenses. Since I do not know in which of the States you are doing business, the above URL will tell you whether the additional freight expenses are tax-deductible for Sales tax purposes in your State.