USE TAX ACT (EXCERPT)
Act 94 of 1937
205.99a Bad debt deduction.
(1) In computing the amount of tax levied under this act for any month, a seller may deduct the amount of bad debts from his or her gross sales, rentals, or services used for the computation of the tax. The amount of gross sales, rentals, or services deducted must be charged off as uncollectible on the books and records of the seller at the time the debt becomes worthless and deducted on the return for the period during which the bad debt is written off as uncollectible in the claimant's books and records and must be eligible to be deducted for federal income tax purposes. For purposes of this section, a claimant who is not required to file a federal income tax return may deduct a bad debt on a return filed for the period in which the bad debt becomes worthless and is written off as uncollectible in the claimant's books and records and would be eligible for a bad debt deduction for federal income tax purposes if the claimant was required to file a federal income tax return. If a consumer or other person pays all or part of a bad debt with respect to which a seller claimed a deduction under this section, the seller is liable for the amount of taxes deducted in connection with that portion of the debt for which payment is received and shall remit these taxes in his or her next payment to the department. Any payments made on a bad debt shall be applied proportionally first to the taxable price of the property and the tax on the property and second to any interest, service, or other charge.
(2) Any claim for a bad debt deduction under this section shall be supported by that evidence required by the department. The department shall review any change in the rate of taxation applicable to any taxable sales, rentals, or services by a seller claiming a deduction pursuant to this section and shall ensure that the deduction on any bad debt does not result in the seller claiming the deduction recovering any more or less than the taxes imposed on the sale, rental, or service that constitutes the bad debt.
(3) After September 30, 2009, if a taxpayer who reported the tax and a lender execute and maintain a written election designating which party may claim the deduction, a claimant is entitled to a deduction or refund of the tax related to a sale at retail that was previously reported and paid if all of the following conditions are met:
(a) No deduction or refund was previously claimed or allowed on any portion of the account receivable.
(b) The account receivable has been found worthless and written off by the taxpayer that made the sale or the lender on or after September 30, 2009.
(4) If a certified service provider assumed filing responsibility under the streamlined sales and use tax administration act, 2004 PA 174, MCL 205.801 to 205.833, the certified service provider may claim, on behalf of the seller, any bad debt allowable to the seller and shall credit or refund that amount of bad debt allowed or refunded to the seller.
(5) If the books and records of a seller under the streamlined sales and use tax agreement under the streamlined sales and use tax administration act, 2004 PA 174, MCL 205.801 to 205.833, that claims a bad debt allowance support an allocation of the bad debts among member states of that agreement, the seller may allocate the bad debts.
(6) As used in this section:
(a) "Bad debt" means any portion of a debt resulting from a seller's collection of the use tax under this act on the purchase of tangible personal property or services that is not otherwise deductible or excludable and that is eligible to be claimed, or could be eligible to be claimed if the seller kept accounts on an accrual basis, as a deduction pursuant to section 166 of the internal revenue code, 26 USC 166. A bad debt does not include any of the following:
(i) Interest, finance charge, or use tax on the purchase price.
(ii) Uncollectible amounts on property that remains in the possession of the seller until the full purchase price is paid.
(iii) Expenses incurred in attempting to collect any account receivable or any portion of the debt recovered.
(iv) Any accounts receivable that have been sold to and remain in the possession of a third party for collection.
(v) Repossessed property.
(b) Except as provided in subdivision (c), "lender" includes any of the following:
(i) Any person who holds or has held an account receivable which that person purchased directly from a taxpayer who reported the tax.
(ii) Any person who holds or has held an account receivable pursuant to that person's contract directly with the taxpayer who reported the tax.
(iii) The issuer of the private label credit card.
(c) "Lender" does not include the issuer of a credit card or instrument that can be used to make purchases from a person other than the vendor whose name or logo appears on the card or instrument or that vendor's affiliates.
(d) "Private label credit card" means any charge card, credit card, or other instrument serving a similar purpose that carries, refers to, or is branded with the name or logo of a vendor and that can only be used for purchases from the vendor.
(e) "Seller" means a person who has remitted use tax directly to the department on the specific sales, rental, or service transaction for which the bad debt is recognized for federal income tax purposes or, after September 30, 2009, a lender holding the account receivable for which the bad debt is recognized, or would be recognized if the claimant were a corporation, for federal income tax purposes.
History: Add. 1999, Act 117, Imd. Eff. July 14, 1999
Am. 2004, Act 172, Eff. Sept. 1, 2004
Am. 2007, Act 104, Imd. Eff. Oct. 1, 2007
Compiler's Notes: Enacting section 1 of Act 117 of 1999 provides:"Enacting section 1. This amendatory act clarifies that, with the exception of telecommunications equipment taxed under section 3a of the use tax act, 1937 PA 94, MCL 205.93a, the tax levied does not apply to the price of property or services to the extent that the property or services are stored, used, or consumed for exempt purposes. For telecommunications equipment taxed under section 3a of the use tax act, 1937 PA 94, MCL 205.93a, this amendatory act clarifies that for periods before April 1, 1999, the tax shall not be apportioned and for periods beginning April 1, 1999, the tax shall be apportioned. This amendatory act clarifies that existing law as originally intended provides for a prorated exemption. This amendatory act takes effect for all periods beginning March 31, 1995 and all tax years that are open under the statute of limitations provided in section 27a of 1941 PA 122, MCL 205.27a."Enacting section 1 of Act 104 of 2007 provides:"Enacting section 1. This amendatory act is curative and shall be retroactively applied, expressing the original intent of the legislature that a deduction for a bad debt for a seller under the use tax act, 1937 PA 94, MCL 205.91 to 205.111, is available exclusively to those persons with the legal liability to remit the tax on the specific sales, rental, or service transaction for which the bad debt is recognized for federal income tax purposes, and correcting any misinterpretation of the meaning of the term "seller" that may have been caused by the Michigan court of appeals decision in Daimler Chrysler Services North America LLC v Department of Treasury, No. 264323. However, this amendatory act is not intended to affect a refund required by a final order of a court of competent jurisdiction for which all rights of appeal have been exhausted or have expired if the refund is payable without interest and after September 30, 2009 and before November 1, 2009."
© 2009 Legislative Council, State of Michigan