Maine – Bad Debt Sales Tax Credit Rejected

SALT Report 1727 – The Maine Supreme Judicial Court upheld a lower court’s decision that a retailer could not claim a bad debt sales tax credit on accounts it sold to a third-party creditor that were later charged off as worthless.

The facts of the case are as follows:

  • The retailer entered into payment plans with customers for the sale of goods
  • The retailer sold the right to collect the debt to a creditor who received full payment for the goods, including sales tax
  • When the creditor was unable to collect a debt, it charged off as a bad debt the full amount the customer did not pay, and
  • The retailer subsequently claimed a credit for the sales tax that the customer did not pay to the creditor

Under the provisions set forth in 2003 ME 27, ¶ 12, 817 A.2d 862, “tax paid by [a retailer] on sales represented by accounts charged off by [the retailer] as worthless may be credited by [the retailer] against the tax due on a subsequent report filed by [the retailer] within 3 years of the charge-off, but, if any such accounts are thereafter collected by [the retailer], a tax shall be paid by [the retailer] upon the amounts collected.”

Based on the plain language of the statute and the facts presented by the retailer the Court determined that the retailer could not claim a bad debt sales tax credit because “the creditor wrote off the debt and the retailer had been fully compensated for the purchases.”

For Further Information:

Maine Supreme Judicial Court – Docket Number BCD-11-597 

SALT Report 1726 – California Amends Worthless Account Refund Provisions