Overview
When processing a refund or credit note, Kintsugi ensures that sales tax correctly. Since tax applies to specific products or services—not just total amounts—Kintsugi ties each refund back to the original items sold to maintain accurate and compliant reporting.
This guide explains how Kintsugi handle refunds, especially when issuing a custom amount, to keep your tax reporting accurate.
How Refunds Are Processed
Refunds are automatically picked up by Kintsugi through your existing integration.
This means you don’t need to take any manual action—refunds are synced and processed as part of your normal filing workflow.
Here’s how it works:
When you issue a refund through your connected system (e.g., Shopify, BigCommerce, etc.), Kintsugi detects and records it automatically.
If the refund relates to a previous tax filing period, Kintsugi still processes it and includes it as a refund adjustment in your next filing.
No additional setup or upload is needed from your side unless you manually import transactions.
Note: If you perform manual uploads, you’ll need to indicate refunds in your next upload so they can be properly recognized and included in your next return.
Why It Matters: The Golden Rule for Refunds
A refund needs always to be linked back to the specific products or services from the original sale. This is a critical requirement because the calculation of your sales tax is dependent on the tax status of the specific item to which the refund is linked.
If you refund a lump sum without associating it with the original products, the tax system cannot accurately determine how much tax to reverse, leading to errors in your financial and tax reporting
Recommended Approach: Proportional Allocation
For refunds for a custom amount, Kintsugi distributes that refund proportionally across the original line items. This ensures that:
The correct taxable amount is reduced for each product.
The refunded tax aligns with the items originally sold.
The transaction records remain fully auditable and tax-compliant.
Once the refund amount is distributed across the items, you can recalculate the transaction with the “lessened” transaction_items to determine the correct tax to refund.
Example
Suppose an original invoice included:
Product A: $100
Product B: $50
Total tax: $15
Refund Scenario:
You decide to issue a $75 refund (custom amount).
Kintsugi automatically distributes that refund proportionally across Product A and Product B, recalculating the associated tax on each. This ensures accurate reversal of both taxable and non-taxable amounts in your next filing.
What Not to Do
Avoid creating a single “custom refund” item with a manually applied tax rate.
This breaks the connection between refunded tax and the original items, resulting in inaccurate tax treatment and reporting.
Summary
Automatic refunds: Kintsugi picks up and processes refunds automatically—no action needed from your end.
Manual uploads: If you upload transactions manually, include refund indicators in your next upload.
Accurate tax handling: Refunds are tied to the original items to ensure compliant tax calculations.
No manual tax rates: Avoid arbitrary refund items or manual tax entries.
By letting Kintsugi handle refunds automatically, you maintain accurate tax reporting, seamless filing adjustments, and full compliance—even for refunds issued after a previous filing period.