HB-5097, As Passed House, September 24, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 5097

     A bill to amend 1933 PA 167, entitled

"General sales tax act,"

by amending section 4i (MCL 205.54i), as amended by 2004 PA 173.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 4i. (1) As used in this section: , "bad

     (a) "Bad debt" means any portion of a debt that is related to

a sale at retail taxable under this act for which gross proceeds

are not otherwise deductible or excludable and that is eligible to

be claimed, or could be eligible to be claimed if the taxpayer kept

accounts on an accrual basis, as a deduction pursuant to section

166 of the internal revenue code, 26 USC 166. A bad debt shall not

include any finance charge, interest, or sales tax on the purchase

price, uncollectible amounts on property that remains in the

possession of the taxpayer until the full purchase price is paid,

expenses incurred in attempting to collect any account receivable

or any portion of the debt recovered, any accounts receivable that

have been sold to and remain in the possession of a third party for

collection, and 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) "Taxpayer" means a person that has remitted sales tax

directly to the department on the specific sales at retail

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.

     (2) In computing the amount of tax levied under this act for

any month, a taxpayer may deduct the amount of bad debts from his

or her gross proceeds used for the computation of the tax. The

amount of gross proceeds deducted must be charged off as

uncollectible on the books and records of the taxpayer 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 taxpayer claimed a deduction under this section,

the taxpayer 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.

     (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) (3) 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 by a taxpayer claiming a deduction

pursuant to this section and shall ensure that the deduction on any

bad debt does not result in the taxpayer claiming the deduction

recovering any more or less than the taxes imposed on the sale that

constitutes the bad debt.

(5) (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 taxpayer,

any bad debt allowable to the taxpayer and shall credit or refund

that amount of bad debt allowed or refunded to the taxpayer.

(6) (5) If the books and records of a taxpayer 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 taxpayer

may allocate the bad debts.

     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 taxpayer under

the general sales tax act, 1933 PA 167, MCL 205.51 to 205.78, is

available exclusively to those persons with the legal liability to

remit the tax on the specific sale at retail for which the bad debt

deduction is recognized for federal income tax purposes, and

correcting any misinterpretation of the meaning of the term

"taxpayer" 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.