| (a) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Affiliate--Any entity that would be classified
as a member of an affiliated group under 26 U.S.C., §1504 (Definitions).
(2) Assignee--A person to whom either a retailer who
made the sale or a private label credit provider transfers the right
to claim a credit or refund of Texas sales or use tax paid on a bad
debt via a written assignment with specific language transferring
the right to claim a credit or refund under this section.
(3) Bad debt--Any portion of the sales price of a taxable
item that a retailer or private label credit provider cannot collect,
and that has been determined to be worthless and actually charged
off for federal income tax purposes, provided that the bad debt amount
for calculation of the refund or credit is limited to bad debts related
to sales that were made by the retailer with whom the person that
extended credit entered into the private label credit agreement.
(4) Credit sale--Any sale in which the terms of the
sale provide for deferred payment of the sales price. Credit sales
include installment sales, sales under conditional sales contracts
and revolving credit accounts, and sales for which another person
extends credit to the purchaser under a private label credit agreement.
(5) Private label credit agreement--An agreement by
which a person agrees to extend credit to purchasers for credit sales
with a retailer or the retailer's affiliates, or franchisees, often
using a credit card or other instrument bearing the name or logo of
the retailer or the retailer's affiliates or franchisees.
(6) Private label credit provider--A person who extends
credit to a purchaser under a private label credit agreement.
(7) Trade-in--Tangible personal property taken by a
seller as all or a part of the consideration for the sale of a taxable
item when the property is of a type normally sold by the seller in
the regular course of business, and the seller separately states the
value of the property to the purchaser by means of an invoice, billing,
sales slip, ticket, or contract.
(b) Accounting methods.
(1) Reporting sales and use tax. For sales and use
tax purposes, retailers may use a cash basis, an accrual basis, or
any generally recognized accounting basis that accurately reflects
the operation of their business. A retailer who wants to use an accounting
method to report tax that is not on a pure cash or accrual basis or
that is not a generally recognized accounting method must obtain prior
written approval from the comptroller.
(2) Reporting sales and use tax on rentals and leases.
Paragraph (1) of this subsection does not apply to the reporting of
sales and use tax on rentals and leases of tangible personal property.
See §3.294 of this title (relating to Rental and Lease of Tangible
Personal Property) for the accounting of rentals and leases.
(c) Credit sales.
(1) Service charges. Sales and use tax is due on insurance,
interest, finance and carrying charges, and all other service charges
incurred as a part of a credit sale unless these charges are stated
separately to the purchaser by such means as an invoice, billing,
sales slip or ticket, or contract.
(2) Accounting methods. Except as provided by paragraph
(D), sales and use tax must be reported on a credit sale based upon
the accounting method that the retailer uses for its regular books
and records.
(A) Accrual basis. If a retailer uses an accrual basis
of accounting for sales and use tax purposes, the entire amount of
sales and use tax is due and must be reported in the reporting period
in which the sale occurs.
(B) Cash basis. If a retailer uses a cash basis of
accounting for sales and use tax purposes, the payment received from
the purchaser includes a proportionate amount of sales and use tax,
sales price, and may include finance charges. Sales and use tax is
due and must be reported in the reporting period in which the payment
is received based upon the cash collected, excluding separately stated
insurance, interest, or finance and carrying charges.
(C) Modified basis. If a retailer uses an accounting
method that is not a pure cash or accrual basis, sales and use tax
must be reported in a consistent manner that accurately reflects the
realization of income from the credit sales on the retailer's books
and records. The retailer must obtain prior written approval from
the comptroller to use an accounting method that is not a generally
recognized method.
(D) Cash basis reporting option. A retailer who uses
the accrual basis of accounting for its books and records may elect
to use the cash basis of accounting for sales and use tax reporting
purposes as long as the retailer reports the tax in a manner that
accurately reflects the realization of income from cash and credit
sales on the retailer's books and records. A change from the accrual
basis to the cash basis for reporting sales and use tax is prospective
only, and the retailer must establish a procedure to accurately account
for sales and use tax received from purchasers during the transition
period.
(3) Transfer or sale of sales contracts and accounts
receivable. At the time a retailer sells, factors, or assigns to a
third party the retailer's right to receive all payments due under
a credit sale, the unpaid sales and use tax on all remaining payments
becomes due immediately. The retailer is responsible for reporting
all remaining sales and use tax due on a credit sale to the comptroller
in the reporting period in which the contract or receivable is sold,
factored, or assigned. No reduction in the amount of sales and use
tax to be reported and paid by the retailer is allowed if the transfer
to the third party is for a discounted amount. This paragraph does
not apply to a retailer's assignment or pledge of contracts or accounts
receivable to a third party as loan collateral.
(d) Bad debts and repossessions.
(1) Bad debts during a reporting period. A retailer
is not required to report sales and use tax on any amount that has
been entered in the retailer's books as a bad debt during the same
reporting period in which the sale occurred, and that will be taken
as a deduction for federal income tax purposes on the retailer's federal
income tax return during the same or subsequent reporting period.
(2) Persons who may claim a credit or refund.
(A) Only a retailer, private label credit provider,
or assignee or affiliate of either may claim a credit or refund for
sales and use tax paid on the bad debt or the unpaid portion of the
sales price of a taxable item repossessed under a conditional sales
contract.
(B) Only one person is entitled to a credit or refund
for sales and use tax paid to the comptroller on each bad debt or
repossession.
(3) Determining the amount of a bad debt or the unpaid
portion of the sales price of a taxable item repossessed under a conditional
sales contract.
(A) The amount is the sales price of the taxable item
less all payments and recoveries, including payments applied to interest,
fees, and other expenses relating to the sales price of the taxable
item under the credit agreement and the proceeds from the sale of
an account to a third party.
(B) The sales price does not include nontaxable separately
stated charges such as finance, carrying, insurance or service charges;
or interest from credit extended on sales of taxable items under a
conditional sales contract or other contract providing for the deferred
payment of the sales price.
(C) For a worthless account that includes charges for
taxable and nontaxable items, payments on the account are applied
to the charges occurring first in time and prorated between taxable
and nontaxable charges occurring at the same time.
(D) Expenses to collect a bad debt or repossess an
item. A person claiming a credit or refund under this subsection cannot
add to the credit or refund amount:
(i) the expense of collecting a bad debt;
(ii) the expense of repossessing or selling a repossessed
item; or
(iii) the amount that a third party has retained or
which has been paid to a third party for the service of collecting
a bad debt or the service of repossessing or selling a repossessed
item.
(E) Any person claiming a bad debt refund or credit
must also account for all recoveries on an account. If the retailer
or private label credit provider claims a refund or credit that includes
accounts sold to a third party, the retailer or private label credit
provider must provide the detailed collection amounts for sold accounts.
If the person claiming the refund or credit does not have the actual
collection information, the comptroller will estimate the post-sale
collections in calculating the amount eligible for a refund or credit.
The comptroller will estimate the post-sale collections at a rate
of 2.5 times the proceeds from the sale of the account.
(4) Local sales and use tax. Only the retailer who
made the sale, or an affiliate or assignee of the retailer, is entitled
to a credit or refund for local sales and use tax paid on a bad debt
or the unpaid portion of the sales price of a taxable item repossessed
under a conditional sales contract. A person who is not the retailer
who made the sale is entitled to a credit or refund under this subsection
only for state sales and use tax imposed by Tax Code, §151.051
(Sales Tax Imposed), or §151.101 (Use Tax Imposed), unless the
retailer who made the sale expressly assigned its rights to a credit
or refund under this subsection.
(5) Statute of limitations. A claim for a credit or
a refund under this subsection must be submitted within four years
from the date a bad debt is actually charged off for federal income
tax purposes or the date the taxable item is repossessed, whichever
is applicable.
(6) Post refund collection on a bad debt or sale of
a repossessed item. A person who later collects any payment on a bad
debt or sells a repossessed item for which a credit or refund was
claimed must report the total amount collected or received from the
sale as a taxable sale in the reporting period in which the collection
or sale occurs, except when the previous credit or refund amount was
calculated by estimating post-sale collections for sold accounts in
accordance with subsection (d)(3)(E) of this section.
(7) Claiming a credit or refund.
(A) Permitted persons. A person who holds, or held
at the time of the sale, a valid Texas sales and use tax permit and
who is otherwise entitled to claim a credit or refund authorized under
this subsection may:
(i) claim a credit on the person's sales and use tax
report for tax paid on a bad debt only if the person files the tax
report electronically and claims the credit in the reporting period
in which the person's books reflect the bad debt or subsequent reporting
periods; or
(ii) request a refund in writing from the comptroller
for sales and use tax paid on a bad debt.
(B) Non-permitted persons. A person who does not hold
a valid Texas sales and use tax permit but is otherwise entitled to
a credit or refund under this subsection can only request a refund
in writing from the comptroller for sales and use tax paid to the
comptroller on the bad debt or the unpaid portion of the sales price
of a taxable item repossessed.
(C) Records required. A person claiming a credit or
requesting a refund for sales and use taxes paid on a bad debt or
the unpaid portion of the sales price of a taxable item repossessed
must maintain and make available to the comptroller:
(i) date of original credit sale and name and Texas
sales and use tax permit number of the retailer who collected and
remitted the sales and use tax to the comptroller;
(ii) amount that the purchaser contracted to pay;
(iii) taxable and nontaxable charges;
(iv) all other payments or other credits applied to
the account of the purchaser;
(v) evidence that the uncollected amount has been designated
as a bad debt in the books and records of the person who claims the
bad debt deduction, and that the amount has been claimed as a bad
debt deduction for federal income tax purposes;
(vi) identification of each city, county, transit authority,
or special purpose district to which local taxes were reported if
the claimant is claiming a refund or credit of local taxes;
(vii) the sales and use tax collected and remitted
to the comptroller; and
(viii) any additional records requested by the comptroller
to verify a credit or refund claim.
(D) Records required for bad debts acquired by assignment
or purchase. In addition to the requirements in subparagraph (C) of
this paragraph, an assignee claiming a credit or requesting a refund
for sales and use tax paid on a bad debt must maintain and make available
to the comptroller the following additional information:
(i) amount of bad debt acquired;
(ii) name and taxpayer number of the original retailer
who collected and remitted the sales or use tax;
(iii) name and taxpayer number of the person from whom
the assignee acquired the bad debt; and
Cont'd... |
