Thanks for the tag @ypdc_dennis!
If a refund (full or partial) is processed through an eBay process like a cancellation or a return, the sales tax a buyer paid is automatically refunded.
If a full refund is issued directly through the transaction on PayPal then the sales tax is automatically refunded.
If a partial refund is issued directly through the transaction on PayPal the sales tax is not automatically refunded. A buyer can work directly with CS to request a refund, or can claim a credit on their taxes when filing depending on the tax laws for their state.
If a partial or full refund is sent through PayPal independent of the transaction (a 'send money') then no sales tax will be refunded automatically either. I'm not sure why anyone would process a refund this way, but wanted to clarify that just in case.
In the case of shipping costs, it's important to note that not all states require shipping charges be taxed, so there could be certain US buyers that this won't be applicable to. Thanks!
***Edit to add**
There have been clarifications on the issuance of partial refunds directly through PayPal that I want to make sure you're aware of:
Whenever possible you should issue a refund through an eBay initiated process (returns, cancellations, etc).
If you choose to issue a refund through PayPal directly, you need to include the tax portion in the buyer's refund. That will trigger an immediate refund of that tax amount from eBay to your PayPal account.
For example, if you are doing a PayPal initiated partial refund for $3.00 of the item cost, you would need to also include the tax based on the rate. If the rate was 7.2%, then the partial refund total would be $3.22 ($3.00 for item, $.22 tax).
For a full refund, the you would need to include the tax, but wouldn’t need to manually calculate. You would just need to issue the ‘original payment’, which includes the tax amount.
