When customers fail to meet the terms of their contract, dealers and financial institutions have the right to repossess the vehicles.
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:
Amounts due on property that remains in the possession of the seller until the full purchase price is paid;
Expenses incurred in attempting to collect debt; and
- 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.
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.