September 17, 2009, Introduced by Senator PRUSI and referred to the Committee on Finance.
A bill to amend 1933 PA 167, entitled
"General sales tax act,"
by amending section 4i (MCL 205.54i), as amended by 2007 PA 105.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 4i. (1) As used in this section:
(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 prior to October 1, 2009, a taxpayer may deduct the
amount of bad debts from his or her gross proceeds used for the
computation of the tax. In computing the amount of tax levied under
this act for any month after September 30, 2009, a taxpayer may
deduct 80% of 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) 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) 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) 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.