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AB-1 Sales and use taxes: worthless accounts.(2007-2008)

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CALIFORNIA LEGISLATURE— 2007–2008 3rd Ext.

Assembly Bill
No. 1

Introduced  by  Assembly Member Charles Calderon

January 29, 2008

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


LEGISLATIVE COUNSEL'S DIGEST


AB 1, as introduced, Charles Calderon. Sales and use taxes: worthless accounts.
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. Existing law further provides, in the case of accounts held by a lender, 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 the provisions entitling a lender, in the case of accounts held by a lender, to a deduction or refund of the sales or use tax previously reported and paid by the retailer.
The California Constitution authorizes the Governor to declare a fiscal emergency and to call the Legislature into special session for that purpose. The Governor issued a proclamation declaring a fiscal emergency, and calling a special session for this purpose, on January 10, 2008.
This bill would state that it addresses the fiscal emergency declared by the Governor by proclamation issued on January 10, 2008, pursuant to the California Constitution.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   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 who 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)No deduction was 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 who holds a retail account which that person purchased directly from a retailer who reported the tax.

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

(C)Any person who 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)Prior to claiming any deduction or refund under this subdivision, the retailer who reported the tax and the lender shall file an election with the board, 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 filed with the board.

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 who 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)No deduction was 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 who holds a retail account which that person purchased directly from a retailer who reported the tax.

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

(C)Any person who 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)Prior to claiming any deduction or refund under this subdivision, the retailer who reported the tax and the lender shall file an election with the board, 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 filed with the board.

SEC. 3.

 This act addresses the fiscal emergency declared by the Governor by proclamation on January 10, 2008, pursuant to subdivision (f) of Section 10 of Article IV of the California Constitution.