We do a lot of business with Kohls department store a company that issues a lot of discount coupons. Whenever we've returned an item where a coupon was used for the purchase several items, their computer system calculates a prorated value of the returned item and returns that in cash or credit.
In reality the OP did not pay $34.99 for the product and should not receive that amount in return; however, he should receive the amount actually paid out of pocket for the item or store credit for the $34.99.
I want to second the OP's comments about customer service. Something I tried to remember when I was in business is it costs a lot to get a new customer but only a little to keep a current one happy.