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AB-1305 Sales and use taxes: worthless accounts.(2017-2018)

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Date Published: 05/01/2017 09:00 PM
AB1305:v97#DOCUMENT

Amended  IN  Assembly  May 01, 2017
Amended  IN  Assembly  April 03, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 1305


Introduced by Assembly Member Cristina Garcia

February 17, 2017


An act to amend Section 6070 Sections 6055 and 6203.5 of the Revenue and Taxation Code, relating to taxation.


LEGISLATIVE COUNSEL'S DIGEST


AB 1305, as amended, Cristina Garcia. Sales and use taxes: permit revocation. worthless accounts.
(1) The Sales and Use Tax Law provides that a retailer is relieved from liability for sales or use tax where the measure of the tax is represented by accounts that have been found to be worthless and charged off, as specified. Existing law provides that a retailer may take as a deduction against that tax liability, the amount found to be worthless and charged off, if the retailer has previously paid the tax as provided. Existing law includes as a retailer certain affiliated entities.
This bill instead would define a retailer to include a successor, as defined, that pays full consideration for receivables acquired from a retailer.
(2) Existing law further provides, in the case of accounts held by a lender, that the lender is entitled to a deduction or refund of the sales or use tax previously reported and paid by the retailer on that account if certain conditions are met.
This bill would eliminate these provisions.

Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law requires every person desiring to engage in or conduct business as a seller within this state to file with the State Board of Equalization an application for a permit for each place of business, as specified. Existing law, whenever a person fails to comply with the sales tax laws and regulations, authorizes the board upon hearing, after giving the person 10 days’ written notice of the hearing, as provided, to revoke or suspend any one or more of the permits held by the person.

This bill, instead, would require 15 days’ written notice of the hearing.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 Section 6055 of the Revenue and Taxation Code is amended to read:

6055.
 (a) A retailer is relieved from liability for sales tax that became due and payable, insofar as the measure of the tax is represented by accounts that have been found to be worthless and charged off for income tax purposes by the retailer or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting principles. A retailer that has previously paid the tax may, under rules and regulations prescribed by the board, take as a deduction the amount found worthless and charged off by the retailer. If these accounts are thereafter in whole or in part collected by the retailer, the amount collected shall be included in the first return filed after the collection and the tax shall be paid with the return. For purposes of this subdivision, the term “retailer” shall include any entity affiliated with the retailer under Section 1504 of Title 26 of the United States Code.

(b)(1)In the case of accounts held by a lender, a retailer or lender that makes a proper election under paragraph (4) shall be entitled to a deduction or refund of the tax that the retailer has previously reported and paid if all of the following conditions are met:

(A)A deduction was not previously claimed or allowed on any portion of the accounts.

(B)The accounts have been found worthless and written off by the lender in accordance with the requirements of subdivision (a).

(C)The contract between the retailer and the lender contains an irrevocable relinquishment of all rights to the account from the retailer to the lender.

(D)The retailer remitted the tax on or after January 1, 2000.

(E)The party electing to claim the deduction or refund under paragraph (4) files a claim in a manner prescribed by the board.

(2)If the retailer or the lender thereafter collects in whole or in part any accounts, one of the following shall apply:

(A)If the retailer is entitled to the deduction or refund under the election specified in paragraph (4), the retailer shall include the amount collected in its first return filed after the collection and pay tax on that amount with the return.

(B)If the lender is entitled to the deduction or refund under the election specified in paragraph (4), the lender shall pay the tax to the board in accordance with Section 6451.

(3)For purposes of this subdivision, the term “lender” means any of the following:

(A)Any person that holds a retail account which that person purchased directly from a retailer who reported the tax.

(B)Any person that holds a retail account pursuant to that person’s contract directly with the retailer that reported the tax.

(C)Any person that is either an affiliated entity, under Section 1504 of Title 26 of the United States Code, of a person described in subparagraph (A) or (B), or an assignee of a person described in subparagraph (A) or (B).

(4)For purposes of this section, a “proper election” shall be established when the retailer that reported the tax and the lender prepare and retain an election form, signed by both parties, designating which party is entitled to claim the deduction or refund. This election may not be amended or revoked unless a new election, signed by both parties, is prepared and retained by the retailer and the lender.

(b) For purposes of this section:
(1) “Retailer” shall include a successor that pays full consideration for receivables acquired from the retailer.
(2) A “successor” as described in paragraph (1) is a purchaser of a business or stock of goods for which liability of the predecessor could be imposed under Article 7 (commencing with Section 6811) of Chapter 6.

SEC. 2.

 Section 6203.5 of the Revenue and Taxation Code is amended to read:

6203.5.
 (a) A retailer is relieved from liability to collect use tax that became due and payable, insofar as the measure of the tax is represented by accounts that have been found to be worthless and charged off for income tax purposes by the retailer or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting principles. A retailer that has previously paid the amount of the tax may, under rules and regulations prescribed by the board, take as a deduction the amount found worthless and charged off by the retailer. If these accounts are thereafter in whole or in part collected by the retailer, the amount collected shall be included in the first return filed after the collection and the amount of the tax shall be paid with the return. For purposes of this subdivision, the term “retailer” shall include any entity affiliated with the retailer under Section 1504 of Title 26 of the United States Code.

(b)(1)In the case of accounts held by a lender, a retailer or lender that makes a proper election under paragraph (4) shall be entitled to a deduction or refund of the tax that the retailer has previously reported and paid if all of the following conditions are met:

(A)A deduction was not previously claimed or allowed on any portion of the accounts.

(B)The accounts have been found worthless and written off by the lender in accordance with the requirements of subdivision (a).

(C)The contract between the retailer and the lender contains an irrevocable relinquishment of all rights to the account from the retailer to the lender.

(D)The retailer remitted the tax on or after January 1, 2000.

(E)The party electing to claim the deduction or refund under paragraph (4) files a claim in a manner prescribed by the board.

(2)If the retailer or the lender thereafter collects in whole or in part any accounts, one of the following shall apply:

(A)If the retailer is entitled to the deduction or refund under the election specified in paragraph (4), the retailer shall include the amount collected in its first return filed after the collection and pay tax on that amount with the return.

(B)If the lender is entitled to the deduction or refund under the election specified in paragraph (4), the lender shall pay the tax to the board in accordance with Section 6451.

(3)For purposes of this subdivision, the term “lender” means any of the following:

(A)Any person that holds a retail account which that person purchased directly from a retailer who reported the tax.

(B)Any person that holds a retail account pursuant to that person’s contract directly with the retailer that reported the tax.

(C)Any person that is either an affiliated entity, under Section 1504 of Title 26 of the United States Code, of a person described in subparagraph (A) or (B), or an assignee of a person described in subparagraph (A) or (B).

(4)For purposes of this section, a “proper election” shall be established when the retailer that reported the tax and the lender prepare and retain an election form, signed by both parties, designating which party is entitled to claim the deduction or refund. This election may not be amended or revoked unless a new election, signed by both parties, is prepared and retained by the retailer and the lender.

(b) For purposes of this section:
(1) “Retailer” shall include a successor that pays full consideration for receivables acquired from the retailer.
(2) A “successor” as described in paragraph (1) is a purchaser of a business or stock of goods for which liability of the predecessor could be imposed under Article 7 (commencing with Section 6811) of Chapter 6.

SECTION 1.Section 6070 of the Revenue and Taxation Code is amended to read:
6070.

Whenever any person fails to comply with any provision of this part relating to the sales tax or any rule or regulation of the board relating to the sales tax prescribed and adopted under this part, the board upon hearing, after giving the person 15 days’ notice in writing specifying the time and place of hearing and requiring him to show cause why his permit or permits should not be revoked, may revoke or suspend any one or more of the permits held by the person. The board shall give to the person written notice of the suspension or revocation of any of his permits. The notices herein required may be served personally or by mail in the manner prescribed for service of notice of a deficiency determination. The board shall not issue a new permit after the revocation of a permit unless it is satisfied that the former holder of the permit will comply with the provisions of this part relating to the sales tax and the regulations of the board.