§ 44-18.1-21. Uniform rules for recovery of bad debts.
Each member state shall use the following to provide a deduction for bad debts to
a seller. To the extent a member state provides a bad debt deduction to any other
party, the same procedures will apply. Each member state shall:
(A) Allow a deduction from taxable sales for bad debts. Any deduction taken that is attributed
to bad debts shall not include interest.
(B) Utilize the federal definition of "bad debtâ€� in 26 U.S.C. § 166 as the basis for calculating bad debt recovery. However, the amount calculated pursuant
to 26 U.S.C. § 166 shall be adjusted to exclude: financing charges or interest; sales or use taxes charged
on the purchase price; uncollectable 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.
(C) Allow bad debts to be deducted on the return for the period during which the bad debt
is written off as uncollectable in the claimant's books and records and is eligible
to be deducted for federal income tax purposes. For purposes of this subsection, a
claimant 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 uncollectable
in the claimant's books and records and would be eligible for a bad debt deduction
for federal income tax purposes if the claimant was required to file a federal income
tax return.
(D) Require that, if a deduction is taken for a bad debt and the debt is subsequently
collected 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.
(E) Provide that, when the amount of bad debt exceeds the amount of taxable sales for
the period during which the bad debt is written off, a refund claim may be filed within
the member state's otherwise applicable statute of limitations for refund claims;
however, the statute of limitations shall be measured from the due date of the return
on which the bad debt could first be claimed.
(F) Where filing responsibilities have been assumed by a CSP, allow the service provider
to claim, on behalf of the seller, any bad debt allowance provided by this section.
The CSP must credit or refund the full amount of any bad debt allowance or refund
received to the seller.
(G) Provide that, for the purposes of reporting a payment received on a previously claimed
bad debt, any payments made on a debt or account are applied first proportionally
to the taxable price of the property or service and the sales tax thereon, and secondly
to interest, service charges, and any other charges.
(H) In situations where the books and records of the party claiming the bad debt allowance
support an allocation of the bad debts among the member states, permit the allocation.