Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2017

Sales and Use Tax Annotations

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130.0000 BAD DEBTS—Regulation 1642

Annotation 130.0100

130.0100 Compromise Payment Made on Behalf of Debtor by Guarantor and Joint Venturer. A corporation purchased tangible personal property on credit from a retailer, who reported sales tax measured by the full sales price of the property. The principal shareholders of the corporation executed a guaranty that the debt would be paid, in favor of the retailer, and the corporation executed an assignment of its share of profits which it expected to receive from a construction contract in which it had interest as a joint venturer with a second corporation.

When the retailer attempted to collect the amount of the debt, it was determined that the corporation and the guarantors were unable to pay, and that there were no profits forthcoming from the joint venture. However, the guarantors and the second corporation offered to compromise the debt by payment of an amount equal to one-sixth of the original debt. Under such circumstances, the retailer was entitled to claim a bad debt loss for the difference between the amount of the original debt and the amount of the compromise payment made by the corporation's guarantors and joint venturer. 10/8/66.