Bad debt deduction

The person who sold the vehicle and collected the retail sales tax may take a deduction on their excise tax return for both the Retailing B&O tax and the retail sales tax left on the contract.

The amount of the deduction must be adjusted to exclude amounts attributable to:

1. Amounts due on property that remains in the possession of the seller until the full purchase price is paid;
   
   
2. Expenses incurred in attempting to collect debt; and
   
   
3. The value of repossessed property taken in payment of debt.

The amount of this deduction should be entered in the Bad Debt category on the deduction detail sheet.

Assignment of Installment Contracts

Banks, financial institutions, and other persons purchasing installment contracts are entitled to a bad debt credit when the retail seller paid the full amount of retail sales tax owed, and the assignee incurred a bad debt because the buyer defaulted on the contract. An assignee may claim a bad debt whether the contract was purchased on a recourse or non-recourse basis, provided that assignee actually incurs the loss and is entitled to the federal income tax bad debt deduction.

Nonrecourse financing

If money is loaned by a bank through nonrecourse financing, the dealer CANNOT take the deductions for the bad debt. Only when the dealer has to pay off the bank (recourse financing), can it take the deductions.

References

Washington Administrative Code (WAC) 458-20-196
Washington Administrative Code (WAC) 458-20-198

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