Yes, legally and technically he is within his rights to refuse you but I agree with the above post. It's not right to dismiss you out of hand in my opinion.

There was a time in this country when soldiers and veterans were given special consideration in exchange for their unselfish service and sacrifice to ensure that all Americans have the freedom to be entrepreneurs and live the way they want. I'm sure some companies and individuals still hold true to that, but it seems there is much less so.

Maybe he's in a difficult financial situation that doesn't allow him to give a full refund/exchange, but I would think he could work with you at least somewhat...I would. If for nothing else other than keeping a customer happy...but that's just me.