03.06.03.07

.07 Bad Debts.

A. A vendor is required to remit the sales and use tax on an accrual basis. If a vendor is unable to collect accounts receivable on which the sales and use tax has been remitted, a credit may be taken or refund applied for within 4 years of the vendor's payment of the tax.

B. Vendors that are required to file federal income tax returns may claim a credit or refund only for the amount of tax that is uncollected on accounts that have been written off for federal income tax purposes.

C. Vendors shall apply partial payments from buyers proportionately to uncollected principal, interest, and tax at the time of receipt. The amount of credit or refund may not be computed on any basis that results in partial payments being disproportionately applied to unpaid principal or interest.

D. The amount of the credit or refund for repossessed merchandise shall be computed on the basis of the difference between the unpaid balance and the value of the merchandise at the time of the repossession.

E. Vendors may take credits for bad debts directly by reducing otherwise reportable taxable sales and tax collections on returns. Since these credits are treated as reductions of tax collections and not as refunds, they may not be reported as refunds on returns and are not subject to the dollar limitations generally applicable to refunds claimed on returns. Bad debt credits taken on returns may not exceed the net tax due.

F. Vendors who take credits for bad debts on returns shall maintain complete and accurate records to support the credits for a period of 4 years. If, within 4 years from the date of the return, the Comptroller determines that any portion of the credit taken was improper, a deficiency assessment plus late charges shall be levied for the underpayment.

G. Vendors who recover amounts previously claimed as bad debt credits or refunds shall report these recoveries on their next sales and use tax report by increasing reportable taxable sales and tax collections by the amount recovered.