California – Worthless Account Refund Provisions

SALT Report 1726 – The California General Assembly passed a bill that amends the process for claiming a refund or a deduction of sales and use tax for retail accounts that are held by lenders and found to be worthless.  The purpose of the revision is to address an unintended consequence that results in situations where the lenders have failed to file properly completed election forms when claiming the deduction or refund.

Under the current law, the claimant is allowed to prepare and file a proper election form after the claim for deduction or refund is filed, however the claim will not be considered valid until the election form is filed.  Consequently, if an election form is not filed by the lender in a timely manner, the BOE will not accept the claim for deduction or refund for any period that falls outside the statute of limitations set forth in Section 6902. As a result the BOE has rejected otherwise valid claims for deductions or refunds by lenders because they were filed outside the limitations period.

The new bill, AB 2688, has removed the requirement that the election form be prepared and filed prior to claiming a deduction or refund. In other words, if the lender files a proper election form outside the limitations period, the timeliness of the claim will be determined by the date the claim for refund was filed.

Therefore, in the case of a charged-off account held by a lender, the retailer or lender that makes a proper election will be entitled to a deduction or refund of sales tax that the retailer previously reported and paid.

For Further Information:

California State Assembly – AB 2688

WFS Financial, Inc. claim for refund under the sales and use tax laws of 2000