Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2015
Sales And Use Tax Law
CHAPTER 2. THE SALES TAX
Article 1. Imposition of Tax
6055. Worthless accounts. (a) A retailer is relieved from liability for sales tax that became due and payable, insofar as the measure of the tax is represented by accounts that have been found to be worthless and charged off for income tax purposes by the retailer or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting principles. A retailer that has previously paid the tax may, under rules and regulations prescribed by the board, take as a deduction the amount found worthless and charged off by the retailer. If these accounts are thereafter in whole or in part collected by the retailer, the amount collected shall be included in the first return filed after the collection and the tax shall be paid with the return. For purposes of this subdivision, the term "retailer" shall include any entity affiliated with the retailer under Section 1504 of Title 26 of the United States Code.
(b) (1) In the case of accounts held by a lender, a retailer or lender that makes a proper election under paragraph (4) shall be entitled to a deduction or refund of the tax that the retailer has previously reported and paid if all of the following conditions are met:
(A) A deduction was not previously claimed or allowed on any portion of the accounts.
(B) The accounts have been found worthless and written off by the lender in accordance with the requirements of subdivision (a).
(C) The contract between the retailer and the lender contains an irrevocable relinquishment of all rights to the account from the retailer to the lender.
(D) The retailer remitted the tax on or after January 1, 2000.
(E) The party electing to claim the deduction or refund under paragraph
(4) files a claim in a manner prescribed by the board.
(2) If the retailer or the lender thereafter collects in whole or in part any accounts, one of the following shall apply:
(A) If the retailer is entitled to the deduction or refund under the election specified in paragraph (4), the retailer shall include the amount collected in its first return filed after the collection and pay tax on that amount with the return.
(B) If the lender is entitled to the deduction or refund under the election specified in paragraph (4), the lender shall pay the tax to the board in accordance with Section 6451.
(3) For purposes of this subdivision, the term "lender" means any of the following:
(A) Any person that holds a retail account which that person purchased directly from a retailer who reported the tax.
(B) Any person that holds a retail account pursuant to that person's contract directly with the retailer that reported the tax.
(C) Any person that is either an affiliated entity, under Section 1504 of Title 26 of the United States Code, of a person described in subparagraph (A) or (B), or an assignee of a person described in subparagraph (A) or (B).
(4) For purposes of this section, a "proper election" shall be established when the retailer that reported the tax and the lender prepare and retain an election, signed by both parties, designating which party is entitled to claim the deduction or refund. This election may not be amended or revoked unless a new election, signed by both parties, is prepared and retained by the retailer and the lender.
History.—Added by Stats. 1959, p. 3263, in effect September 18, 1959. Adopted from former Section 6453.5, added by Stats. 1957, p. 1938, in effect September 11, 1957, except that Section 6055 applies solely to sales tax, substitutes "retailer" for "seller," adds the provision for relief from liability, changes from a "credit . . . against the tax shown to be due on the return" to a "deduction," deletes the requirement that the credit be limited to accounts found to be worthless and actually charged off "during the period covered by the return," and rearranges wording for clarity. Stats. 1970, p. 1056, in effect November 23, 1970, added to first sentence, "or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting principles.", and deleted "for income tax purposes" from the end of the second sentence. Stats. 2000, Ch. 600 (AB 599), in effect January 1, 2001, added subdivision letter designation (a) before first paragraph, substituted "that" for "which" after "for sales tax", deleted "subsequent to September 30, 1957" after "due and payable", substituted "that" for "which" after "by accounts", and added "by the retailer" after "tax purposes" in the first sentence, substituted "A retailer that" for "If the retailer" after "accounting principles.", deleted ", he" after "paid the tax" and added "by the retailer" after "charged off" in the second sentence, substituted "these" for "any such" before "accounts are", substituted "the" for "such" after "collection", and added "shall be" after "and the tax" in the third sentence, and added the fourth sentence therein; and added subdivision (b). Stats. 2011, Ch. 727 (AB 242), in effect January 1, 2012, substituted "A deduction was not" for "No deduction was" before "previously claimed" in subparagraph (A) of paragraph (1) of subdivision (b); and substituted "prepare and retain" for "file" after "the lender shall", deleted "with the board" after "an election", substituted "prepared and retained by the retailer and the lender" for "filed with the board" after "new election, signed by both parties," in paragraph (4) of subdivision (b). Stats. 2012, Ch. 362 (AB 2688), in effect January 1, 2013, substituted "that" for "who" in paragraph (1) and in subparagraphs (A), twice in (B) and in (C) of paragraph (3), substituted "For purposes . . . retailer that" for "Prior to claiming any deduction or refund under this subdivision, the retailer who" after "(4)", and deleted "shall" after "and the lender" in paragraph (4) of subdivision (b).
Bankruptcy.—Bad debt credits resulting from the writeoff of pre-petition accounts receivable were the property of the receiver in bankruptcy and could not be used by the reorganized debtor to offset its liability for penalties and interest for late payment of taxes. Gough Industries v. Rothman (1971) 446 F.2d 536; Cert den. (1972) 405 U.S. 916.