When the arsenal is not full, then items that are worth something can be returned and you can get some supplies for it.

You need to do the same for a full arsenal, just don’t change its balance

The player should be able to turn in an item and not have to wonder whether the arsenal is full or not

This is more of an annoyance that creates confusion. Often time depositing your gear before getting new gear should be the expectation, it also helps save supplies and encourage "tidiness". Right now most players just ditch things on the ground which wastes supply and resources. The control hint on the armory tells you that you can deposit, but it isn't clear that when it's full it won't take the gear back, which leads players to either not bother or just assume it's broken.
Personally i would like to see a more nuanced approach that takes player behavior into account. Having the gear in a small radius automatically be deposited after being dropped or set on a timer. You could even mark a zone in front of the armory to further encourage player behavior. If the armory is full than the timer will take things back in if space becomes available. It would also be nice if you could deposit gear from other factions. You don't need to be able to get that gear back, but transferring to convert into more supply would be a nice way to recoup some losses after big attacks or defenses.
Not sure how feasible or useful that idea is, but the current system is not clear and that is the main issue.

It would also be nice if you could deposit gear from other factions. You don't need to be able to get that gear back, but transferring to convert into more supply would be a nice way to recoup some losses after big attacks or defenses.

Please create another ticket for this great idea - Feature Request