Retailer in Massachusetts Not Entitled to Reimbursement of Sales Tax on Bad Debt

A retailer with stores in Massachusetts was not entitled to reimbursement of Massachusetts sales tax paid on uncollectible credit card sales because the sales tax was paid by the credit card issuing bank. The uncollectible purchases were made on credit cards issued by the bank in agreement with the retailer. The bank paid the retailer the full sales price, including sales tax, of the transactions. The retailer sought reimbursement of the sales tax paid under the Bad Debt Statute. However, the taxpayer never took a bad debt deduction on its federal return. The bank did but it did not attempt to recover the uncollected amounts from the taxpayer. The statute is intended to reimburse vendors who finance unrecovered sales tax. In this case, the bank financed the sales tax, and the retailer merely remitted sales tax it received from the bank. While the statute does not explicitly condition relief on a vendor advancing credit, the common-sense interpretation is that it is the vendor who must extend credit, because the vendor is the only identified “actor” in the statute. Because the bank itself extended the credit, the retailer is not entitled to the reimbursement of sales tax under the statute. (Sears, Roebuck & Co. v. Commissioner of Revenue, Massachusetts Appellate Tax Board, Nos. C293755, C294129, C299055, C305010, C293636, C298514, C298936, C305046, January 11, 2012)

Posted on May 21, 2012