WAC 196

"Gross proceeds of sales."

"Gross income of the business."

Deductions -- Bad debts.

Value of products, how determined.

Credits and refunds for bad debts.

Credits and refunds -- Bad debts.

Deductions in Computing tax.

Bad Debts

Bad Debt Deduction - Limited

INSTALLMENT SALES -- STOLEN OR DESTROYED MOTOR VEHICLES -- BAD DEBTS.A used car dealer may not treat installment sales as bad debts for Rule 196 purposes when it forgives debts for vehicles that are stolen or destroyed and it has charged the buyers additional amounts in anticipation that such events might occur.

SALES TAX -- BAD DEBTS -- LEASE ACCRUALS BEFORE REPOSSESSION -- ACCRUAL v. CASH BASIS ACCOUNTING.Automobile lease payment deficiencies, accrued and booked as income on the accrual basis, were subject to retail sales tax for periods before January 1, 1983 (RCW 82.08.100), the bad debt deduction for sales tax, even though approved for payment to the state on the cash basis.

RETAIL SALES TAX -- DEDUCTION -- BAD DEBTS -- RECOVERIES. A seller is entitled to a credit or refund for sales taxes previously paid on bad debts only if the seller can specifically identify the sales for which the credit is claimed.

RCW 82.04.4284; ETA 574:B&O TAX – MEASURE – BAD DEBT DEDUCTION – ASSIGNMENT.A creditor who purchases notes from a retailer upon which the debtor defaults, may not take a credit for B&O taxes paid by the retailer.Puget Sound National Bank v. Department of Rev., 123 Wn.2d 284, 868 P.2d 127 (1994) distinguished.

RETAIL SALES TAX -- CREDIT FOR BAD DEBTS --ASSIGNMENT --PUGET SOUND CASE -- ACTUALLY INCURRED THE LOSS.An assignee of account receivables originating from the sale of retail goods was allowed a credit for bad debts only to the extent that the assignee actually incurred a financial loss and the amounts actually reflected uncollected retail sales tax.

RETAIL SALES TAX – CREDIT FOR BAD DEBTS --FINANCING ACTIVITIES:A financing company that extended credit directly to a store’s customers was not entitled to a retail sales tax credit for bad debts.

RETAIL SALES TAX – BAD DEBT CREDIT -- FINANCIAL BUSINESSES -- PRIVATE LABEL CREDIT CARD. A financing business that offered private label credit card services to a retail store’s customers was not entitled to a retail sales tax credit for bad debts where it was not the person that previously paid the retail sales taxes to the state.

RETAIL SALES TAX -- BAD DEBTS -- DEDUCTIBLE BY A THIRD PARTY LENDER.Third party lenders may take a retail sales tax bad debt deduction when the seller assigns to the lender all its rights under the conditional sales contract.No bad debt deduction is allowed a third party lender where the seller did not assign its full rights under the contract to the lender.

RETAIL SALES TAX – BAD DEBT CREDIT – RETAILER – PRIVATE LABEL CREDIT CARD.A retailer whose customers purchased goods using a private label credit card is not entitled to a retail sales tax credit for the bad debts the financial institution that issued the credit card incurs. The bad debt credit is not available because the retailer did not incur the bad debt.

RULE 196; RCW 82.08.037 – RETAIL SALES TAX – CREDIT OR REFUND FOR BAD DEBTS – REPOSSESSIONS. The amount of any credit or refund for sales and use taxes previously paid on “bad debts” must be adjusted to exclude amounts attributable to the value of repossessed property taken in payment of debt.

RULE 196; RCW 82.04.4284 – RETAILING B&O TAX – CREDIT OR REFUND FOR BAD DEBTS – REPOSSESSIONS. The “bad debts” may be deducted from the measure of tax for B&O tax purposes, but that “bad debt” deduction is not to include the value of repossessed property. If a deduction is taken for a bad debt and the debt is subsequently collected in whole or in part (including by repossession), the tax on the amount collected must be paid and reported on the return filed for the period in which the collection is made.

RCW 82.08.037: RETAIL SALES TAX – BAD DEBT DEDUCTION – PRIVATE LABEL CREDIT CARDS. A retail store whose customers purchased retail goods and services from the store using banks’ private label credit cards, could not take a bad debt deduction under former RCW 82.08.037 when the customers failed to pay the banks amounts due on their accounts because no debt existed between the customers and the store.

RULE 196; RCW 82.08.037: RETAIL SALES TAX – BAD DEBT DEDUCTION – PRIVATE LABEL CREDIT CARDS. A retail store whose customers purchased retail goods and services using the store’s private label credit cards is not entitled to a sales tax refund for bad debts on those purchases when the store had sold its private label credit card accounts to a bank and the bank bore the risk of all credit card losses.

B&O TAX -- DEDUCTION -- BAD DEBTS -- DISCOUNT. A taxpayer cannot declare the discount associated with the sale of accounts receivable as a credit loss or bad debt.

RETAIL SALES TAX -- DEDUCTION -- BAD DEBTS -- FAILURE OF CONSIDERATION. The bankruptcy of a construction contractor/seller to collect payment for the work performed does not excuse the sales tax liability on the agreed selling price. Buyer's bankruptcy does not result in total failure of consideration for taxation purposes; the requirements of RCW 82.08.100 and Rule 196 must still be met for bad debts deductions.

B&O TAX -- DEDUCTION -- REPOSSESSIONS. A manufacturer who resells its goods after they have been repossessed from its dealer by a lender may not deduct the difference between the list price of the goods and the resale price from the measure of its B&O tax.

SALES TAX -- INSTALLMENT CONTRACT -- ASSIGNMENT -- DEFAULT -- REFUND. The assignment of an installment contract from an auto dealer to a bank does not include a right of the bank to obtain a refund of sales tax from the Department in the event the auto buyer defaults and the car is repossessed.