§ 423.21 — Bad debt deductions

Iowa § 423.21

• Jurisdiction: Iowa
• Title X: FINANCIAL RESOURCES
• Ch. 423: STREAMLINED SALES AND USE TAX ACT

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1. For the purposes of this section, “bad debt” means an amount properly calculated
pursuant to section 166 of the Internal Revenue Code then adjusted to exclude financing
charges or interest, sales or use taxes charged on the purchase price, uncollectible amounts
on property that remain in the possession of the seller until the full purchase price is paid,
expenses incurred in attempting to collect any debt, and repossessed property.
2. In computing the amount of tax due, a seller may deduct bad debts from the total
amount upon which the tax is calculated for any return. Any deduction taken or refund paid
which is attributed to bad debts shall not include interest.
3. A seller may deduct bad debts on the return for the period during which the bad debt is
written off as uncollectible in the seller’s books and records and is eligible to be deducted for
federal income tax purposes. For purposes of this subsection, a seller who is not required to
file federal income tax returns may deduct a bad debt on a return filed for the period in which
the bad debt is written off as uncollectible in the seller’s books and records and would be
eligible for a bad debt deduction for federal income tax purposes if the seller were required
to file a federal income tax return.
4. If a deduction is taken for a bad debt and the seller subsequently collects the debt in

whole or in part, the tax on the amount so collected must be paid and reported on the return
filed for the period in which the collection is made.
5. A seller may obtain a refund of tax on any amount of bad debt that exceeds the amount
of taxable sales within the period allowed for refund claims by section 423.47. However, the
period allowed for refund claims shall be measured from the due date of the return on which
the bad debt could first be claimed.
6. For the purposes of computing a bad debt deduction or reporting a payment received
on a previously claimed bad debt, any payments made on a debt or account shall be applied
first to the price of the property or service and tax thereon, proportionally, and secondly to
interest, service charges, and any other charges.