Refund Sales Tax to a Tax-Exempt Customer in NetSuite

The quick answer

Clear Taxable on the customer's Financial subtab so future sales aren't taxed, and record the certificate in Resale Number. Then click Credit on the paid invoice, remove the copied item lines, and add one clearing item twice: the taxable base with the original tax code, and the same base, negative, with a non-taxable code. The amounts cancel, so the credit memo shows Subtotal 0.00 and a Total equal to the tax. Leave it unapplied, save it, and click Refund to pay it back with a Customer Refund.

The screenshots show sample data. Person and operating-company names are fictional. Use your own records and values when following the steps.

Before you start

This walkthrough uses NetSuite's legacy US sales tax with per-line taxes turned on in Set Up Taxes, so every item line carries its own Tax Code. If your account uses SuiteTax or a third-party tax engine that recalculates line tax, the tax fields and the credit steps are different. Custom transaction forms can hide or rename some of the fields named here.

In the example, Harbor Point Supply paid invoice INV-10817 in full: 2,400.00 of goods taxed at CA Sacramento County, 8.75%, for 210.00 of tax. The customer then sent resale certificate 100-482716. Validate the certificate for the customer's state and the products before you change anything. The resale number by itself isn't proof of exemption.

You also need a clearing item. Here it's Sales Tax Correction, an Other Charge for Sale item that is taxable (on a taxable tax schedule, if your account uses them) and posts to an income account used only for this correction. If the item isn't taxable, the positive line calculates no tax and the credit comes out as 0.00. You need permission to edit customers, create credit memos, and enter customer refunds.

01. Confirm what the invoice charged

Open INV-10817. The status is Paid In Full and the Summary shows Amount Due 0.00. Subtotal is 2,400.00, Tax Total is 210.00, and Total is 2,610.00. The 210.00 is what the customer should get back.

Invoice INV-10817 for Harbor Point Supply shows status Paid In Full and a Summary of Subtotal 2,400.00, Tax Total 210.00, Total 2,610.00, and Amount Due 0.00. — The paid invoice charged 210.00 of tax on a 2,400.00 subtotal.

On the Items subtab, read each line's Amount and Tax Code. Both lines, Pallet Rack Upright at 1,500.00 and Wire Mesh Deck at 900.00, use CA Sacramento County at 8.75%. That's the tax code the credit has to reverse.

The invoice Items subtab lists Pallet Rack Upright 1,500.00 and Wire Mesh Deck 900.00, both with Tax Code CA Sacramento County and Tax Rate 8.75%. — Both invoice lines carry CA Sacramento County at 8.75%.

02. Mark the customer exempt

Open Harbor Point Supply, click Edit, and go to the Financial subtab. Under Tax Information, clear Taxable. Leave Tax Item blank. A tax code or group there becomes the customer's fixed tax treatment in place of the address lookup, and a taxable one would keep taxing this customer. Enter 100-482716 in Resale Number and attach the certificate file to the customer record for your audit trail. Click Save.

The customer's Tax Information section shows Taxable cleared, Tax Item blank, and Resale Number 100-482716. — Clear Taxable, leave Tax Item blank, and record the certificate number.

This only changes new transactions. INV-10817 keeps the tax it was saved with, which is why the refund needs a credit memo.

03. Create a tax-only credit memo

Reopen INV-10817 and click Credit. NetSuite opens a credit memo with Created From INV-10817 and copies both invoice lines. Saved like this, it would credit 2,610.00 and reverse a sale that was billed correctly. Remove both copied lines.

A new credit memo created from INV-10817 lists the two copied invoice lines and a Summary Total of 2,610.00. — The copied lines would credit the whole 2,610.00. Remove them.

Add Sales Tax Correction with Quantity 1 and Amount 2,400.00 (entering it as Rate does the same thing). Because the customer is no longer taxable, the new line looks up -Not Taxable-. Change its Tax Code to CA Sacramento County, and check that the line shows 8.75%. The Summary now reads Subtotal 2,400.00, Tax Total 210.00, and Total 2,610.00. This line creates the 210.00 of tax, but on its own it also credits 2,400.00 of sales.

The credit memo has one Sales Tax Correction line for 2,400.00 with Tax Code CA Sacramento County at 8.75%, and the Summary shows Tax Total 210.00 and Total 2,610.00. — The first clearing line brings back the 210.00 of tax, and 2,400.00 of sales with it.

Add Sales Tax Correction again with Amount -2,400.00 and leave its Tax Code at -Not Taxable-. This line cancels the 2,400.00 without adding or removing tax. Check both lines' tax codes once more: the positive line must still show CA Sacramento County at 8.75%, and the negative line -Not Taxable-. The Summary shows Subtotal 0.00, Tax Total 210.00, and Total 210.00. If the invoice rounded tax on each line, one combined line can land a cent off, so compare Tax Total with the invoice's before you save.

The credit memo lists Sales Tax Correction 2,400.00 on CA Sacramento County at 8.75% and Sales Tax Correction -2,400.00 on -Not Taxable- at 0.0%, with Subtotal 0.00, Tax Total 210.00, and Total 210.00. — With the offsetting line, the amounts net to 0.00 and only the 210.00 of tax is credited.

You need both lines. Tax is calculated from a line's amount and tax code, so you can't credit tax without a taxable amount to calculate it on. The positive line supplies that amount, and the negative line takes the sale back out. Both lines use the same item, so they post to the same income account and cancel each other.

Open the Apply subtab. NetSuite may preselect the originating invoice, but a paid invoice has no balance left to absorb the credit. Make sure nothing is applied. Here the list shows No records to show and Applied stays 0.00.

The credit memo shows Unapplied 210.00 and Applied 0.00, and its Apply subtab reads No records to show. — Nothing is applied, so the 210.00 stays available for a refund.

Check that Date and Posting Period fall in an open period, since the tax credit lands there. Enter a Memo that names the invoice, the certificate, and "tax-only correction", then click Save. CM-10852 saves with status Open, Total 210.00, and Unapplied 210.00. INV-10817 is still Paid In Full.

Saved credit memo CM-10852 shows status Open, Memo INV-10817 resale cert 100-482716 tax-only correction, Created From INV-10817, and Total 210.00. — The saved credit memo is Open for 210.00 and links back to the invoice.

The credit memo should debit the tax code's sales tax payable account and credit Accounts Receivable for 210.00, with the two clearing lines netting to zero in their income account. Check GL Impact on the saved credit memo to confirm it in your account.

04. Refund the credit

On the saved credit memo, click Refund. A Customer Refund opens for Harbor Point Supply. On its Apply subtab, under Credits, CM-10852 is marked for 210.00, and Refund Amount calculates to 210.00 from the marked credit.

A Customer Refund for Harbor Point Supply shows Refund Amount 210.00 and, under Credits 210.00, credit memo CM-10852 marked with Payment 210.00. — The refund picks up the credit memo, so Refund Amount is 210.00.

Set Account to 1010 Operating Checking and check To Be Printed. On the Refund Method subtab, choose Check. Your account may offer other refund methods. Click Save. The refund is saved for 210.00 with a check waiting to be printed.

The Customer Refund shows Account 1010 Operating Checking, To Be Printed checked, and Refund Method Check. — Pay the refund by check from the operating account.

Reopen CM-10852 from the refund's Apply subtab. Its status is now Fully Applied.

Credit memo CM-10852 shows status Fully Applied with Tax Total 210.00 and Total 210.00. — After the refund, the credit memo is Fully Applied.

On the Items subtab, Unapplied is 0.00 and Applied is 210.00. The refund used the whole credit.

The saved credit memo shows Unapplied 0.00 and Applied 210.00 above its two Sales Tax Correction lines. — Unapplied is 0.00 once the refund uses the credit.

The Related Records subtab shows INV-10817 still Paid In Full for 2,610.00, next to the Customer Refund for 210.00. The original invoice and its tax were never touched.

The credit memo's Related Records list shows Invoice INV-10817 Paid In Full for 2,610.00 and a Customer Refund To Print, Refunded, for 210.00. — The invoice stays Paid In Full, and the refund returned the 210.00.

05. Check the next sale

Start a new sales order for Harbor Point Supply (Transactions > Sales > Enter Sales Orders) and add a taxable item. The Pallet Rack Beam line gets Tax Code -Not Taxable- at 0.0%. Don't save a test order unless it's a real one.

A new sales order line for Pallet Rack Beam, 160.00, has Tax Code -Not Taxable- and Tax Rate 0.0%. — A new line for the customer now looks up -Not Taxable-.

The unsaved sales order for Harbor Point Supply shows Subtotal 160.00, Tax Total 0.00, and Total 160.00. — The customer's next sale calculates Tax Total 0.00.

Check the result

The credit memo shows Subtotal 0.00, Tax Total 210.00, and Total 210.00.
After the refund, the credit memo is Fully Applied with Unapplied 0.00.
INV-10817 is still Paid In Full with its original 210.00 of tax.
A new sales order for the customer gets -Not Taxable- and Tax Total 0.00.

If a taxable code still shows up on the new order, check the customer's Tax Item and any script or integration that sets line tax codes.

Before your next filing, run Sales Tax Liability By Tax Item for the credit memo's period. The credit should reduce CA Sacramento County by 210.00, and the agency's total on Pay Sales Tax reflects it together with that period's other sales and credits. The walkthrough doesn't open these reports. If you already remitted the tax, NetSuite's liability goes down, but getting the money back from the state may take an amended return or a credit on a later one, depending on the jurisdiction.

Common questions

What's the difference between Taxable, Tax Item, and Resale Number?

Taxable decides whether the customer's new transactions are taxed by default. Tax Item sets a fixed tax code or group for the customer in place of the address lookup, so leave it blank for an exempt customer unless they always need one specific treatment. Resale Number only records the certificate for audit. On its own it doesn't make anything exempt.

Why not credit the whole invoice?

The sale was billed correctly. Only the tax was wrong. Crediting the invoice lines as copied would reverse 2,400.00 of revenue and receivables along with the 210.00 of tax, and you'd end up refunding 2,610.00 for goods the customer kept.

Why not zero the copied lines or change their tax code?

A tax-only credit still needs a taxable amount for NetSuite to calculate tax on. Zero the amounts and there's nothing to calculate, so the credit is 0.00. Switch the copied lines to a non-taxable code and you credit the goods with no tax at all. The positive clearing line creates the 210.00 of tax, and the negative line removes its 2,400.00 so only the tax is left.

Does clearing Taxable fix invoices that were already saved?

No. The customer setting only changes new transactions. Saved invoices keep the tax code on each line, which is why INV-10817 still shows its 210.00 of tax and needs a separate credit memo.

Does the credit memo reduce what I owe on Pay Sales Tax?

It reduces the liability for CA Sacramento County by 210.00 in the credit memo's posting period, so that period's liability report and Pay Sales Tax total include it along with the period's other sales and credits. This walkthrough doesn't open either one, so check them before you file.

What if the tax was already paid to the state, or the invoice is still open?

If you already remitted the tax, the credit memo corrects NetSuite's books but doesn't amend the return you filed. You may need an amended return or a credit on a later one, depending on the jurisdiction. If the invoice still has a balance, build the same tax-only credit memo and apply it to the invoice on the Apply subtab instead of refunding it.