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Texas Tax Code - TAX § 151.426. Credits and Refunds for Bad Debts, Returned Merchandise, and Repossessions

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(a) A seller may withhold the payment of the tax on a portion of the sales price of a taxable item that remains unpaid by the purchaser if:

(1) during the reporting period in which the item was sold, leased, or rented the seller determines that the unpaid portion will remain unpaid;

(2) the seller enters the unpaid portion of the sales price in the seller's books as a bad debt;  and

(3) the bad debt is claimed as a deduction for federal tax purposes during the same or a subsequent reporting period.

(b) If the portion of a debt determined to be bad under Subsection (a) of this section is paid, the seller shall report and pay the tax on the portion during the reporting period in which the payment is made.

(c) Subject to Subsection (e), a retailer or any person who extends credit to a purchaser under a retailer's private label credit agreement, or an assignee or affiliate of either, is entitled to credit or reimbursement for taxes paid on the portion of:

(1) an account determined to be worthless and actually charged off for federal income tax purposes;  or

(2) the remaining unpaid sales price of a taxable item when the item is repossessed under a conditional sales contract.

(d) A seller is entitled to credit for the amount of taxes paid on the amount of a refund or credit made to a purchaser under a bona fide agreement in which the sales price of a taxable item is renegotiated.  This credit applies to a refund or credit made under an agreement in settlement of a claim for an alleged breach of warranty on a taxable item sold by the seller to the person with whom the agreement is made.

(e) A person is entitled to a credit or reimbursement provided by Subsection (c) only if:

(1) the retailer:

(A) has a valid sales or use tax permit;  and

(B) remits the tax for which the credit or reimbursement is sought;

(2) all payments on an account are prorated between taxable and nontaxable charges;  and

(3) the retailer or person claiming the credit or reimbursement provides detailed records outlining:

(A) the amount the purchaser contracted to pay;

(B) taxable and nontaxable charges;

(C) the tax collected and remitted;

(D) the unpaid portion of the sales price assigned;  and

(E) the taxpayer number of the seller who collected and remitted the tax.

(f) A person whose volume and character of uncollectible accounts warrants an alternative method of substantiating the reimbursement or credit may:

(1) maintain records other than the records specified in Subsection (e) if:

(A) the records fairly and equitably apportion taxable and nontaxable elements of a bad debt and compute the amount of sales tax imposed and remitted with respect to the taxable charges remaining unpaid on the debt;  and

(B) the comptroller approves the procedures used;  or

(2) implement a system to report its future tax responsibilities based on a historical percentage calculated from a sample of transactions if:

(A) the system utilizes records provided by the person claiming the credit or reimbursement;  and

(B) the comptroller approves the procedures used.

(g) The comptroller may revoke the authorization to report under Subsection (f)(2) if the comptroller determines that the percentage being used is no longer representative because of:

(1) a change in law, including a change in the interpretation of an existing law or rule;  or

(2) a change in the taxpayer's business operations.

(h) A person claiming a credit or reimbursement under this section shall remit tax on any payments received on an account that has been written off and claimed as a bad debt.

(i) A person who is not a retailer may claim a credit or reimbursement authorized by Subsection (c) only for taxes imposed by Section 151.051 or 151.101.

(j) For purposes of this section, “affiliate” means any entity or entities that would be classified as a member of an affiliated group under 26 U.S.C. Section 1504.

Cite this article: - Texas Tax Code - TAX § 151.426. Credits and Refunds for Bad Debts, Returned Merchandise, and Repossessions - last updated April 14, 2021 |

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