DAR File No. 27819

Tax Commission, Auditing

R865-19S-20

Basis for Reporting Tax Pursuant to Utah Code Ann. Section 59-12-107

NOTICE OF PROPOSED RULE

DAR File No.: 27819
Filed: 04/15/2005, 01:12
Received by: NL

RULE ANALYSIS

Purpose of the rule or reason for the change:

Section 59-12-107, amended by S.B. 147 (2003), and Section 59-12-104.3, amended by S.B. 127 (2005), indicate when a taxpayer may obtain a sales tax credit or refund for bad debt. These statutory provisions cover all issues relating to bad debt, so no rule language is needed. (DAR NOTE: S.B. 147 is found at UT L 2003 Ch 312, and was effective 07/01/2004. S.B. 127 is found at UT L 2005 Ch 158, and will be effective 07/01/2005.)

Summary of the rule or change:

The proposed amendment deletes provisions relating to sales tax credit for repossessions since those provisions were codified by S.B. 127 (2005).

State statutory or constitutional authorization for this rule:

Section 59-12-107

Anticipated cost or savings to:

the state budget:

None--Any fiscal impacts were taken into account by S.B. 147 (2003) and S.B. 127 (2005).

local governments:

None--Any fiscal impacts were taken into account by S.B. 147 (2003) and S.B. 127 (2005).

other persons:

None--Any fiscal impacts were taken into account by S.B. 147 (2003) and S.B. 127 (2005).

Compliance costs for affected persons:

None--Automobile dealers continue to be entitled to a credit or refund for a bad debt on repossessed vehicles.

Comments by the department head on the fiscal impact the rule may have on businesses:

Auto dealers will continue to take a bad debt sales tax credit for vehicles they repossess. Pam Hendrickson, Commission Chair

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Direct questions regarding this rule to:

Sheri McFall at the above address, by phone at 801-297-3901, by FAX at 801-297-3919, or by Internet E-mail at sherimcfall@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

06/01/2005

This rule may become effective on:

06/02/2005

Authorized by:

Pam Hendrickson, Commissioner

RULE TEXT

R865. Tax Commission, Auditing.

R865-19S. Sales and Use Tax.

R865-19S-20. Basis for Reporting Tax Pursuant to Utah Code Ann. Section 59-12-107.

A. "Total sales" means the total amount of all cash, credit, installment, and conditional sales made during the period covered by the return.

B. Amounts shown on returns must include the total sales made during the period of the returns, and the tax must be reported and paid upon that basis.

C. [Justified adjustments]Adjustments may be made and credit allowed for cash discounts, returned goods, and bad debts[, and repossessions] that result from sales upon which the tax has been reported and paid in full by [retailers]a seller to the Tax Commission.

1. Adjustments and credits will be allowed only if the [retailer]seller has not been reimbursed [himself ]in the full amount of the tax except as noted in C.6.a) and can establish that fact by records, receipts or other means.

2. In no case shall the credit be greater than the sales tax on that portion of the purchase price remaining unpaid at the time the goods are returned, the account is charged off[, or the repossession occurs].

3. Any refund or credit given to the purchaser must include the related sales tax.

[4. Sales tax credits for bad debts are allowable only on accounts determined to be worthless and actually charged off for income tax purposes. Recoveries made on bad debts and repossessions for which credit has been claimed must be reported and the tax paid.

5. Sales tax credit for repossessions is allowable on the basis of the original amount subject to tax, less down payment. This amount is multiplied by the ratio of the number of monthly payments not made, divided by the total number of monthly payments required by the contract.

a) For example: the credit allowed on a taxable $30,000 car sale with a $5,000 down payment financed on a 60-month contract and repossessed after 20 full payments were made would be $16,667 as computed and shown below. The number of unpaid full payments is determined by dividing the total received on the contract by the monthly payment amount.

TABLE

     Example:

     (1)  Original amount subject to tax            $30,000

     (2)  Down payment                               (5,000)

     (3)  Balance of taxable base financed           25,000

     (4)  Number of full payments unpaid at

          the time of repossession                       40

     (5)  Total contract period (no. of months)          60

Line 4 divided by line 5 times taxable base financed equals repossession credit

(40/60) x $25,000 = $16,667

b) In cases where a contract assignment creates a partial (part of the loan amount) recourse obligation to the seller, any repossession credit must be calculated in the same manner as shown above.

c) The credit for repossession shall be reported on the dealer's or vendor's sales tax return with an attached schedule showing computations and appropriate adjustments for any tax rate changes between the date of sale and the date of repossession.

6. Credit for tax on repossessions is allowed only to the selling dealer or vendor.

a) This does not preclude arrangements between the dealer or vendor and third party financial institutions wherein sales tax credits for repossessions by financial institutions may be taken by the dealer or vendor who will in turn reimburse the financial institution.

b) In the event the applicable vehicle dealer is no longer in business, and there are no outstanding delinquent taxes, the third party financial institution may apply directly to the Tax Commission for a refund of the tax in the amount that would have been credited to the dealer.

D. Adjustments in sales price, such as allowable discounts or rebates, cannot be anticipated. The tax must be ]D. Tax is based upon the original price unless adjustments were made prior to the close of the reporting period in which the tax upon the sale is due. If the price upon which the tax is computed and paid is subsequently adjusted, credit may be taken against the tax due on a subsequent return.

E. If a sales tax rate change takes place prior to the reporting period when the seller claims the credit[ is claimed], the [tax credit must be determined and deducted rather than deducting the sales price adjustments]seller must adjust the taxable amount so that the amount of tax credited corresponds proportionally to the amount of tax originally collected.

F. Commissions to agents are not deductible under any conditions for purposes of tax computation.

KEY: charities, tax exemptions, religious activities, sales tax

[December 21, 2004]2005

Notice of Continuation April 5, 2002

59-12-107

ADDITIONAL INFORMATION

PLEASE NOTE:

• Text to be deleted is struck through and surrounded by brackets (e.g., [example]). Text to be added is underlined (e.g., example). Some browsers may not depict some or any of these attributes on the screen or when the document is printed.
• Please see the DISCLAIMER regarding information available from state web pages.

For questions regarding the content or application of this rule, please contact Sheri McFall at the above address, by phone at 801-297-3901, by FAX at 801-297-3919, or by Internet E-mail at sherimcfall@utah.gov

For questions about the rulemaking process, please contact the Division of Administrative Rules (801-538-3764). Please Note: The Division of Administrative Rules is NOT able to answer questions about the content or application of these administrative rules.