Illinois – Bank Not Entitled to Tax Refund

SALT Report 2039 – An Illinois Administrative Law Judge upheld a Department of Revenue decision that denied a bad debt sales tax refund to a Bank for debts the Bank determined were uncollectable. In this case, the Bank entered into an agreement with various retailers in which the Bank would provide financing to the retailer’s customers. The agreement allowed the customers to finance their purchase using an account backed by the Bank.The Bank would pay the retailer the total amount financed by the customer. This typically included the purchase price and any sales tax that was owed on the purchased item.

In some situations, a customer would default on their account and the unpaid balance would be uncollectable.  In this situation, the Bank would write the unpaid balance off on their corporate income tax returns as a bad debt. Once this occurred, the Bank would also claim a deduction on their sales tax returns for the amount of tax that they have remitted to the Department but were unable to collect from their customers.

In this particular case the sales tax refund was denied by both the Department and the ALJ because they determined that the Bank is not a retailer and does not bear the burden of collecting and remitting tax to the Department.  Accordingly, the ALJ determined that because the Bank never remitted tax to the Department, it could not have paid tax in error, and was not entitled to a refund.

For Further Information:

Illinois Department of Revenue – Administrative Hearing Decision Number ST 12-19