Hi Acarter,
Deposits can be an issue especially if your process includes refunds. As with most credit card processors (not just Square), you pay the transaction processing fees to accept a credit card - when you do a refund, the customer gets their full amount back however, as the seller, you still end up paying the processing fee (unfortunately this is probably an industry standard). Bottom line, the customer is happy but, the refund transaction is still costing you money.
Square did make deposits easier via the use of invoices however, it looks like they are assuming that after collecting the balance due, the transaction is complete. I don't believe your entire scenario works with Square's logic as they did not consider issuing deposit refunds after the fact. We all pay deposits on items like empty propane gas bottles and beer kegs and do get our funds back when these items are returned. As for finding the original receipt - the customer has to have proof of purchase (their original receipt) which should have the details needed for doing a refund - at least this is the way it works with things I returned in order to get my deposit back.
Perhaps setting up a separate generic item for a Deposit would be a work around - you could even make it non taxable - this would require you to have two transactions - one for the actual product or item (sod for your example) and one for the pallet. The customer then has two receipts. Note, you're still going to pay the processing fees for both and when doing the refund for the Deposit, you will not get that fee back although the customer gets their full amount back. Just a different way of looking at the system you're using and how to make it work for you. As for doing a lot of deposit refunds, this may trigger a red flag for your account unless Square has something in place that says otherwise that this transaction is valid. (Note: this may be a good Feature Request.)
Not sure how for example how a beer distributor does refunds on empty kegs or what system they use but, from a customer's view, it works. I'm sure there are hidden costs to the seller. Just my thoughts of course. Perhaps others here have a better insight.
jk
