HB-5096, As Passed Senate, September 30, 2007

SUBSTITUTE FOR

HOUSE BILL NO. 5096

     A bill to amend 1937 PA 94, entitled

"Use tax act,"

by amending section 9a (MCL 205.99a), as amended by 2004 PA 172.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 9a. (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) (3) 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) (4) If the books and records of a seller under the

streamlined sales and use tax act 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) (5) As used in this section: , "bad

     (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) (a) Interest, finance charge, or use tax on the purchase

price.

(ii) (b) Uncollectible amounts on property that remains in the

possession of the seller until the full purchase price is paid.

(iii) (c) Expenses incurred in attempting to collect any account

receivable or any portion of the debt recovered.

(iv) (d) Any accounts receivable that have been sold to and

remain in the possession of a third party for collection.

(v) (e) 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.

     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.