The correct answer is the store's policy states that it will not accept refunds, even if it's their fault.
In the first case, store's, the 's indicates possession or ownership. Another way to express this idea would be the policy of the store.
In the second case, it's, the apostrophe in 's is used to create a contraction and indicates that a letter has been omitted, in this case, the letter i. The full form would be it is.
