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Regulation 1642 Section 100
Regulation 1642
Section 100
Complete Rule Making File
OAL Approval with Approved Text Regulation 1642
Index
1.
Form 400 and Proposed Regulation 1642
2.
Statement of Explanation
3.
RTC Section 6055
4.
RTC Section 6203.5
5.
AB 242
6.
AB 2688
Other Documents Relied upon
A.
Chief Counsel Memo Dated 07/25/13
B.
Minutes, 08/13/13
C.
Reporters Transcript, 08/13/13
([;Je.({ k{t
tiutre-­
RFC'Fi\ 'T=n
'\ ...... ~ ......... Ii
~ . ."U DEC 12 2[3
State of California
. . tra t'Ive LaWSTATEBO.ARDOFEQU,:.iZATrON
I?y j:XECUTiVF. DIRECT, ~3 OFFICI!:
'
OffIce 0 f Ad miniS
....
In re: NOTICE OF APPROVAL OF CHANGES
WITHOUT REGULATORY EFFECT
Board of Equalization Regulatory Action: California Code of Regulations, Title 1,
Section 100
Title 187, California Code of Regulations Adopt sections: Amend sections: 1642 Repeal sections: OAL File No. 2013·1104"'()1 N
This change without regulatory effect amends one section of the California Code of
Regulations. This amendment is due to AB 242 (Stats. 2011, c. 272) that repealed the
provisions that required that a retailer and lender file a proper election prior to making a
claim for a bad debt deduction or refund with the Board of Equalization (BOE). AB 242
instead requires that the election be prepared, signed, and retained by the retailer and
lender. Further, AB 2688 (Stats. 2012, c. 362) removed the requirement that the
election be prepared, signed and retained prior to claiming a bad debt deduction or
refund. This change without regulatory effect removes the requirement for the election
to be filed with the BOE prior to claiming the deduction or refund.
OAL approves this change without regulatory effect as meeting the requirements of
California Code of Regulations, Title 1, section 100.
Date: 12/9/2013
glfGibson
Senior Counsel
For: Original: Cynthia Bridges
Copy: Richard Bennion
DEBRA M. CORNEZ
Director
~\ ~
NOTlcCEvPU-SLICAll'a..r·
For use by Secretary of State only
STD. 400 (REV. 01-2013)
OAL FILE
NUMBERS
REGULATORY ACTION NUMBEq
NOTICE FilE NUM8ER
EMERGENCY NU\18ER
. '2-Lll ~ II OY- - Co I rJ
Z­
.. ~ i . "
For use by Office of Administrative Law (OAL) only
-; "f[T,-·
~l'#t'·r .._ _ REGULATIONS
NOTICE
State Board of Equalization
A. PUBLICATION OF NOTICE (Complete for publication in Notice Register)
NOTICE REGISTER NUMBER
PUBLICATION DATE
B. SUBMISSION OF REGULATIONS (Complete when submitting regulations)
I
lb. ALL PREVIOUS RELATED OAL REGULATORY ACTION NUMBER(S)
la. SUBJECT OF REGULATION(S)
Bad Debts
2. SPECIFY CALIFORNIA CODE OF REGULATIONS TITlE(S) AND SECTIONIS} (Including title 26, il toxic. ,elated)
SECTION(S) AFFECTED
(List all sedlon numberls)
Individually. Attach
additional sheet if needed.)
ADOP
- - - - ....
.....
--.~------
.....
_ - - _....._ - - ­
TITLE(S)
18
3. TYPE OF FiliNG
D Certificate of Compliance: The agency officer named
below certifies that this agency complied with the
provisions of Gov. Code §§11346.2-11347.3 either
before the emergency regulation was adopted or
within the time period reqUired by statute.
D Resubmittal of disapproved or
withdrawn non emergency
filing (Gov. Code §§11349.3,
11349.4)
D Emergency (Gov. Code,
o
D Resubmittal of disapproved or withdrawn
emergency filing (Gov. Code, §11346.1)
§11346.l(b))
Emergency Readopt (Gov.
Code, §11346.1(h))
Changes Without Regulatory
Effect (Cai. Code Regs., title
1,§100)
File & Print
Print Only
Other (Specify) _ _.______....._ _ _ _ _....._ _ _ _ _.....~_ _
4. ALL BEGINNING AND ENDING DATES OF AVAILABILITY OF MODIFIED REGULATIONS ANDIOR MATERIAL ADDED TO THE RUlEMAKING FILE (Cal. Code Regs. title 1. §44 and Gov. Code §11347,1)
D.
Effactlve January 1. Apnl I. July I. or
Oclober 1 (Gov. Code §11343.4(a))
'xl
Effactive Of\ filing with
Secretary of State
I.!:::.I
§ 100 Changes Without
Regulatory Effect
D
Effective
other (SpeCify)
6. CHECK IF THESE REGULATIONS REQUIRE NOTICE TO, OR REVIEW, CONSULTATION. APPROVAL OR CONCURRENCE 8Y. ANOTHER AGENCY OR ENTITY
Fair Political Practices Commission
Department of Finance (F orm STD. 399) (SAM §6660)
U
Other (Specify)
TELEPHONE NUMBER
7, CONTACT PERSON I (916) 445-2130
Rick Bennion 8.
State Fire Marshal
FAX NUMBER (Oplional)
I certify that the attached copy of the regulation{s) is a true and corred copy
of the regulation{s) identified on this form, that the information specified on this form
is true and correct, and that I am the head of the agency taking thisactlon,
or a designee of the head of the agency, and am authorized to make this certification.
SIGNATURE
OFAGENCYH~DORDESIGNEE
",1';/"".
h.
}.
I
r{<,Aj,iL~!/ ,,­
TYPED NAME AND TITLE OF SIGNATORY
Joann Richmona, Chief, Board Proceedings Division
E-MAIL ADDRESS (Optional)
I(916) 324-3984 [email protected]
I
DATE
For use by Office of Administrative law (OAl) only
ENDORSED APPRaVE0 DEC 0 9 2013 November 1,2013
Office of Administrative Law Text of Proposed Changes to Title 18. Public Revenue 1642. Bad Debts.
(a) In General. A retailer is relieved from liability for sales tax (section 6055 of the Revenue and
Taxation Code) or from liability to collect use tax (section 6203.5 of the Revenue and Taxation
Code) insofar as the measure of the tax is represented by accounts found worthless and charged
otT for income tax purposes (which include circumstances where the retailer's income is reported
on a related person's income tax return and the bad debt is charged off on that return) or, if the
retailer is not required to tile income tax returns and the retailer's income is not reported on
another person's return, charged off in accordance with generally accepted accounting principles.
A retailer may claim a bad debt deduction provided that the sales tax, or amount of use tax, was
actually paid to the state.
This deduction should be taken on the return tiled for the period in which the amount was found
worthless and charged otl'for income tax purposes or, if the retailer is not required to tile income
tax returns, charged otT in accordance with generally accepted accounting principles.
Failure to take the deduction on the proper return will not in itself prevent the allowance of a
refund measured by an amount for which a retailer could have taken a timely deduction provided
a claim for refund is tiled with the aBoard within the limitation periods specified in section 6902
of the Revenue Taxation Code.
(b) Amount Subject to Deduction.
(1) ... (unchanged).
(2) ... (unchanged).
(c) Reporting.... (unchanged).
(d) Worthless Account Subsequently Collected.... (unchanged).
(e) Records.... (unchanged):
(1) ... (unchanged).
(2) ... (unchanged).
(3) ... (unchanged).
(4) ... (unchanged).
(5) ... (unchanged).
(6) ... (unchanged).
Page 1 of 7
(7) ... (unchanged).
(8) ... (unchanged).
(t) Allowable Methods of Computing Loss.
(1) ... (unchanged).
(2) ... (unchanged).
(A) ... (unchanged).
(B) ... (unchanged).
(3) ... (unchanged).
(4) ... (unchanged).
(5) ... (unchanged).
(g) Bad Debt Losses Other Than Repossessions .... (unchanged).
(h) Special Situations.
(1) ... (unchanged).
(A) ... (unchanged).
(B) ... (unchanged).
(C) ... (unchanged).
(2) ... (unchanged).
(3) ... (unchanged).
(A) ... (unchanged): 1.... (unchanged). 2.... (unchanged). 3.... (unchanged). 4.... (unchanged). Page 2 of7
5.... (unchanged).
6.... (unchanged),
7. , , . (unchanged), 8.... (unchanged). (B) ... (unchanged).
(i) Bad Debts Incurred in Connection with Accounts Held by Lenders .... (unchanged).
(l) Lender Defined. A "lender" for purposes of this regulation is defined as any of the following: (A) ... (unchanged).
(B) ... (unchanged).
(C) A person who is either an affiliated corporation (or affiliated entity electing to be
taxed as a corporation) under section 1504 of Title 26 of the United States Code or an
assignee of a person described in subdivision (i)(1 )(A) or (i)(1 )(B). A person is a "lender"
under this subdivision (i)(1 )(C) only if an election is 4tI:etlprepared and retained under
subdi vision (i)( 4).
(2) Conditions to Claiming Deduction or Refund. With respect to an account held by a lender
without recourse, a deduction or refund may be claimed for bad debt losses on the account
only if all of the following conditions are met:
(A) NeA deduction or refund was not previously claimed or allowed on any portion of
the account.
(8) ... (unchanged).
(C) .. , (unchanged).
(D) ... (unchanged).
(E) The retailer and the lender ttleprepare and retain an election ,t'lith the Board, signed
by both parties, which contains the elements specified in subdivision (i)(3) and wJ::H.eft
designates either the retailer or the lender as the personwhich party is entitled to claim
any deduction or refund under this regulation for tax previously paid by the retailer
measured by the amount ofthe account found to be worthless and charged off.-Ne
deduction or refund can be claimed until this eleetion is tiled with the Board.
(3) Election Between Retailer and Lender.
Page 3 of7
(A) In order for the retailer or the lender to claim a deduction or refund tor bad debt
losses from an account held by the lender without recourse, the retailer and the lender
must .fH.eprepare and retain an election vlith the Board designating which of them may
claim such deduction or refund. The election may be in any form, including an existing
contract between the retailer and the lender, so as long as the election contains the
following elements:
l. ... (unchanged).
2.... (unchanged).
3.... (unchanged).
4.... (unchanged).
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8. A statement that the election may not be amended or revoked unless a new
election.. signed by both parties. is prepared and retained by the retailer and the lender
is tiled vilth the Board.
9. The date of the election and the signatures of the retailer and the lender, or their
authorized representatives. If a copy ofthe signed election is filed . .vith the Board
rather than the original, tIhe person with the right under the election to claim the bad
debt deduction or refund must retain the election with the original signatures. An
election may be signed in counterparts, and its filing would be regarded as perfected
as of the tiling of the second signed counterpart, provided each counterpart is
identical except for the signature and date of the signature. lfcopies of the signed
counterparts are tiled with the Board, tlhe person with the right under the election to
the bad debt deduction or refund must retain all counterparts with the original
signatures not filed with the Board.
(8) The term "retailer" as used in this regulation (except as used in subdivisions (h) and
(i» includes a lender with respect to those accounts for which the lender is the person
entitled to the bad debt deduction or claim pursuant to an election :filed-under this
subdivision (i){3).
(4) Election Between Lender and Affiliated Entity or Other Assignee.
(A) If a person who is a lender under subdivision (i){ 1)(A) or (i){l)(B) and who has the
right to claim any deduction or refund for bad debts the lender charges off on the account
Page 4 of 1
wishes to assign to a person who is its affiliated entity under section 1504 of Title 26 of
the United States Code or to some other assignee the right to claim any deduction or
refund for the amount of bad debts charged off on the account, the lender and the
affiliated entity or other assignee must Hleprepare and retain an election signed by both
partieswith the Board prior to the atliliated entity's or other assignee's claiming of any
deduction or refund. The election tiled "'lith the Board may be in any form, but must
include all the following elements:
1. ... (unchanged).
2. A copy of the election between the retailer and the lender under which the lender
has the right to any (and all) deductions or refunds as a result of any bad debt losses
charged off by the lender on the account(s). If that election has not yet been
preparedfiled with the Board, then that election must be preparedttled along with the
election between the lender and its affiliated entity or other assignee. fHIhe election~
with the original signature§ '.vas retained by the lender rather than filing it with the
Board, that election must either be filed with the Board ormust be retained by the
affiliated entity or other assignee.
3.... (unchanged).
4.... (unchanged).
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8.... (unchanged).
9. A statement that the election may not be amended or revoked unless a new election~ signed by both parties. is prepared and retained by the lender and the affiliated entity or other assignee is filed with the Board. lO. The date of the election and the signatures of the lender and the affiliated entity or
other assignee, or their authorized representati ves. If a copy of the signed election is
tiled with the Board rather than the original, tThe person with the right under the
election to claim the bad debt deduction or refund must retain the election with the
original signatures. An election may be signed in counterparts, and its filing ,<,,'ould be
regarded as flerfected as of the tiling of the second signed counterpart, provided each
counterpart is identical except for the signature and date of the signature. If cOflies of
the signed counterparts are filed with the Board, tIhe person with the right under the
election to the bad debt deduction or refund must retain all counterparts with the
original signatures not tiled with the Board.
Page 50f7
(B) The tenn "retailer" as used in this regulation (except as used in subdivisions (h) and
(i» includes an entity affiliated with a lender under section 1504 of Title 26 of the United
States Code, or other assignee, with respect to those accounts for which the affiliated
entity or other assignee is the person entitled to the bad debt deduction or claim pursuant
to an election -tHe4-under this subdivision (i)(4).
(5) Registration, Returns, Claims tor Deduction and Refunds, and Payment of Tax.
(A) A retailer who has the right to claim deductions or refunds for bad debts charged off
by a lender on an account held by that lender pursuant to an election -tHe4-under
subdivision (i)(3) shall claim those deductions or refunds under the provisions of this
regulation in the same manner as if the retailer held the account itself.
(B) Without regard to whether a lender holds a seller's pennit tor its own sales of
tangible personal property, a lender who has the right to claim deductions or refunds for
bad debts charged off on accounts pursuant to an election -tHe4-under subdivision (i)(3)
and, if applicable, subdivision (i)( 4), shall register with the Board for a Certificate of
Registration - Lender no later than the date on which it tirst claims such a deduction or
refund.
(C) A lender who has the right to claim deductions or refunds for bad debts charged off
pursuant to an election -tHe4-under subdivision (i)(3) and, if applicable, subdivision (i)( 4),
is entitled to the same amount of deduction or refund, calculated in the same manner
under the provisions of this regulation, as if the lender were the retailer who had sold the
tangible personal property tor which the retailer had reported and paid tax. If the lender
has provided the name, address, and seller's pennit number of the retailer responsible for
paying the tax, in detennining whether to grant the lender's claim for deduction or
refund, the Board shall regard the retailer as having paid the applicable tax due unless the
Board establishes otherwise. (Regardless of the Board's action on the lender's claim for
deduction or refund, a retailer who failed to pay the applicable tax due remains liable for
that tax.)
(D) ... (unchanged).
(E) ... (unchanged).
(F) The filing by a lender of a claim for deduction or refund for bad debts on accounts
covered by this subdivision (i) is not valid if an election pursuant to subdivision (i)(3)
and, if applicable, an election pursuant to subdivision (i)(4), is not prepared and retained
that is signed by both partieshas not been tiled vt'ith the Board. If a lender tiles a claim for
deduction or refund and the applicable election(s) is tiled thereafter, the claim fur
deduction or refund vAll be regarded as having been tiled on the date of the filing of the
election(s).
(0) ... (unchanged).
Page 6of7
(H) ... (unchanged).
Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6055 and 6203.5,
Revenue and Taxation Code.
Page 7 of 7 CAUFORNIA REGULATORY NOTICE REGISTER 2013, VOLUME NO. S1-Z Title 187
California Code ofRegulations
AMEND: 1642
Filed 12/09/2013
Effective
Agency Contact:
Richard E. Bennion
SUMMARY OF REGUlATORY ACTIONS REGULATIONS FILED WITH SECRETARY OF STATE This Summary of Regulatory Actions lists regula­
tions filed with the Secretary of State on the dates indi­
cated. Copies of the regulations may be obtained by
contacting the agency or from the Secretary of State,
Archives, 10200 Street, Sacramento, CA 95814, (916)
653-7715. Please have the agency name and the date
filed (see below) when making a request.
File# 2013-1112-01
BOARD OF EDUCATION
Criteria and Standards for School District Budgets and
Interim Reports
This regulatory action amends the Criteria and Stan­
dards for School District Budgets and Interim Reports.
The standards and criteria are exempt from the Admin­
istrative Procedure Act pursuant to Education Code
section 33131 and are submitted for filing with the Sec­
retary ofState and printing onl y.
Title 5
California Code ofRegulations
AMEND: 15440, 15444, 15445, 15446, 15447,
15448,15450,15451,15453,15455,15456,15460,
15461,15463,15464,15467,15468,15469,15471,
15471.2, 15472, 15473, 15474, 15475, 15480,
15483,15484,15485,15486,15490,15493
Filed 12/04/2013
Effective 12/04/2013
Agency Contact: Debra Thacker
(916)319-0642
File#2013-1104-01
BOARD OF EQUALIZATION
Bad Debts
This change without regulatory effect amends one
section of the California Code of Regulations. This
amendment is due to AB 242 (Stats. 2011, c. 272) that
repealed the provisions that required that a retailer and
lender file a proper election prior to making a claim for a
bad debt deduction or refund with the Board of Equal­
ization (BOE). AB 242 instead requires that the elec­
tion be prepared, signed, and retained by the retailer and
lender. Further, AB 2688 (Stats. 2012, c. 362) removed
the requirement that the election be prepared, signed
and retained prior to claiming a bad debt deduction or
refund. This change without regulatory effect removes
the requirement for the election to be filed with the BOE
prior to claiming the deduction or refund.
(916) 445-2130
File#2013-1018-01
CONTROL
CALIFORNIA
GAMBLING
COMMISSION
Governor's Reorganization Plan No.2 of 2012 ­
Cleanup
This action by the California Gambling Control
Commission (Commission) makes changes without
regulatory effect to specified sections in Title 4 of the
California Code of Regulations in connection with the
Governor's Reorganization Plan No.2 of 2012, and
subsequent clean up bills Stats.2013, c. 32 (SB 76) and
Stats.2013, c. 353 (SB 820). The proposed amend­
ments include changes to Department of Justice, Bu­
reau of Gambling Control (Bureau) forms BGC-618
and BGC-620.
Title 4
California Code ofRegulations
AMEND: 12200.20, 12220.20, 12480, 12482,
12500, 12505,12508REPEAL: 12488
Filed 12/04/2013
Agency Contact: James Allen
(916) 263-4024
File# 2013-11 25-06
DENTAL BOARD OF CALIFORNIA
Notice ofLicensure by the Dental Board
This action without regulatory effect amends the No­
tice to Consumers ofLicensure.
Title 16
California Code ofRegulations
AMEND: 1065
Filed 12/04/2013
Agency Contact: Sarah Wallace
(916) 263-2187
File# 2013-1024-02
DEPARTMENT
OF
CORRECTIONS
AND
REHABILITATION
Inmate Religious Property
The California Department of Corrections and Reha­
bilitation submitted this timely certificate of com­
pliance to make permanent the emergency regulations
adopted in OAL file no. 20 13-0206-0lEON and read­
opted in OAL file no. 2013-0718-01EE. This rulemak­
ing removes religious property items from the Autho­
rized Personal Property Schedule and places them in a
new Religious Personal Property Matrix, which is a
separate list of allowable religious personal property
items.
2057
Regulation 1642
Section 100
Index
1.
Form 400 and Proposed Regulation 1642
2.
Statement of Explanation
3.
RTC Section 6055
4.
RTC Section 6203.5
5.
AB 242
6.
AB 2688
J:J
l·{E.ns
.'rl'rl1:r, .
i
OAL FILE
NUMBERS
. REGUlATO~Y ACTION NUMBE~
NOTICE FILE NUMBER
z­
on
For use by Secretary of State only
EMERGENCY NUMBER
'7 .
i i
NOTICE REGULATIONS
State Board of Equalization
A. PUBLICATION OF NOTICE (Complete for publication in Notice Register)
NUMBER
PUBLICATION DATE
Disapproved!
Withdrawn
B. SUBMISSION OF REGULATIONS (Complete when submitting regulations)
lb. ALL PREVIOUS RELATED OAL REGULATORY ACTION NUMBER(S)
la. SUBJECT OF REGULATION(S)
Bad Debts
2. SPECIFY CALIFORNIA CODE OF REGULATIONS TrrLE(S) AND SEcnON(S) {Indudlng tit'. 26, if toxiu r.lated)
ADOP
SECTION(S) AFFECTED (List all section number(s) -"'MEND
individually. Attach
addltlona' sheet if needed.) 1642
TITLE(S)
......- - - - . ·•• ····-t-"RE
....P""'EA
..L - - - - - - - - - - - - - - ­
18
o
o
Resubmittal of disapproved or
withdrawn nonemergency
filing (Gov. Code §§ 11349.3,
11349.4)
(Gov. Code,
O Emergency
§ 11346.1(b»
o
Certificate of Compliance: The agency officer named
below certifies that this agency complied with the
provisions of Gov. Code §§11346.2-11347.3 either
before the emergency regulation was adopted or
within the time period required by statute.
Resubmittal of disapproved or withdrawn
emergency filing (Gov. Code, § 11346.1)
Emergency Readopt (Gov.
Code, §11346.1(h))
o
o
[g]
o
File & Print Changes Without Regulatory
Effect (Cal. Code Regs., title
1, §100)
Print Only
Other (SpeCify) _ _ _..................._ _ _ _ _ _ _ _ _ _ _ __
4. ALL BEGINNING AND ENDING DATES OF AVAILABILITY OF MODIFIED REGULATIONS AND/OR ",ATERIAlADDED TO THE RULEMAKING FILE (Cal. Code Regs. title 1. §44 and Gov. Code §11347.1)
;, EFFECTIVE DATE OF CHANGES (Gov. Code. §§ 11343.4. 11346.1(d); Cal. Code Regs.. title 1, § 100)
O
EffecttveJanuaryl,Apnll,Julyl.or
October 1 (Gov Code §113434(a))
0
Effectlveonfillngwith
'Xl
§l00Ch.ngesWilhout
~ RegulatoryEffect
Secrelary of State
0
Effective
other (Spec.fyl
6. CHECK IF THESE REGULATIONS REQUIRE NOTICE TO, OR REVIEW, CONSULTATION, APPROVAL OR CONCURRENCE BY, ANOTHER AGENCY OR ENTITY
o
o
Fair Political Practices Commission
Department of Finance (Form STD, 399) (SAM §6660)
State Fire Marshal
Other (SpeCify) 7, CONTACT PERSON
I
TELEPHONE-NUMBER
FAX NUMBER (Optional)
E·MAIL ADDRESS (Optional) Rick Bennion • (916) 445-2130
(916) 324-3984
[email protected]
8. I certify that the attached copy of the regulatlon(s) Is a true and correct copy
of the regulation(s) identified on this form, that the information specified on this form
is true and correct, and that lam the head of the agency taking this action,
or a designee of the head of the agency, and am authorized to make this certification.
SIGNATURE OF AGENCY HEAD OR DESIGNEE
DATE
November 1,2013
fYPED NAME AND TITLE
IGNATORY
Joann Richmond, Chief, Board Proceedings Division
For use by Office of Administrative Law (OAL) only
Text of Proposed Changes to Title 18. Public Revenue 1642. Bad Debts.
(a) In General. A retailer is relieved trom liability for sales tax (section 6055 of the Revenue and
Taxation Code) or from liability to collect use tax (section 6203.5 of the Revenue and Taxation
Code) insofar as the measure of the tax is represented by accounts found worthless and charged
otf for income tax purposes (which include circumstances where the retailer's income is reported
on a related person's income tax return and the bad debt is charged otf on that return) or, if the
retailer is not required to tile income tax returns and the retailer's income is not reported on
another person's return, charged otf in accordance with generally accepted accounting principles.
A retailer may claim a bad debt deduction provided that the sales tax, or amount of use tax, was
actually paid to the state.
This deduction should be taken on the return tiled for the period in which the amount was found
worthless and charged off tor income tax purposes or, if the retailer is not required to tile income
tax returns, charged otf in accordance with generally accepted accounting principles.
Failure to take the deduction on the proper return will not in itself prevent the allowance of a
refund measured by an amount tor which a retailer could have taken a timely deduction provided
a claim tor refund is tiled with the aBoard within the limitation periods specitied in section 6902
of the Revenue Taxation Code.
(b) Amount Subject to Deduction.
(1) ... (unchanged).
(2) ... (unchanged).
(c) Reporting.... (unchanged).
(d) Worthless Account Subsequently Collected.... (unchanged).
(e) Records.... (unchanged):
(1) ... (unchanged).
(2) ... (unchanged).
(3) ... (unchanged).
(4) ... (unchanged).
(5) ... (unchanged).
(6) ... (unchanged).
Page 1 of 7
(7) ... (unchanged).
(8) ... (unchanged).
(t) Allowable Methods of Computing Loss.
(1) ... (unchanged).
(2) ... (unchanged).
(A) ... (unchanged).
(8) ... (unchanged).
(3) ... (unchanged).
(4) ... (unchanged).
(5) ... (unchanged).
(g) Bad Debt Losses Other Than Repossessions .... (unchanged).
(h) Special Situations.
(1) ... (unchanged).
(A) .. , (unchanged).
(8) ... (unchanged),
(C) ... (unchanged).
(2) ... (unchanged).
(3) ... (unchanged).
(A) .. , (unchanged): 1.... (unchanged). 2.... (unchanged). 3.. , . (unchanged). 4.... (unchanged). Page 2 of 7
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8.... (unchanged).
(B) ... (unchanged).
(i) Bad Debts Incurred in Connection with Accounts Held by Lenders .... (unchanged).
(I) Lender Defined. A "lender" for purposes of this regulation is defined as any of the following: (A) ... (unchanged).
(B) ... (unchanged).
(C) A person who is either an atlliiated corporation (or affiliated entity electing to be
taxed as a corporation) under section 1504 of Title 26 ofthe United States Code or an
assignee of a person described in subdivision (i)( 1)(A) or (i)( 1)(B). A person is a "lender"
under this subdivision (i)( 1)(C) only if an election is .fHedprepared and retained under
subdivision (i)(4).
(2) Conditions to Claiming Deduction or Refund. With respect to an account held by a lender
without recourse, a deduction or refund may be claimed for bad debt losses on the account
only if all of the following conditions are met:
(A) NeA deduction or refund was not previously claimed or allowed on any portion of
the account.
(B) ... (unchanged).
(C) ... (unchanged).
(D) ... (unchanged).
(E) The retailer and the lender fHeprepare and retain an election 'Nith the Board, signed
by both parties, which contains the elements specified in subdivision (i)(3) and wft:i..cl:i
designates eithef the retailer or the leader as the persoawhich party is entitled to claim
any deduction or refund under this regulation for tax previously paid by the retailer
measured by the amount of the account found to be worthless and charged ofI.-Ne
deductioa or refund can be claimed until this electioa is filed with the Board.
(3) Election Between Retailer and Lender.
Page 3 of 7
(A) In order for the retailer or the lender to claim a deduction or refund for bad debt
losses from an account held by the lender without recourse, the retailer and the lender
must flleprepare and retain an election "'lith tne BO/:H'd designating which of them may
claim such deduction or refund. The election may be in any form, including an existing
contract between the retailer and the lender, so as long as the election contains the
following elements:
1. ... (unchanged).
2.... (unchanged).
3.... (unchanged).
4.... (unchanged).
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8. A statement that the election may not be amended or revoked unless a new
signed by both parties, is prepared and retained by the retailer and the lender
is tiled '.'litn tne Board.
election~
9. The date of the election and the signatures of the retailer and the lender, or their
authorized representatives. If a copy of tne signed electioa is tiled '.'lith. tne Board
ratner tnfifl tne origiaal, tIhe person with the right under the election to claim the bad
debt deduction or refund must retain the election with the original signatures. An
election may be signed in counterparts, aad its tiliag would be regarded as perfected
as of ine tiling of tne secoad signed counterpart, provided each counterpart is
identical except for the signature and date of the signature. If copies of the signed
couaterparts are tiled ..yitn the Board, tIhe person with the right under the election to
the bad debt deduction or refund must retain all counterparts with the original
signatures aot filed with the Board.
(B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and
(i» includes a lender with respect to those accounts for which the lender is the person
entitled to the bad debt deduction or claim pursuant to an election filed-.under this
subdivision (i)(3).
(4) Election Between Lender and Affiliated Entity or Other Assignee.
(A) If a person who is a lender under subdivision (i)( I )(A) or (i)( I )(B) and who has the
right to claim any deduction or refund for bad debts the lender charges off on the account
Page 4of7
wishes to assign to a person who is its affiliated entity under section 1504 of Title 26 of
the United States Code or to some other assignee the right to claim any deduction or
refund for the amount of bad debts charged off on the account, the lender and the
affiliated entity or other assignee must ttleprepare and retain an election signed by both
partieswith the Board prior to the atliliated entity's or other assignee's claiming ofan,y
deduction or refund. The election filed with the Board may be in any form, but must
include all the following elements:
l. ... (unchanged).
2. A copy of the election between the retailer and the lender under which the lender
has the right to any (and all) deductions or refunds as a result of any bad debt losses
charged off by the lender on the account(s). If that election has not yet been
preparedfiled with the Board, then that election must be prepared.fi.led. along with the
election between the lender and its affiliated entity or other assignee. If-tIhe election§.
with the original signature§. was retained by the lender rather than filing it \-'lith the
Board, that election must either be filed with the Board ormust be retained by the
affiliated entity or other assignee.
3.... (unchanged).
4.... (unchanged).
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8.... (unchanged).
9. A statement that the election may not be amended or revoked unless a new election~ signed by both parties, is prepared and retained by the lender and the affiliated entity or other assignee is filed 'Nith the Board. 10. The date of the election and the signatures of the lender and the affiliated entity or
other assignee, or their authorized representatives. Ifa copy of the signed election is
tiled with the Board rather than the original, tIhe person with the right under the
election to claim the bad debt deduction or refund must retain the election with the
original signatures. An election may be signed in counterparts, and its filing would be
regarded as perfected as of the tiling of the second signed counterpart, provided each
counterpart is identical except for the signature and date of the signature. If copies of
the signed counterparts are filed 'Nith the Board, tThe person with the right under the
election to the bad debt deduction or refund must retain all counterparts with the
original signatures not filed "'lith the Board.
Page 5 of7
(B) The tenn "retailer" as used in this regulation (except as used in subdivisions (h) and
(i» includes an entity affiliated with a lender under section 1504 of Title 26 of the United
States Code, or other assignee, with respect to those accounts for which the affiliated
entity or other assignee is the person entitled to the bad debt deduction or claim pursuant
to an election fi.l.ed-under this subdivision (i)(4).
(5) Registration, Returns, Claims for Deduction and Refunds, and Payment of Tax.
(A) A retailer who has the right to claim deductions or refunds tor bad debts charged off
by a lender on an account held by that lender pursuant to an election fi.l.ed-under
subdivision (i)(3) shall claim those deductions or refunds under the provisions of this
regulation in the same manner as ifthe retailer held the account itself:
(B) Without regard to whether a lender holds a seller's pennit for its own sales of
tangible personal property, a lender who has the right to claim deductions or refunds tor
bad debts charged off on accounts pursuant to an election fi.leti-under subdivision (i)(3)
and, if applicable, subdivision (i)(4), shall register with the Board for a Certificate of
Registration - Lender no later than the date on which it tirst claims such a deduction or
refund.
(C) A lender who has the right to claim deductions or refunds for bad debts charged ofT
pursuant to an election fi.l.ed-under subdivision (i)(3) and, if applicable, subdivision (i)( 4),
is entitled to the same amount of deduction or refund, calculated in the same manner
under the provisions ofthis regulation, as if the lender were the retailer who had sold the
tangible personal property for which the retailer had reported and paid tax. If the lender
has provided the name, address, and seller's pennit number of the retailer responsible for
paying the tax, in detennining whether to grant the lender's claim for deduction or
refund, the Board shall regard the retailer as having paid the applicable tax due unless the
Board establishes otherwise. (Regardless of the Board's action on the lender's claim for
deduction or refund, a retailer who failed to pay the applicable tax due remains liable for
that tax.)
(D) ... (unchanged).
(E) ... (unchanged).
(F) The filing by a lender of a claim for deduction or refund for bad debts on accounts
covered by this subdivision (i) is not valid if an election pursuant to subdivision (i)(3)
and, if applicable, an election pursuant to subdivision (i)( 4), is not prepared and retained
that is signed by both partieshas not been tiled 'lAth the Board. If a leRder files a claim fur
deduction or refund aad the Bflplicable election(s) is filed thereafter, the elaim fur
deduction or refimd will be regarded as having been tiled on the date of the filing of the
election(s).
(0) ... (unchanged),
Page 6of7
(H) ... (unchanged).
Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6055 and 6203.5,
Revenue and Taxation Code.
Page 7of7
CHANGES WITHOUT REGULATORY EFFECT UNDER CALIFORNIA CODE OF REGULATIONS, TITLE 1, SECTION 100 Statement of Explanation
Title 18. Public Revenues
Regulation 1642, Bad Debts
A.
Factual Basis
1. Relevant Background Information
Revenue and Taxation Code (RTC) sections 6055, subdivision (a), and 6203.5, subdivision (a),
provide that a retailer is to be relieved of liability for sales or use tax when the measure of tax is
represented by accounts receivable that are held by the retailer, but which have been found to be
worthless and charged off for income tax purposes or, if the retailer is not required to file income
tax returns, charged off in accordance with generally accepted accounting principles. In
addition, RTC sections 6055, subdivision (a), and 6203.5, subdivision (a), allow a retailer who
has reported and paid sales or use tax on an account that was subsequently found worthless and
charged off (as described above) to claim a deduction for the tax paid on the worthless account,
in accordance with regulations prescribed by the State Board of Equalization (Board).
RTC sections 6055, subdivision (b)(1), and 6203.5, subdivision (b)(1), provide that a retailer or
lender that makes a proper election, under RTC sections 6055, subdivision (b)(4), and 6203.5,
subdivision (b)(4), respectively, may claim a deduction or refund for tax the retailer reported and
paid on an account held by the lender, which has been charged of as worthless (as described
above). In addition, RTC sections 6055, subdivision (b)(3), and 6203.5, subdivision (b)(3), both
provide as follows:
(3) For purposes of this subdivision, the term "lender" means any of the following: (A) Any person that holds a retail account which that person purchased directly
from a retailer who reported the tax.
(B) Any person that holds a retail account pursuant to that person's contract
directly with the retailer that reported the tax.
(C) Any person that is either an affiliated entity, under Section 1504 of Title 26 of
the United States Code, of a person described in subparagraph (A) or (B), or an
assignee of a person described in subparagraph (A) or (B).
Therefore, RTC sections 6055, subdivision (b), and 6203.5, subdivision (b), respectively provide
for a person that is an affiliated entity or assignee of a lender holding a retail account described
in RTC sections 6055, subdivision (b)(3)(A) or (B), or 6203.5, subdivision (b)(3)(A) or (B),
which has been charged of as worthless (as described above), to be treated as a "lender" for
purposes of claiming a deduction or refund for tax the retailer reported and paid on the retail
account, if a proper election is made under RTC sections 6055, subdivision (b)(4), or 6203.5,
subdivision (b)( 4).
Page 1 of 12
California Code of Regulations, title 18, section (Regulation) 1642, Bad Debts, implements,
interprets, and makes specific RTC sections 6055 and 6203.5. As relevant here, subdivision (a)
of Regulation 1642 prescribes the general requirements for a retailer to be relieved of liability for
sales and use tax under RTC sections 6055, subdivision (a), and 6203.5, subdivision (a).
Subdivision (a) of Regulation 1642 also explains that if a retailer has reported and paid sales or
use tax on an account that was subsequently found worthless and charged off (as described
above), then the retailer may claim a bad debt deduction for the tax paid on the worthless
account, in accordance with RTC section 6055, subdivision (a), or section 6203.5, subdivision
(a), on the retailer's sales and use tax return filed for the period in which the account was found
worthless and charged off. And, Regulation 1642, subdivision (a) explains further that if the
retailer does not timely claim a bad debt deduction for tax paid on such an account, then the
retailer may file a claim for refund for the tax, subject to the applicable statute of limitations.
Further, as relevant here, subdivision (i) of Regulation 1642 implements, interprets, and makes
specific RTC sections 6055, subdivision (b), and 6203.5, subdivision (b). Regulation 1642,
subdivision (i)(1), incorporates the definition of "lender" set forth in RTC sections 6055,
subdivision (b)(3), and 6203.5, subdivision (b)(3), and makes the definition more specific by
clarifying that an election must be filed, in accordance with Regulation 1642, subdivision (i)(4),
to designate an affiliated entity or other assignee of a lender as the person (or lender) who may
claim a bad debt deduction or credit with regard to an account held by the assigning lender,
which has been charged of as worthless (as described above). Regulation 1642, subdivision
(i)(2) implements, interprets, and makes specific the general requirements imposed by RTC
sections 6055, subdivision (b)(1), and 6203.5, subdivision (b)(1), for claiming a bad debt
deduction or refund for tax paid by a retailer on an account held by a lender and clarifies that an
election must be filed, in accordance with Regulation 1642, subdivision (i)(3), to designate the
retailer or the lender as the person entitled to claim a bad debt deduction or credit with regard to
an account held by the lender. Regulation 1642, subdivision (i)(3), prescribes the requirements
for a retailer and lender to make a proper election, under RTC sections 6055, subdivision (b)(4),
and 6203.5, subdivision (b)(4), to designate either the retailer or the lender as the person who
may claim a bad debt deduction or refund for tax the retailer reported and paid on an account
held by the lender, which has been charged off as worthless (as described above). Regulation
1642, subdivision (i)(4), prescribes the requirements for a lender to make a proper election to
assign the right to claim a bad debt deduction or refund to an affiliated entity or other assignee,
under RTC sections 6055, subdivision (b)(3)(C) and (4), and 6203.5, subdivision (b)(3)(C) and
(4). And, the requirements for making a proper election to assign the right to claim a bad debt
deduction or refund to an affiliated entity or other assignee, under Regulation 1642, subdivision
(i)(4), are consistent with the requirements for a retailer and lender to make a proper election to
designate either the retailer or the lender as the person who may claim a bad debt deduction or
refund, under Regulation 1642, subdivision (i)(3).
Furthermore, as relevant here, Regulation 1642, subdivision (i)(5)(A), (B), (C), and (F),
respectively provide that, under the provisions of Regulation 1642, subdivision (i):
• A retailer may claim a bad debt deduction or refund for an account held by a lender "in
the same manner as if the retailer held the account";
• A lender must register for "a Certificate of Registration - Lender" by the date the lender
claims a bad debt deduction or refund for tax paid by a retailer;
Page 2 of 12
• A lender entitled to claim a bad debt deduction or refund for tax paid by a retailer is
"entitled to the same amount of deduction or refund ... as if the lender were the retailer";
and
• A lender's claim for a bad debt deduction or refund, including a claim tiled by an
affiliated entity or other assignee of a lender, is not valid until a proper election has been
made, under Regulation 1642, subdivision (i)(3), to designate the lender as the person
with the right to claim the deduction or refund and, if applicable, a proper election has
been made, under Regulation 1642, subdivision (i)(4) to assign the right to claim the
deduction or credit to the affiliated entity or other assignee making the claim.
2. Recent Amendments to RTC sections 6055 and 6203.5
Prior to January 1,2012, a retailer or lender could only claim a bad debt deduction or refund for
accounts receivable held by the lender if, "prior" to making such claim, the retailer and the
lender "filed" an election with the Board, signed by both parties, designating which party was
entitled to claim the deduction or refund for the portion of the accounts receivable which was
written off as worthless (as described above). This was because RTC sections 6055, subdivision
(b)(4), and 6203.5, subdivision (b)(4), both expressly provided as follows:
Prior to claiming any deduction or refund under this subdivision, the retailer who
reported the tax and the lender shall file an election with the board, signed by both
parties, designating which party is entitled to claim the deduction or refund. This
election may not be amended or revoked unless a new election, signed by both
parties, is filed with the board.
Therefore, Regulation 1642, subdivision (i)(2) currently requires that a retailer and a lender
"file" a proper election with the Board, under Regulation 1642, subdivision (i)(3), designating
which is entitled to claim a bad debt deduction or refund for tax paid by the retailer on an
account held by the lender, which has been charged off as worthless (as described above),
"before" the retailer or lender can actually claim the bad debt deduction or refund for the tax paid
on the account. And, Regulation 1642, subdivision (i)(4), currently requires a lender and an
affiliated entity or other assignee to "file" a proper election with the Board designating the
affiliated entity or other assignee as the person entitled to claim a bad debt deduction or refund
tor tax paid on an account held by the lender "prior" to the affiliated entity or other assignee
actually claiming a deduction or refund for the tax paid on the account.
However, sections 3 and 4 of Assembly Bill No. (AB) 242 (Stats. 2011, ch. 272) amended RTC
sections 6055, subdivision (b)(4), and 6203.5, subdivision (b)(4), respectively, to remove the
requirement that an election beflled with the Board, and instead require that an election be
prepared, signed, and retained prior to claiming a bad debt deduction or refund, effective January
1,2012. Then, sections 2 and 3 of AB 2688 (Stats. 2012, ch. 362) amended RTC sections 6055,
subdivision (b)(4), and 6203.5, subdivision (b)(4), respectively, to remove the requirement that
an election be prepared, signed, and retained prior to claiming a bad debt deduction or refund,
effective January 1, 2013. As a result, RTC sections 6055, subdivision (b)(4), and 6203.5,
subdivision (b)(4), currently provide that:
For purposes of this section, a "proper election" shall be established when the
retailer that reported the tax and the lender prepare and retain an election form,
Page 3 of 12
signed by both parties, designating which party is entitled to claim the deduction
or refund. This election may not be amended or revoked unless a new election,
signed by both parties, is prepared and retained by the retailer and the lender.
3. Proposed Changes to Regulation 1642 to Make it Consistent with the Recent
Amendments to RTC sections 6055 and 6203.5
In order to make Regulation 1642, subdivision (i), consistent with the amendments made to
RTC sections 6055, subdivision (b)(4), and 6203.5, subdivision (b)(4), by AB 242 and AB 2688
(discussed above), the Board proposes to:
• Change the word "filed" to the phrase "prepared and retained" in Regulation 1642,
subdivision (i)(1 )(C);
• Change the first sentence in Regulation 1642, subdivision (i)(2)(E) and delete the second
sentence in Regulation 1642, subdivision (i)(2)(E) so that subdivision (i)(2)(E) requires a
retailer and a lender to "prepare and retain an election, signed by both parties," instead of
requiring a retailer and lender to "file an election with the Board";
• Change the first sentence in Regulation 1642, subdivision (i)(3)(A) so that subdivision
(i)(3)(A) requires a retailer and a lender to "prepare and retain an election," instead of
requiring a retailer and lender to "file an election with the Board";
• Change Regulation 1642, subdivision (i)(3)(A)8 so that subdivision (i)(3)(A)8 provides
that an election by a retailer and lender may not be amended or revoked, unless a new
"election, signed by both parties, is prepared and retained by the retailer and lender,"
instead of providing that such an election may not be amended or revoked unless a new
"election signed by both the retailer and the lender is filed with the Board";
• Change the second sentence in Regulation 1642, subdivision (i)(3)(A)9 so that
subdivision (i)(3)(A)9 does not indicate that an election must be filed with the Board and
simply requires that "ITlhe person with the right under the election to claim the bad debt
deduction or refund must retain the election with the original signatures";
• Change the last two sentences in Regulation 1642, subdivision (i)(3)(A)9 so that
subdivision (i)(3)(A)9 does not indicate that an election signed in counterparts is required
to be filed with the Board and simply requires that "[T]he person with the right under the
election to the bad debt deduction or refund must retain all counterparts with the original
signatures";
• Delete the word "filed" from Regulation 1642, subdivision (i)(3)(B);
• Change the first sentence in Regulation 1642, subdivision (i)(4)(A) to require that a
lender and affiliated entity or other assignee "prepare and retain an election signed by
both parties," rather than require that a lender and an affiliated entity or other assignee
"file an election with the Board prior to the affiliated entity's or other assignee's claiming
of any deduction or refund";
• Delete "filed with the Board" from the second sentence in Regulation 1642, subdivision
(i)(4)(A);
• Change Regulation 1642, subdivision (i)(4)(A)2 to make it consistent with the changes
made to Regulation 1642, subdivision (i)(3 )(A) (discussed above) by clarifying that when
an "election has not yet been prepared" under subdivision (i)(3)(A), then the election
between the retailer and the lender, under subdivision (i)(3)(A), must be "prepared" along
with the election between the lender and affiliated entity or other assignee, and also
Page 4 of12
•
•
•
•
clarifying that the "elections" with the original "signatures" only need to be retained by
the affiliated entity or assignee, not filed with the Board;
Change Regulation 1642, subdivision (i)(4)(A)9 to make it consistent with the changes
made to Regulation 1642, subdivision (i)(3)(A)8 (discussed above) regarding amending
and revoking a lender's election;
Change Regulation 1642, subdivision (i)( 4)(A) I 0 to make it consistent with all of the
changes made to Regulation 1642, subdivision (i)(3)(A)9 (discussed above) to clarify that
lenders' elections, including elections signed in counterparts, do not no need to be filed
with the Board and simply require that the person with the right under an election to
claim a bad debt deduction or refund must retain the election or counterparts with the
original signatures;
Delete the word "filed" from Regulation 1642, subdivision (i)(4)(B), and (5)(A) through
(C); and
Change Regulation 1642, subdivision (i)(5)(F) to further clarify that an election between
a retailer and a lender under Regulation 1642, subdivision (i)(3) and an election between
a lender and an affiliated entity or other assignee under Regulation 1642, subdivision
(i)(4) does not need to be filed with the Board, but that a lender's claim for a bad debt
deduction or refund is not valid if an election pursuant to subdivision (i)(3) and, if
applicable, an election pursuant to subdivision (i)(4), "is not prepared and retained that is
signed by both parties."
The Board has determined that the proposed changes to Regulation 1642, subdivision (i)
(described above) are appropriate for processing under California Code of Regulations, title 1,
section (Rule) 100 because they make subdivision (i) fully consistent with the amendments made
to RTC sections 6055, subdivision (b)(4), and 6203.5, subdivision (b)(4), by AB 242 and AB
2688, the Board does not have discretion to continue to require lenders' elections to be filed with
the Board prior to a lender claiming a bad debt deduction or refund after the amendments made
to RTC sections 6055, subdivision (b)(4), and 6203.5, subdivision (b)(4), by AB 242 and AB
2688, and the changes to subdivision (i) do not materially alter any requirement, right,
responsibility, condition, prescription or other regulatory element of any California Code of
Regulations provision.
4. Additional Proposed Grammatical Changes to Regulation 1642
In addition, the Board is proposing to make a minor grammatical change to Regulation 1642,
subdivision (a) to capitalize the first letter in the word "board" to make it consistent with the
other references to the "Board" throughout the regulation. The Board is proposing to make
grammatical changes to rephrase Regulation 1642, subdivision (i)(2)(A), without changing its
meaning. Currently, the subdivision provides that a deduction or refund may be claimed for bad
debt losses on an account only if "No deduction or refund was previously claimed on any portion
of the account." The proposed changes replace the word "No" with the word "A" and insert the
word "not" between the words "was" and "previously" so that subdivision (i)(2)(A) provides that
a deduction or refund may be claimed for bad debt losses on an account only if "A deduction or
refund was not previously claimed or allowed on any portion of the account." And, the Board is
proposing to make three minor grammatical changes to the first sentence in Regulation 1642,
subdivision (i)(2)(E) to: (1) delete the second word "which" from between the words "and" and
"designates"; (2) replace the phrase designates "either the retailer or lender as the person"
entitled to claim any deduction or refund with the phrase designates "which party is" entitled to
Page 5 of 12
claim any deduction or refund; and (3) insert the word "the" between the words "by" and
"amount. "
The Board has determined that the additional grammatical changes to Regulation 1642,
subdivisions (a) and (i)(2)(A) and (E) (described above) are appropriate for processing under
Rule 100 because they make the regulation grammatically correct and do not materially alter any
requirement, right, responsibility, condition, prescription or other regulatory element of any
California Code of Regulations provision.
B.
Proposed Changes
Rule 100 changes are proposed to Regulation 1642, subdivisions (a) and (i).
TEXT OF PROPOSED CHANGES
1642. Bad Debts.
(a) In General. A retailer is relieved from liability for sales tax (section 6055 of the Revenue and
Taxation Code) or from liability to collect use tax (section 6203.5 of the Revenue and Taxation
Code) insofar as the measure of the tax is represented by accounts found worthless and charged
off for income tax purposes (which include circumstances where the retailer's income is reported
on a related person's income tax return and the bad debt is charged off on that return) or, if the
retailer is not required to file income tax returns and the retailer's income is not reported on
another person's return, charged off in accordance with generally accepted accounting principles.
A retailer may claim a bad debt deduction provided that the sales tax, or amount of use tax, was
actually paid to the state.
This deduction should be taken on the return filed for the period in which the amount was found
worthless and charged off for income tax purposes or, if the retailer is not required to file income
tax returns, charged off in accordance with generally accepted accounting principles.
Failure to take the deduction on the proper return will not in itself prevent the allowance of a
refund measured by an amount for which a retailer could have taken a timely deduction provided
a claim for refund is filed with the b~oard within the limitation periods specified in section 6902
of the Revenue Taxation Code.
(b) Amount Subject to Deduction.
(l) ... (unchanged).
(2) ... (unchanged).
(c) Reporting.... (unchanged).
(d) Worthless Account Subsequently Collected .... (unchanged).
(e) Records.... (unchanged):
Page 6 of 12
(1) ... (unchanged).
(2) ... (unchanged).
(3) ... (unchanged).
(4) ... (unchanged).
(5) ... (unchanged).
(6) ... (unchanged).
(7) ... (unchanged).
(8) ... (unchanged).
(f) Allowable Methods of Computing Loss.
(1) ... (unchanged).
(2) ... (unchanged).
(A) ... (unchanged).
(B) ... (unchanged).
(3) ... (unchanged).
(4) ... (unchanged).
(5) ... (unchanged).
(g) Bad Debt Losses Other Than Repossessions .... (unchanged).
(h) Special Situations.
(1) ... (unchanged).
(A) ... (unchanged).
(B) ... (unchanged).
(C) ... (unchanged).
(2) ... (unchanged).
(3) ... (unchanged).
(A) ... (unchanged):
Page 7 of12
1.... (unchanged). 2.... (unchanged). 3.... (unchanged). 4.... (unchanged). 5.... (unchanged). 6.... (unchanged). 7.... (unchanged). 8.... (unchanged). (B) ... (unchanged).
(i) Bad Debts Incurred in Connection with Accounts Held by Lenders.... (unchanged).
(1) Lender Defined. A "lender" for purposes of this regulation is defined as any of the following: (A) ... (unchanged).
(B) ... (unchanged).
(C) A person who is either an affiliated corporation (or affiliated entity electing to be
taxed as a corporation) under section 1504 of Title 26 of the United States Code or an
assignee of a person described in subdivision (i)(1 )(A) or (i)(1 )(B). A person is a "lender"
under this subdivision (i)(1 )(C) only if an election is fil.edprepared and retained under
subdivision (i)(4).
(2) Conditions to Claiming Deduction or Refund. With respect to an account held by a lender
without recourse, a deduction or refund may be claimed for bad debt losses on the account
only if all of the following conditions are met:
(A) NeA deduction or refund was not previously claimed or allowed on any portion of
the account.
(B) ... (unchanged).
(C) ... (unchanged).
(D) ... (unchanged).
(E) The retailer and the lender fi.leprepare and retain an election with the Board, signed
by both parties, which contains the elements specified in subdivision (i)(3) and wffieh
Page 8 of 12
designates either the retailer or the lender as the personwhich party is entitled to claim
any deduction or refund under this regulation for tax previously paid by the retailer
measured by the amount of the account found to be worthless and charged off.-Ne
deduction OF refund oan be claimed until this election is filed with the Board.
(3) Election Between Retailer and Lender.
(A) In order for the retailer or the lender to claim a deduction or refund for bad debt
losses from an account held by the lender without recourse, the retailer and the lender
must !Heprepare and retain an election 'lAth the Board designating which of them may
claim such deduction or refund. The election may be in any form, including an existing
contract between the retailer and the lender, so as long as the election contains the
following elements:
1.... (unchanged).
2.... (unchanged).
3.... (unchanged).
4.... (unchanged).
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8. A statement that the election may not be amended or revoked unless a new
election", signed by both parties, is prepared and retained by the retailer and the lender
is filed with the Board.
9. The date ofthe election and the signatures of the retailer and the lender, or their
authorized representatives. If a copy of the signed eleotion is filed with the Board
rather than the original, tlhe person with the right under the election to claim the bad
debt deduction or refund must retain the election with the original signatures. An
election may be signed in counterparts, and its filing would be regarded as perfeoted
as of the filing of the second signed counterpart, provided each counterpart is
identical except for the signature and date of the signature. If copies of the signed
oounterparts are filed with the Board, tlhe person with the right under the election to
the bad debt deduction or refund must retain all counterparts with the original
signatures not filed v/ith the Board.
(B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and
(i» includes a lender with respect to those accounts for which the lender is the person
entitled to the bad debt deduction or claim pursuant to an election .fi1.ed-under this
subdivision (i)(3).
(4) Election Between Lender and Affiliated Entity or Other Assignee.
Page 9 of 12
(A) If a person who is a lender under subdivision (i)( I )(A) or (i)( I )(B) and who has the
right to claim any deduction or refund for bad debts the lender charges off on the account
wishes to assign to a person who is its affiliated entity under section 1504 of Title 26 of
the United States Code or to some other assignee the right to claim any deduction or
refund for the amount of bad debts charged off on the account, the lender and the
affiliated entity or other assignee must fi.l.eprepare and retain an election signed by both
partieswith the Board prior to the affiliated entity's or other assignee's claiming ofaBY
deduction or refund. The election filed with the Board may be in any form, but must
include all the following elements:
1. ... (unchanged).
2. A copy of the election between the retailer and the lender under which the lender
has the right to any (and all) deductions or refunds as a result of any bad debt losses
charged offby the lender on the account(s). If that election has not yet been
preparedfiled with the Board, then that election must be preparedfi.leEl along with the
election between the lender and its affiliated entity or other assignee. If.tIhe election§.
with the original signature§. was retained by the lender rather than filing it '.vith the
Board, that election must either be filed with the Board ormust be retained by the
affiliated entity or other assignee.
3.... (unchanged).
4.... (unchanged).
5.... (unchanged).
6.... (unchanged).
7.... (unchanged).
8.... (unchanged).
9. A statement that the election may not be amended or revoked unless a new election~ signed by both parties. is prepared and retained by the lender and the affiliated entity or other assignee is filed with the Board. 10. The date of the election and the signatures of the lender and the affiliated entity or
other assignee, or their authorized representatives. If a copy of the signed election is
filed 'Nith the Board rather than the original, tIhe person with the right under the
election to claim the bad debt deduction or refund must retain the election with the
original signatures. An election may be signed in counterparts, and its filing would be
regarded as perfected as ofthe filing of the second signed counterpart, provided each
counterpart is identical except for the signature and date of the signature. If copies of
the signed counterparts are filed with the Board, tIhe person with the right under the
election to the bad debt deduction or refund must retain all counterparts with the
original signatures not filed 'liith the Board.
Page 10 of 12
(B) The tenn "retailer" as used in this regulation (except as used in subdivisions (h) and
(i» includes an entity affiliated with a lender under section 1504 of Title 26 of the United
States Code, or other assignee, with respect to those accounts for which the affiliated
entity or other assignee is the person entitled to the bad debt deduction or claim pursuant
to an election tHed-under this subdivision (i)(4).
(5) Registration, Returns, Claims for Deduction and Refunds, and Payment of Tax.
(A) A retailer who has the right to claim deductions or refunds for bad debts charged off
by a lender on an account held by that lender pursuant to an election tHed-under
subdivision (i)(3) shall claim those deductions or refunds under the provisions of this
regulation in the same manner as if the retailer held the account itself.
(B) Without regard to whether a lender holds a seller's pennit for its own sales of
tangible personal property, a lender who has the right to claim deductions or refunds for
bad debts charged off on accounts pursuant to an election tHed-under subdivision (i)(3)
and, if applicable, subdivision (i)(4), shall register with the Board for a Certificate of
Registration - Lender no later than the date on which it first claims such a deduction or
refund.
(C) A lender who has the right to claim deductions or refunds for bad debts charged off
pursuant to an election tHed-under subdivision (0(3) and, if applicable, subdivision (i)(4),
is entitled to the same amount of deduction or refund, calculated in the same manner
under the provisions of this regulation, as if the lender were the retailer who had sold the
tangible personal property for which the retailer had reported and paid tax. lfthe lender
has provided the name, address, and seller's pennit number of the retailer responsible tor
paying the tax, in detennining whether to grant the lender's claim for deduction or
refund, the Board shall regard the retailer as having paid the applicable tax due unless the
Board establishes otherwise. (Regardless of the Board's action on the lender's claim for
deduction or refund, a retailer who failed to pay the applicable tax due remains liable for
that tax.)
(D) ... (unchanged).
(E) ... (unchanged).
(F) The filing by a lender of a claim for deduction or refund for bad debts on accounts
covered by this subdivision (i) is not valid if an election pursuant to subdivision (i)(3)
and, if applicable, an election pursuant to subdivision (i)(4), is not prepared and retained
that is signed by both partieshas flOt been filed with the Board. If a lender files a claim for
deduction or refund and the applicable election(s) is filed thereafter, the claim for
deduction or refund will be regarded as having been filed on the date of the filing of the
election(s) .
(0) ... (unchanged).
(H) ... (unchanged).
Page 11 of 12
Note: Authority cited: 7051, Revenue and Taxation Code. Reference: Sections 6055 and 6203.5,
Revenue and Taxation Code.
Page 12 of 12 Page 1
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27 of29 DOCUMENTS
DEERING'S CALIFORNIA CODE ANNOTATED Copyright © 2011 by Matthew Bender & Company, Inc. a member of the LexisNexis Group. All rights reserved. *** ARCHIVE DATA ***
*** THIS SECTION IS CURRENT THROUGH THE 2011 SUPPLEMENT *** (ALL 2010 LEGISLATION) SPECIAL NOTICE: CHAPTERS ENACTED BETWEEN OCTOBER 20, 2009, AND NOVEMBER 2,2010, ARE SUBJECT TO REPEAL BY PROPOSITION 22. REVENUE AND TAXATION CODE Division 2. Other Taxes Part 1. Sales and Use Taxes Chapter 2. The Sales Tax Article 1. Imposition of Tax Cal Rev & Tax Code § 6055 (2010)
LexisNexis Practice Insights
§ 6055. Liability for tax represented by worthless accounts
(a) A retailer is relieved from liability for sales tax that became due and payable, insofar as the measure of the tax is
represented by accounts that have been found to be worthless and charged off for income tax purposes by the retailer or,
if the retailer is not required to file income tax returns, charged off in accordance with generally accepted accounting
principles. A retailer that has previously paid the tax may, under rules and regulations prescribed by the board, take as a
deduction the amount found worthless and charged off by the retailer. If these accounts are thereafter in whole or in part
collected by the retailer, the amount collected shall be included in the first return filed after the collection and the tax
shall be paid with the return. For purposes of this subdivision, the term "retailer" shall include any entity affiliated with
the retailer under Section 1504 of Title 26 of the United States Code.
(b)
(1) In the case of accounts held by a lender, a retailer or lender who makes a proper election under paragraph (4)
shall be entitled to a deduction or refund of the tax that the retailer has previously reported and paid if all of the
Page 2
Cal Rev & Tax Code § 6055
following conditions are met:
(A) No deduction was previously claimed or allowed on any portion of the aecounts.
(8) The accounts have been found worthless and written off by the lender in aeeordance with the requirements of
subdivision (a).
(C) The contract between the retailer and the lender contains an irrevocable relinquishment of all rights to the
account from the retailer to the lender.
(D) The retailer remitted the tax on or after January 1, 2000.
(E) The party electing to claim the deduction or refund under paragraph (4) files a claim in a manner prescribed
by the board.
(2) If the retailer or the lender thereafter collects in whole or in part any accounts, one of the following shall apply:
(A) If the retailer is entitled to the deduction or refund under the election specified in paragraph (4), the retailer
shall include the amount collected in its first return filed after the eollection and pay tax on that amount with the return.
(8) If the lender is entitled to the deduction or refund under the election specified in paragraph (4), the lender
shall pay the tax to the board in accordance with Section 6451.
(3) For purposes of this subdivision, the term "lender" means any of the following:
(A) Any person who holds a retail account which that person purchased directly from a retailer who reported the
tax.
(8) Any person who holds a retail account pursuant to that person's contract directly with the retailer who
reported the tax.
(C) Any person who is either an affiliated entity, under Seetion 1504 of Title 26 of the United States Code, ofa
person described in subparagraph (A) or (B), or an assignee of a person described in subparagraph (A) or (B).
(4) Prior to claiming any deduction or refund under this subdivision, the retailer who reported the tax and the
lender shall file an election with the board, signed by both parties, designating which party is entitled to claim the
deduction or refund. This election may not be amended or revoked unless a new election, signed by both parties, is filed
with the board.
HISTORY:
Added Stats 1959 ch 1180 § I. Amended Stats 1970 ch 547 § 2. Amended Stats 2000 ch 600 § 1 (AB 599).
NOTES:
Amendments:
1970 Amendment:
(1) Added "or, if the retailer is not required to file income tax returns, charged off in accordance with generally
accepted accounting principles"; and (2) deleted "for income tax purposes" after "worthless and charged off."
Page 3
Cal Rev & Tax Code § 6055
2000 Amendment:
Added (I) subdivision designation (a); and (2) subd (b).
Historical Derivation:
Former Rev & Tax C § 6453.5, as added Stats 1957 ch 733 § 1.
Cross References:
Imposition and rate of tax: Rev & Tax C § 6051.
Returns for sales and use taxes: Rev & Tay; C §§ 6451 et seq.
Law Review Articles:
The doctrine of cash equivalency as illustrated by land sales contracts and notes received for services rendered. 22
UCLA LR 219.
Hierarchy Notes: Div. 2 Note Div. 2, Pt. 1 Note Div. 2, Pt. 1, Ch. 2 Note Div. 2, Pt. 1, Ch. 2, Art. I Note LexisNexis Practice Insights
LexisNexis 50 State Surveys, Legislation & Regulations
Sales & Use Tax
NOTES OF DECISIONS
Statutes creating exemptions from taxation are to be strictly construed against the taxpayer, any doubt being
Page 4
Cal Rev & Tax Code § 6055
resolved against the right to exemption. Framingham Acceptance Corp. v. State Ed. ofEqualization (1987, 1st Dis!) 191
Cal App 3d 461,236 Cal Rptr 771, 1987 Cal App LEXIS 1618.
Page 1
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DEERING'S CALlFO~"JIA CODE ANNOTATED Copyright © 2011 by Matthew Bender & Company, Inc. a member of the LexisNexis Group. All rights reserved. *** ARCHIVE DATA ***
SUPPLEMENT *** (ALL 2010 LEGISLATION) SPECIAL NOTICE: CHAPTERS ENACTED BETWEEN OCTOBER 20,2009, AND NOVEMBER 2, 2010, ARE SUBJECT TO REPEAL BY PROPOSITION 22. *** THIS SECTION IS CURRENT THROUGH THE 2011
REVENUE AND TAXATION CODE Division 2. Other Taxes Part L Sales and Use Taxes Chapter 3. The Use Tax Article 1. Imposition of Tax Cal Rev & Tax Code § 6203.5 (2010)
§ 6203.5. Collection of tax represented by worthless accounts
(a) A retailer is relieved from liability to collect use tax that became due and payable, insofar as the measure of the
tax is represented by accounts that have been found to be worthless and charged off for income tax purposes by the
retailer or, if the retailer is not required to file income tax returns, charged off in accordance with generally accepted
accounting principles. A retailer that has previously paid the amount of the tax may, under rules and regulations
prescribed by the board, take as a deduction the amount found worthless and charged off by the retailer. If these
accounts are thereafter in whole or in part collected by the retailer, the amount collected shall be included in the first
return filed after the collection and the amount of the tax shall be paid with the return. For purposes ofthis subdivision,
the term "retailer" shall include any entity affiliated with the retailer under Section 1504 of Title 26 of the United States
Code.
(b)
(1) In the case of accounts held by a lender, a retailer or lender who makes a proper election under paragraph (4)
shall be entitled to a deduction or refund of the tax that the retailer has previously reported and paid if all of the
following conditions are met:
(A) No deduction was previously claimed or allowed on any portion of the accounts.
(8) The accounts have been found worthless and written off by the lender in accordance with the requirements of
Page 2
Cal Rev & Tax Code § 6203.5
subdivision (a).
(C) The contract between the retailer and the lender contains an irrevocable relinquishment of all rights to the
account from the retailer to the lender.
(D) The retailer remitted the tax on or after January 1, 2000.
(E) The party electing to claim the deduction or refund under paragraph (4) files a claim in a manner prescribed
by the board.
(2) lfthe retailer or the lender thereafter collects in whole or in part any accounts, one of the following shall apply;
(A) If the retailer is entitled to the deduction or refund under the election specified in paragraph (4), the retailer
shall include the amount collected in its first return filed after the collection and pay tax on that amount with the return.
(8) If the lender is entitled to the deduction or refund under the election specified in paragraph (4), the lender
shall pay the tax to the board in accordance with Section 6451.
(3) For purposes of this subdivision, the term "lender" means any of the following;
(A) Any person who holds a retail account which that person purchased directly from a retailer who reported the
tax.
(8) Any person who holds a retail account pursuant to that person's contract directly with the retailer who
reported the tax.
(C) Any person who is either an affiliated entity, under Section 1504 of Title 26 of the United States Code, of a
person described in subparagraph (A) or (B), or an assignee of a person described in subparagraph (A) or (B).
(4) Prior to claiming any deduction or refund under this subdivision, the retailer who reported the tax and the
lender shall file an election with the board, signed by both parties, designating which party is entitled to claim the
deduction or refund. This election may not be amended or revoked unless a new election, signed by both parties, is filed
with the board.
HISTORY:
Added Stats 1959 ch 1180 § 2. Amended Stats 1970 ch 547 § 3. Amended Stats 2000 ch 600 § 2 (AB 599).
NOTES:
Amendments:
1970 Amendment:
(I) Added "or, if the retailer is not required to file income tax returns, eharged off in accordance with generally
accepted accounting principles"; and (2) deleted "for income tax purposes" after "worthless and charged off.".
2000 Amendment:
(1) Added subdivision designators; (2) amended the first sentence of subd (a) by; (a) substituting "that" for "which"
Page 3
Cal Rev & Tax Code § 6203.5
in two places; (b) deleting "subsequent to September 30, 1957" after "payable"; and (c) adding "by the retailer"; (3)
amended the second sentence of subd (a) by; (a) substituting "A" for "In the" before "retailer"; (b) deleting ", he" before
"tax may," (c) substituting "off by the retailer. If these "for "off. Ifany such"; (d) deleting "so" before "collected shall be
included"; (e) substituting "the" for "such" before "collection and the amount"; and (1) substituting "shall be" for "there
on"; (4) added the last sentence of subd (a); and (5) added subds (b)(l )-(4).
Historical Derivation:
Former § 6453.5, as added Stats 1957 ch 733 § I.
Cross References:
"Retailer": Rev & Tax C § 6015.
Collateral References:
Collection of tax by retailers: 18 Cal Code Reg § 1684.
Am Jur 2d (Rev) Sales and Use Tax §§ 253 et seq.
Hierarchy Notes:
Div. 2 Note
Div. 2, Pt. I Note
Div. 2, Pt. 1, Ch. 3 Note
Div. 2, Pt. I, Ch. 3, Art. 1 Note
LexisNexis 50 State Surveys, Legislation & Regulations
Sales & Use Tax
Assembly Bill No. 242
CHAPTER 727
An act to amend Sections 1793.2 and 1793.25 of the Civil Code, and to
amend Sections 6055, 6203.5, 6248, 6353, 6356.5, 6356.6, 6358.5, 7096,
7101, 8351, and 30474 of, and to add Sections 7157, 8407, 17131.10,
17131.12, 17134.1,30483, and 60709 to, the Revenue and Taxation Code,
relating to taxation.
[Approved by Governor October 9,2011. Filed with
Secretary of State October 9, 2011.]
LEGISLATiVE COUNSEL'S DIGEST
AB 242, Committee on Revenue and Taxation. Taxation.
(1) Existing law requires the State Board of Equalization to reimburse a
manufacturer for an amount equal to the sales tax which the manufacturer
pays to or for the buyer when providing a replacement vehicle or making
restitution pursuant to the Song-Beverly Consumer Warranty Act, subject
to satisfactory proof, as specified.
This bill would require the board to reimburse a manufacturer for an
amount equal to the use tax which the manufacturer pays to or for the buyer
or lessee when providing a replacement vehicle or making restitution
pursuant to the Song-Beverly Consumer Warranty Act, subject to satisfactory
proof, as specified.
This bill would make other conforming changes, and would also state
that the above provisions of the bill are declaratory of existing law.
(2) The Sales and Use Tax Law imposes a tax on retailers measured by
the gross receipts from the sale of tangible personal property sold at retail
in this state, or on the storage, use, or other consumption in this state of
tangible personal property purchased from a retailer for storage, use, or
other consumption in this state, measured by sales price.
The Sales and Use Tax Law allows a retailer to be relieved from liability
for sales or use tax when the measure of the tax is represented by accounts
that have been found to be worthless and charged off for income tax
purposes. Retailers who sell their accounts receivables, or lenders who
purchase them, are entitled to a refund or a deduction for the taxes paid to
the board on that portion of the accounts receivable that is written off as
worthless. In these circumstances, existing law requires the retailer and the
lender, prior to claiming any deduction or refund, to file an election form
with the board, signed by both parties, designating which party is entitled
to claim the deduction or refund.
This bill would remove the requirement that the election form be filed
with the board and would instead require the election form to be retained
by the retailer and the lender.
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(3) Under the Sales and Use Tax Law, there is a presumption that a
vehicle, vessel, or aircraft shipped or brought into this state within 12 months
from the date of its purchase was acquired for storage, use, or other
consumption in this state and is subject to the use tax ifspecified conditions
are met. Under existing law, this presumption does not apply if a vessel was
brought into the state exclusively for the purpose of repair, retrofit, or
modification performed in a permitted facility that is licensed to do business
in the county in which it is located.
This bill would, for purposes of the exclusion from this presumption, also
allow the repair, retrofit, or modification to be performed in a permitted
facility that is licensed to do business in the city or city and county in which
it is located, if the city or city and county so requires, or performed in a
permitted facility in a county in which it is not required to be licensed.
The Bradley-Burns Uniform Local Sales and Use Tax authorizes counties
and cities to impose local sales and use taxes in conformity with the Sales
and Use Tax Law, and existing law authorizes districts to impose transactions
and use taxes in accordance with the Transactions and Use Tax Law which
conforms to the Sales and Use Tax Law. Exemptions from state sales and
use taxes are ineorporated into these laws. Section 2230 ofthe Revenue and
Taxation Code provides that the state will reimburse counties and cities for
revenue losses caused by the enactment of sales and use tax exemptions.
This bill would provide that, notwithstanding Section 2230 ofthe Revenue
and Taxation Code, an appropriation is not made and the state shall not
reimburse local agencies for sales and use tax revenues lost by them pursuant
to this bill.
(4) The Sales and Use Tax Law provides various exemptions from the
taxes imposed by those laws, including partial exemptions for the sale of,
or the storage, use, or other consumption of, liquefied petroleum gas, farm
equipment and machinery, timber harvesting equipment and machinery,
and raeehorse breeding stoek, when purchased for use for specified activities
by a qualified person, as defined. Existing law provides that those exemptions
became effective September 1,2001, unless the State Board ofEqualization
determined that implementation by that date was not feasible, in which case
the board was required to report to the Legislature regarding the reason for
delayed implementation and to implement the exemption no later than
October I, 200 l. The State Board of Equalization adopted regulations
implementing these exemptions, which were operative September 1, 200 I.
This bill would delete the provisions relating to an authorization for a
delayed implementation in 2001 of these exemptions.
(5) Existing law requires the State Board of Equalization to administer
the Sales and Use Tax Law and authorizes the board to undertake collection
action on delinquent accounts, including issuing a levy or notice to withhold.
A taxpayer may file a claim with the board for reimbursement of bank
charges or any other reasonable 3rd-party check charge fees incurred by the
taxpayer as a direct result of an erroneous levy or notice to withhold by the
board.
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Ch.727
This bill would additionally authorize a taxpayer to file a reimbursement
claim with the board for bank charges and other reasonable 3rd-party check
charge fees incurred as a direct result of an erroneous processing action or
erroneous collection action by the board.
(6) Existing law authorizes the State Board of Equalization and the
Controller's office to use specified collection tools with respect to delinquent
accounts and liabilities.
This bill would authorize the board and the Controller's office to collect
restitution orders under specified laws, and a specified penalty, awarded to
the state by a court in criminal proceedings, in the same manner as tax
liabilities.
(7) The Personal Income Tax Law and the Bank and Corporation Tax
Law, among other things, allow various exclusions, deductions, and credit
in modified conformity to federal income tax laws.
This bill would provide additional modified conformity to specified
provisions of the federal Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of20 I 0 relating to simple
cafeteria plans for small businesses, health care benefits of Indian tribe
members, and student loan repayment programs.
The people ofthe State ofCalifornia do enact asfollows:
SECTION 1. Section 1793.2 of the Civil Code is amended to read:
1793.2. (a) Every manufacturer of consumer goods sold in this state
and for which the manufacturer has made an express warranty shall:
(I) (A) Maintain in this state sufficient service and repair facilities
reasonably close to all areas where its consumer goods are sold to carry out
the terms of those warranties or designate and authorize in this state as
service and repair facilities independent repair or service facilities reasonably
close to all areas where its consumer goods are sold to carry out the terms
of the warranties.
(B) As a means of complying with this paragraph, a manufacturer may
enter into warranty service contracts with independent service and repair
facilities. The warranty service contracts may provide for a fixed schedule
of rates to be charged for warranty service or warranty repair work. However,
the rates fixed by those contracts shall be in conformity with the requirements
of subdivision (c) of Section 1793.3. The rates established pursuant to
subdivision (c) of Section 1793.3, between the manufacturer and the
independent service and repair facility, do not preclude a good faith discount
that is reasonably related to reduced credit and general overhead cost factors
arising from the manufacturer's payment of warranty charges direct to the
independent service and repair facility. The warranty service contracts
authorized by this paragraph may not be executed to cover a period of time
in excess of one year, and may be renewed only by a separate, new contract
or letter ofagreement between the manufacturer and the independent service
and repair facility.
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(2) In the event of a failure to comply with paragraph (I) of this
subdivision, be subject to Section 1793.5.
(3) Make available to authorized service and repair facilities sufficient
service literature and replacement parts to effect repairs during the express
warranty period.
(b) Where those service and repair facilities are maintained in this state
and service or repair of the goods is necessary because they do not conform
with the applicable express warranties, service and repair shall be
commenced within a reasonable time by the manufacturer or its
representative in this state. Unless the buyer agrees in writing to the contrary,
the goods shall be serviced or repaired so as to conform to the applicable
warranties within 30 days. Delay caused by conditions beyond the control
of the manufacturer or its representatives shall serve to extend this 30-day
requirement. Where delay arises, conforming goods shall be tendered as
soon as possible following termination of the condition giving rise to the
delay.
(c) The buyer shall deliver nonconforming goods to the manufacturer's
service and repair facility within this state, unless, due to reasons of size
and weight, or method of attachment, or method of installation, or nature
of the nonconformity, delivery cannot reasonably be accomplished. If the
buyer cannot return the nonconforming goods for any of these reasons, he
or she shall notifY the manufacturer or its nearest service and repair facility
within the state. Written notice of nonconformity to the manufacturer or its
service and repair facility shall constitute return of the goods for purposes
of this section. Upon receipt of that notice of nonconformity, the
manufacturer shall, at its option, service or repair the goods at the buyer's
residence, or pick up the goods for service and repair, or arrange for
transporting the goods to its service and repair facility. All reasonable costs
of transporting the goods when a buyer cannot return them for any of the
above reasons shall be at the manufacturer's expense. The reasonable costs
of transporting nonconforming goods after delivery to the service and repair
facility until return of the goods to the buyer shall be at the manufacturer's
expense.
(d) (1) Except as provided in paragraph (2), if the manufacturer or its
representative in this state does not service or repair the goods to conform
to the applicable express warranties after a reasonable number of attempts,
the manufacturer shall either replace the goods or reimburse the buyer in
an amount equal to the purchase price paid by the buyer, less that amount
directly attributable to use by the buyer prior to the discovery of the
nonconformity.
(2) If the manufacturer or its representative in this state is unable to
service or repair a new motor vehicle, as that term is defined in paragraph
(2) of subdivision (e) of Section 1793.22, to conform to the applicable
express warranties after a reasonable number ofattempts, the manufacturer
shall either promptly replace the new motor vehicle in accordance with
subparagraph (A) or promptly make restitution to the buyer in accordance
with subparagraph (B). However, the buyer shall be free to elect restitution
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in lieu of replacement, and in no event shall the buyer be required by the
manufacturer to accept a replacement vehicle.
(A) In the case of replacement, the manufacturer shall replace the buyer's
vehicle with a new motor vehicle substantially identical to the vehicle
replaced. The replacement vehicle shall be accompanied by all express and
implied warranties that normally accompany new motor vehicles of that
specific kind. The manufacturer also shall pay for, or to, the buyer the
amount of any sales or use tax, license fees, registration fees, and other
official fees which the buyer is obligated to pay in connection with the
replacement, plus any incidental damages to which the buyer is entitled
under Section 1794, including, but not limited to, reasonable repair, towing,
and rental car costs actually incurred by the buyer.
(B) In the case of restitution, the manufacturer shall make restitution in
an amount equal to the actual price paid or payable by the buyer, including
any charges for transportation and manufacturer-installed options, but
excluding nonmanufacturer items installed by a dealer or the buyer, and
including any collateral charges such as sales or use tax, license fees,
registration fees, and other official fees, plus any incidental damages to
which the buyer is entitled under Section 1794, including, but not limited
to, reasonable repair, towing, and rental car costs actually incurred by the
buyer.
(C) When the manufacturer replaces the new motor vehicle pursuant to
subparagraph (A), the buyer shall only be liable to pay the manufacturer an
amount directly attributable to use by the buyer of the replaced vehicle prior
to the time the buyer first delivered the vehicle to the manufacturer or
distributor, or its authorized service and repair facility for correction of the
problem that gave rise to the nonconformity. When restitution is made
pursuant to subparagraph (B), the amount to be paid by the manufacturer
to the buyer may be reduced by the manufacturer by that amount directly
attributable to use by the buyer prior to the time the buyer first delivered
the vehicle to the manufacturer or distributor, or its authorized service and
repair facility for correction of the problem that gave rise to the
nonconformity. The amount directly attributable to use by the buyer shall
be determined by multiplying the actual price of the new motor vehicle paid
or payable by the buyer, including any charges for transportation and
manufacturer-installed options, by a fraction having as its denominator
120,000 and having as its numerator the number of miles traveled by the
new motor vehicle prior to the time the buyer first delivered the vehicle to
the manufacturer or distributor, or its authorized service and repair facility
for correction of the problem that gave rise to the nonconformity. Nothing
in this paragraph shall in any way limit the rights or remedies available to
the buyer under any other law.
(D) Pursuant to Section 1795.4, a buyer of a new motor vehicle shall
also include a lessee of a new motor vehicle.
(e) (I) If the goods cannot practicably be serviced or repaired by the
manufacturer or its representative to conform to the applicable express
warranties because of the method of installation or because the goods have
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become so affixed to real property as to become a part thereof, the
manufacturer shall either replace and install the goods or reimburse the
buyer in an amount equal to the purchase price paid by the buyer, including
installation costs, less that amount directly attributable to use by the buyer
prior to the discovery of the nonconformity.
(2) With respect to claims arising out of deficiencies in the construction
of a new residential dwelling, paragraph (I) shall not apply to either of the
following:
(A) A product that is not a manufactured product, as defined in
subdivision (g) of Section 896.
(B) A claim against a person or entity that is not the manufacturer that
originally made the express warranty for that manufactured product.
SEC. 2. Section 1793.25 of the Civil Code is amended to read:
1793.25. (a) Notwithstanding Part 1 (commencing with Section 6001)
of Division 2 of the Revenue and Taxation Code, the State Board of
Equalization shall reimburse the manufacturer of a new motor vehicle for
an amount equal to the sales tax or use tax which the manufacturer pays to
or for the buyer or lessee when providing a replacement vehicle pursuant
to subparagraph (A) of paragraph (2) of subdivision (d) of Section 1793.2
or includes in making restitution to the buyer or lessee pursuant to
subparagraph (B) of paragraph (2) of subdivision (d) of Section 1793.2,
when the manufacturer provides satisfactory proof that it has complied with
subdivision (c) of Section 1793.23, and satisfactory proof is provided for
one of the following:
(I) The retailer of the motor vehicle for which the manufacturer is making
restitution has reported and paid the sales tax on the gross receipts from the
sale of that motor vehicle.
(2) The buyer of the motor vehicle has paid the use tax on the sales price
for the storage, use, or other consumption of that motor vehicle in this state.
(3) The lessee of the motor vehicle has paid the use tax on the rentals
payable from the lease of that motor vehicle.
(b) The State Board of Equalization may adopt rules and regulations to
carry out, facilitate compliance with, or prevent circumvention or evasion
of, this section.
(c) This section shall not change the application of the sales and use tax
to the gross receipts, the rentals payable, and the sales price from the sale,
lease, and the storage, use, or other consumption, in this state of tangible
personal property pursuant to Part 1 (commencing with Section 6001) of
Division 2 of the Revenue and Taxation Code.
(d) The manufacturer's claim for reimbursement and the State Board of
Equalization's approval or denial of the claim shall be subject to the
provisions of Article 1 (commencing with Section 690 I) of Chapter 7 of
Part 1 of Division 2 of the Revenue and Taxation Code, except Sections
6907 and 6908, insofar as those provisions are not inconsistent with this
section.
(e) For purposes of this section, the amount ofuse tax that the State Board
of Equalization is required to reimburse the manufacturer shall be limited
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to the amount of use tax the manufacturer is required to pay to or for the
lessee pursuant to Section 1793.2.
SEC. 3. Section 6055 of the Revenue and Taxation Code is amended to
read:
6055. (a) A retailer is relieved from liability for sales tax that became
due and payable, insofar as the measure of the tax is represented by accounts
that have been found to be worthless and charged offfor income tax purposes
by the retailer or, if the retailer is not required to file income tax returns,
charged off in accordance with generally accepted accounting principles.
A retailer that has previously paid the tax may, under rules and regulations
prescribed by the board, take as a deduction the amount found worthless
and charged off by the retailer. If these accounts are thereafter in whole or
in part collected by the retailer, the amount collected shall be included in
the first return filed after the collection and the tax shall be paid with the
return. For purposes of this subdivision, the term "retailer" shall include
any entity affiliated with the retailer under Section 1504 of Title 26 of the
United States Code.
(b) (1) In the case of accounts held by a lender, a retailer or lender who
makes a proper election under paragraph (4) shall be entitled to a deduction
or refund of the tax that the retailer has previously reported and paid if all
of the following conditions are met:
(A) A deduction was not previously claimed or allowed on any portion
of the accounts.
(B) The accounts have been found worthless and written offby the lender
in accordance with the requirements of subdivision (a).
(C) The contract between the retailer and the lender contains an
irrevocable relinquishment of all rights to the account from the retailer to
the lender.
(D) The retailer remitted the tax on or after January 1, 2000.
(E) The party electing to claim the deduction or refund under paragraph
(4) files a claim in a manner prescribed by the board.
(2) If the retailer or the lender thereafter collects in whole or in part any
accounts, one of the following shall apply:
(A) If the retailer is entitled to the deduction or refund under the election
specified in paragraph (4), the retailer shall include the amount collected in
its first return filed after the collection and pay tax on that amount with the
return.
(B) If the lender is entitled to the deduction or refund under the election
specified in paragraph (4), the lender shall pay the tax to the board in
accordance with Section 6451.
(3) For purposes of this subdivision, the term "lender" means any of the
following:
(A) Any person who holds a retail account which that person purchased
directly from a retailer who reported the tax.
(B) Any person who holds a retail account pursuant to that person's
contract directly with the retailer who reported the tax.
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(C) Any person who is either an affiliated entity, under Section 1504 of
Title 26 of the United States Code, of a person described in subparagraph
(A) or (B), or an assignee ofa person described in subparagraph (A) or (B).
(4) Prior to claiming any deduction or refund under this subdivision, the
retailer who reported the tax and the lender shall prepare and retain an
election, signed by both parties, designating which party is entitled to claim
the deduction or refund. This election may not be amended or revoked unless
a new election, signed by both parties, is prepared and retained by the retailer
and the lender.
SEC. 4. Section 6203.5 of the Revenue and Taxation Code is amended
to read:
6203.5. (a) A retailer is relieved from liability to collect use tax that
became due and payable, insofar as the measure of the tax is represented
by accounts that have been found to be worthless and charged off for income
tax purposes by the retailer or, if the retailer is not required to file income
tax returns, charged off in accordance with generally accepted accounting
principles. A retailer that has previously paid the amount of the tax may,
under rules and regulations prescribed by the board, take as a deduction the
amount found worthless and charged off by the retailer. If these accounts
are thereafter in whole or in part collected by the retailer, the amount
collected shall be included in the first return filed after the collection and
the amount of the tax shall be paid with the return. For purposes of this
subdivision, the term "retailer" shall include any entity affiliated with the
retailer under Section 1504 of Title 26 of the United States Code.
(b) (I) In the case of accounts held by a lender, a retailer or lender who
makes a proper election under paragraph (4) shall be entitled to a deduction
or refund of the tax that the retailer has previously reported and paid if all
of the following conditions are met:
(A) A deduction was not previously claimed or allowed on any portion
of the accounts.
(B) The accounts have been found worthless and written offby the lender
in accordance with the requirements of subdivision (a).
(C) The contract between the retailer and the lender contains an
irrevocable relinquishment of all rights to the account from the retailer to
the lender.
(D) The retailer remitted the tax on or after January I, 2000.
(E) The party electing to claim the deduction or refund under paragraph
(4) files a claim in a manner prescribed by the board.
(2) Ifthe retailer or the lender thereafter collects in whole or in part any
accounts, one of the following shall apply:
(A) If the retailer is entitled to the deduction or refund under the election
specified in paragraph (4), the retailer shall include the amount collected in
its first return filed after the collection and pay tax on that amount with the
return.
(B) If the lender is entitled to the deduction or refund under the election
specified in paragraph (4), the lender shall pay the tax to the board in
accordance with Section 6451.
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(3) For purposes of this subdivision, the term "lender" means any of the
following:
(A) Any person who holds a retail account which that person purchased
directly from a retailer who reported the tax.
(B) Any person who holds a retail account pursuant to that person's
contract directly with the retailer who reported the tax.
(C) Any person who is either an affiliated entity, under Section 1504 of
Title 26 of the United States Code, of a person described in subparagraph
(A) or (8), or an assignee ofa person described in subparagraph (A) or (8).
(4) Prior to claiming any deduction or refund under this subdivision, the
retailer who reported the tax and the lender shall prepare and retain an
election, signed by both parties, designating which party is entitled to claim
the deduction or refund. This election may not be amended or revoked unless
a new election, signed by both parties, is prepared and retained by the retailer
and the lender.
SEC. 5. Section 6248 of the Revenue and Taxation Code is amended to
read:
6248. (a) There shall be a rebuttable presumption that any vehicle,
vessel, or aircraft bought outside of this state on or after the effective date
of this section, and which is brought into California within 12 months from
the date of its purchase, was acquired for storage, use, or other consumption
in this state and is subject to use tax if any of the following occurs:
(I) The vehicle, vessel, or aircraft was purchased by a California resident
as defined in Section 516 of the Vehicle Code. For purposes of this section,
a closely held corporation or limited liability company shall also be
considered a California resident if 50 percent or more of the shares or
membership interests are held by shareholders or members who are residents
of California as defined in Section 516 of the Vehicle Code.
(2) In the case ofa vehicle, the vehicle was subject to registration under
Chapter 1 (commencing with Section 4000) of Division 3 of the Vehicle
Code during the first 12 months ofownership.
(3) [n the case of a vessel or aircraft, that vessel or aircraft was subject
to property tax in this state during the first 12 months of ownership.
(4) If purchased by a nonresident of California, the vehicle, vessel, or
aircraft is used or stored in this state more than one-half of the time during
the first 12 months of ownership.
(b) This presumption may be controverted by documentary evidence that
the vehicle, vessel, or aircraft was purchased for use outside of this state
during the first 12 months of ownership. This evidence may include, but is
not limited to, evidence of registration of that vehicle, vessel, or aircraft,
with the proper authority, outside of this state.
(c) This section shall not apply to any vehicle, vessel, or aircraft used in
interstate or foreign commerce pursuant to regulations prescribed by the
board.
(d) The amendments made to this section by the act adding this
subdivision shall not apply to any vehicle, vessel, or aircraft that is either
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purchased, or is the subject of a binding purchase contract that is entered
into, on or before the operative date of this subdivision.
(e) Notwithstanding subdivision (a), any aircraft or vessel brought into
this state exclusively for the purpose of repair, retrofit, or modification shall
not be deemed to be acquired for storage, use, or other consumption in this
state if the repair, retrofit, or modification is, in the case of a vessel,
performed by a repair facility that holds an appropriate permit issued by the
board and is licensed to do business by the city, county, or city and county
in which it is located if the city, county, or city and county so requires, or,
in the case of an aircraft, performed by a repair station certified by the
Federal Aviation Administration or a manufacturer's maintenance facility.
(f) The presumption set forth in subdivision (a) may be controverted by
documentary evidence that the vehicle was brought into this state for the
exclusive purpose of warranty or repair service and was used or stored in
this state for that purpose for 30 days or less. The 30-day period begins
when the vehicle enters this state, includes any time of travel to and from
the warranty or repair facility, and ends when the vehicle is returned to a
point outside the state. The documentary evidence shall include a work
order stating the dates that the vehicle is in the possession of the warranty
or repair facility and a statement by the owner of the vehicle specifying
dates of travel to and from the warranty or repair facility.
SEC. 6. Section 6353 of the Revenue and Taxation Code is amended to
read:
6353. There are exempted from the taxes imposed by this part the gross
receipts derived from the sales, furnishing, or service of and the storage,
use, or other consumption in this state of, all of the following:
(a) Gas, electricity, and water, including steam and geothermal steam,
brines, and heat, when delivered to consumers through mains, lines, or pipes.
(b) (l) Liquefied petroleum gas, delivered to a qualified residence by
the seller, that is sold for household use in the qualified residence, or
liquefied petroleum gas that is purchased for use by a qualified person to
be used in producing and harvesting agricultural products; provided, in
either case, the liquefied petroleum gas is delivered into a tank with a storage
capacity for liquefied petroleum gas that is equal to or greater than 30
gallons. This subdivision may not be construed to provide any exemption
from any tax levied by a city, county, or city and county pursuant to Section
7284.3, or any successor to that section.
(2) For purposes of this subdivision:
(A) "Qualified residence" means a primary residence, not serviced by
gas mains and pipes.
(B) "Qualified person" means any person engaged in a line of business
described in Codes 011 I to 0291, inclusive, of the Standard Industrial
Classification Manual published by the United States Office ofManagement
and Budget, 1987 Edition, and any other person that assists that person in
the lines ofbusiness described in this paragraph in producing and harvesting
agricultural products.
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(c) Water, when sold to an individual in bulk quantities of 50 gallons or
more, for general household use in his or her residence if the residence is
located in an area not serviced by mains, lines, or pipes.
(d) Exhaust steam, waste steam, heat, or resultant energy, produced in
connection with cogeneration technology, as defined in Section 25134 of
the Public Resources Code.
(e) The exemptions provided by subdivision (b) shall be effective starting
September I, 2001.
SEC. 7. Section 6356.5 of the Revenue and Taxation Code is amended
to read:
6356.5. (a) There are exempted from the taxes imposed by this part the
gross receipts from the sale of, and the storage and use of, or other
consumption in this state of, farm equipment and machinery, and the parts
thereof, purchased for use by a qualified person to be used primarily in
producing and harvesting agricultural products.
(b) For purposes of this section, both of the following shall apply:
(I) "Qualified person" means any person engaged in a line of business
described in Codes OIl I to 0291, inclusive, of the Standard Industrial
Classification Manual published by the United States Office ofManagement
and Budget, 1987 Edition, and any other person that uses farm equipment
and machinery to assist this person in the lines of business described in this
paragraph in producing and harvesting agricultural products.
(2) "Farm equipment and machinery" means implements of husbandry,
as defined in Section 411.
(c) (1) Notwithstanding any provision of the Bradley-Bums Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200»
or the Transactions and Use Tax Law (Part 1.6 (commencing with Section
7251 », the exemption established by this section does not apply with respect
to any tax levied by a county, city, or district pursuant to, or in accordance
with, either of those laws.
(2) Notwithstanding subdivision (a), the exemption established by this
section does not apply with respect to any tax levied pursuant to Sections
6051.2 and 6201.2, or pursuant to Section 35 ofArticle Xlll of the California
Constitution.
(d) The exemption provided by this section shall be effective starting
September 1, 2001.
SEC. 8. Section 6356.6 of the Revenue and Taxation Code is amended
to read:
6356.6. (a) There are exempted from the taxes imposed by this part the
gross receipts from the sale of, and the storage and use of, or other
consumption in this state of, equipment and machinery designed primarily
for off-road use in commercial timber harvesting operations, and the parts
thereof, that is purchased for use by a qualified person to be used primarily
in harvesting timber.
(b) The State Board of Equalization may adopt emergency regulations
to specify equipment and machinery exempted by this section, and may
revise those regulations from time to time.
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(c) For purposes of this section, "qualified person" means any person
engaged in commercial timber harvesting.
(d) (I) Notwithstanding any provision of the Bradley-Bums Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200»
or the Transactions and Use Tax Law (Part 1.6 (commencing with Section
7251», the exemption established by this section does not apply with respect
to any tax lcvied by a county, city, or district pursuant to, or in accordance
with, either of those laws.
(2) Notwithstanding subdivision (a), the exemption established by this
section does not apply with respect to any tax levied pursuant to Section
6051.2 and 6201.2, or pursuant to Section 35 ofArticle XIII of the California
Constitution.
(e) The exemption provided by this section shall be effective starting
September I, 200 I.
SEC. 9. Section 6358.5 of the Revenue and Taxation Code is amended
to read:
6358.5. (a) (1) There are exempted from the taxes imposed by this part,
the gross receipts from the sale in this state of, and the storage, use, or other
consumption in this state of, any racehorse breeding stock.
(2) For purposes of this section "racehorse breeding stock" means a horse
that is capable of reproduction and for which the purchaser states that it is
the purchaser's sole intent to use the horse for breeding purposes.
(b) (1) Notwithstanding any provision of the Bradley-Bums Uniform
Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200»
or the Transactions and Use Tax Law (Part 1.6 (commencing with Section
7251 the exemption established by this section does not apply with respect
to any tax levied by a county, city, or district pursuant to, or in accordance
with, either of those laws.
(2) The exemption established by this section does not apply with respect
to any tax levied pursuant to either Section 6051.2 or 6201.2, or pursuant
to Section 35 of Article XIII of the California Constitution.
(c) The exemption provided by this section shall be effective starting
September 1, 200 I.
SEC. 10. Section 7096 of the Revenue and Taxation Code is amended
to read:
7096. (a) A taxpayer may file a claim with the board for reimbursement
of bank charges and any other reasonable third-party check charge fees
incurred by the taxpayer as the direct result of an erroneous levy or notice
to withhold, erroneous processing action, or erroneous collection action by
the board. Bank and third-party charges include a financial institution's or
third party's customary charge for complying with the levy or notice to
withhold instructions and reasonable charges for overdrafts that are a direct
consequence of the erroneous levy or notice to withhold, erroneous
processing action, or erroneous collection action. The charges are those paid
by the taxpayer and not waived or reimbursed by the financial institution
or third party. Each claimant applying for reimbursement shall file a claim
with the board that shall be in the form as may be prescribed by the board.
»,
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In order for the board to grant a claim, the board shall determine that both
of the following conditions have been satisfied:
(1) The erroneous levy or notice to withhold, erroneous processing action,
or erroneous collection action was caused by board error.
(2) Prior to the erroneous levy or notice to withhold, erroneous processing
action, or erroneous collection action, the taxpayer responded to all contacts
by the board and provided the board with any requested information or
documentation sufficient to establish the taxpayer's position. This provision
may be waived by the board for reasonable cause.
(b) Claims pursuant to this section shall be filed within 90 days from the
date ofthe erroneous levy or notice to withhold, erroneous processing action,
or erroneous collection action. Within 30 days from the date the claim is
received, the board shall respond to the claim. If the board denies the claim,
the taxpayer shall be notified in writing of the reason or reasons for the
denial of the claim.
SEC. 11. Section 7101 of the Revenue and Taxation Code is amended
to read:
7101. All fees, taxes, interest, and penalties imposed and all amounts
of tax required to be paid to the state under this part, and restitution orders
or any other amounts otherwise authorized by law to be collected by the
board, or any other amounts imposed by a court of competent jurisdiction
to be paid to the board shall, except as provided in Section 6452.1, be paid
to the board in the form of remittances payable to the State Board of
Equalization ofthe State ofCalifornia. The board shall transmit the payments
to the Treasurer to be deposited in the State Treasury to the credit of the
Retail Sales Tax Fund.
SEC. 12. Section 7157 is added to the Revenue and Taxation Code, to
read:
7157. (a) (1) Restitution orders or any other amounts imposed by a
court of competent jurisdiction for criminal offenses upon a person or any
other entity that are due and payable to the board may be collected by the
board in any manner provided by law for collection of a delinquent sales
and use tax liability, including, but not limited to, issuance of an order and
levy under Article 4 (commencing with Section 706.070) of Chapter 5 of
Division 2 ofTitle 9 of Part 2 of the Code of Civil Procedure in the manner
provided for earnings withholding orders for taxes.
(2) Amounts imposed by a court of competent jurisdiction as an order
of restitution for criminal offenses shall be treated as final and due and
payable to the State of California on the date that amount is established on
the records of the board.
(b) Part I (commencing with Section 600 I ), Part 1.5 (commencing with
Section 7200), Part 1.6 (commencing with Section 7251), and Part 1.7
(commencing with Section 7285) shall apply to amounts collected under
this section in the same manner and with the same force and effect and to
the full extent as if the language of those laws had been incorporated in full
into this section, except to the extent that any provision is either inconsistent
with this section or is not relevant to this section.
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(c) Notwithstanding Chapter 7 (commencing with Section 690 I), a refund
or credit shall not be allowed for any amounts paid or payments applied
under this section.
(d) Amounts authorized to be collected pursuant to this section may
accrue interest at the greater of the rate applicable to the amounts being
collected or the rate provided under Section 6591.5 from and after the date
the amounts are established on the records of the board.
(e) Amounts authorized to be collected pursuant to this section shall not
be subject to any statute of limitations set forth in Chapter 6 (commencing
with Section 6701).
(t) Notwithstanding Section 6738 or Chapter 14 (commencing with
Section 7150) of Division 7 ofTitle I of the Government Code, any portion
of the amounts authorized to be collected under this section that remain
unsatisfied may be collected by the recording of a notice of state tax lien.
The board may record or extend a recorded notice of state tax lien at any
time until the amount due, including any accrued interest, is paid in full.
(g) This section shall apply on and after January I, 2012, to amounts
authorized to be collected pursuant to this section that are due and payable
to the board before, on, or after January 1,2012.
SEC. 13. Section 8351 of the Revenue and Taxation Code is amended
to read:
8351. The Controller shall transmit all money received by him or her in
payment of taxes, interest, and penalties due under this part, and restitution
orders or any other amounts otherwise authorized by law to be collected by
the Controller, or any other amounts imposed by a court of competent
jurisdiction to be paid to the Controller, to the State Treasurer who shall
deposit it in the State Treasury and credit it to the Motor Vehicle Fuel Fund,
which is continued in existence as the Motor Vehicle Fuel Account in the
Transportation Tax Fund, which fund is hereby created. All fees paid and
accepted for issuance or reinstatement of licenses under this part shall be
deposited by the board in the State Treasury to the credit of the same account.
Any referenee in any law or regulation to the Motor Vehicle Fuel Fund
shall be deemed to refer to the Motor Vehicle Fuel Account in the
Transportation Tax Fund.
SEC. 14. Section 8407 is added to the Revenue and Taxation Code, to
read:
8407. (a) (1) Restitution orders or any other amounts imposed by a
court of competent jurisdiction for criminal offenses upon a person or any
other entity that are due to the State of California and payable to the
Controller may be collected by the Controller in any manner provided by
law for collection ofa delinquent motor vehicle fuel tax liability, including,
but not limited to, issuance ofan order and levy under Article 4 (commencing
with Section 706.070) of Chapter 5 of Division 2 of Title 9 of Part 2 of the
Code of Civil Procedure in the manner provided for earnings withholding
orders for taxes.
(2) Amounts imposed by a court of competent jurisdiction as an order
of restitution for criminal offenses shall be treated as final and due and
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payable to the State of California on the date that amount is established on
the records of the board.
(b) This part shall apply to amounts collected under this section in the
same manner and with the same force and effect and to the full extent as if
the language of those laws had been incorporated in full into this section,
except to the extent that any provision is either inconsistent with this section
or is not relevant to this section.
(c) Notwithstanding Chapter 7 (commencing with Section 810 1), no
refund or credit may be allowed for any amounts paid or payments applied
under this section.
(d) Amounts authorized to be collected pursuant to this section may
accrue interest at the greater of the rate applicable to the amounts being
collected or the rate provided under Section 6591.5 from and after the date
the amounts are established on the records of the board.
(e) Amounts authorized to be collected pursuant to this section are not
subject to any statute of limitations set forth in Chapter 6 (commencing with
Section 7851).
(f) Notwithstanding Section 7872 or Chapter 14 (commencing with
Section 7150) of Division 7 ofTitle 1 of the Government Code, any portion
of the amounts authorized to be collected under this section that remain
unsatisfied may be collected by the recording of a notice of state tax lien.
The Controller may record or extend a recorded notice of state tax lien at
any time until the amount due, including any accrued interest, is paid in
full.
(g) This section shall apply on and after January 1, 2012, to amounts
authorized to be collected pursuant to this section that are due to the State
of California and payable to the Controller before, on, or after January 1,
2012.
SEC. 15. Section 17131.10 is added to the Revenue and Taxation Code,
to read:
17131.10. (a) For taxable years beginning on or after January 1,2011,
Section 125m of the Internal Revenue Code, relating to simple cafeteria
plans for small businesses, as added by Section 9022 ofthe Patient Protection
and Affordable Care Act (Public Law 111-148), shall apply, except as
otherwise provided.
(b) For taxable years beginning on or after January 1, 2014, Section
125(f) of the Internal Revenue Code, relating to qualified benefits defined,
as amended by Section 1515 of the Patient Protection and Affordable Care
Act (Public Law 111-148), shall apply, except as otherwise provided.
SEC. 16. Section 17131.12 is added to the Revenue and Taxation Code,
to read:
17131.12. (a) Section 139D of the Internal Revenue Code, relating to
Indian health care benefits, as added by Section 9021 of the Patient
Protection and Affordable Care Act (Public Law 111-148), shall apply,
except as otherwise provided.
(b) This section shall apply to benefits and coverage provided after March
23,2010.
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(c) This scction shall not be construed to create an inference with respect
to the exclusion from gross income of either of the following:
(1) Benefits provided by an Indian tribe or tribal organization that are
not within the scope of this section.
(2) Benefits provided prior to the effective date of the act adding this
section.
SEC. 17. Section 17134.1 is added to the Revenue and Taxation Code,
to read:
17134.1. For taxable years beginning on or after January 1,2010, Section
108(f)(4) of the Internal Revenue Code, relating to payments under the
National Health Service Corps loan repayment program and certain state
loan repayment programs, as amended by Section 10908 of the Patient
Protection and Affordable Care Act (Public Law 111-148), shall apply,
except as otherwise provided.
SEC. 18. Section 30474 of the Revenue and Taxation Code is amended
to read:
30474. (a) Any person who knowingly possesses, or keeps, stores, or
retains for the purpose of sale, or sells or offers to sell, any package of
cigarettes to which there is not affixed the stamp or meter impression
required to be affixed under this part, when those cigarettes have been
obtained from any source whatever, is guilty of a misdemeanor and shall
for each offense be fined an amount not to exceed twenty-five thousand
dollars ($25,000), or be imprisoned for a period not to exceed one year in
the county jail, or, at the discretion of the court, be subject to both fine and
imprisonment in the county jail.
(b) In addition to the fine or sentence, or both, each person convicted
under this section shall pay one hundred dollars ($100) for each carton of
200 cigarettes, or portion thereof, if that person knowingly possessed, or
kept, stored, or retained for the purpose of sale, or sold or offered for sale
in violation ofthis section, as determined by the court. The court shall direct
that 50 percent of the penalty assessed be transmitted to the local prosecuting
jurisdiction, to be allocated for costs of prosecution, and 50 percent of the
penalty assessed be transmitted to the board. The board may collect the
penalty due pursuant to this section in the manner prescribed in Section
30483.
(c) This section shall not apply to a licensed distributor that possesses,
keeps, stores, or retains cigarettes before the necessary stamp or meter
impression is affixed.
SEC. 19. Section 30483 is added to the Revenue and Taxation Code, to
read:
30483. (a) (1) Restitution orders or any other amounts imposed by a
court of competent jurisdiction for criminal offenses upon a person or any
other entity that are due and payable to the board may be collected by the
board in any manner provided by law for collection ofa delinquent cigarette
and tobacco products tax liability, including, but not limited to, issuance of
an order and levy under Article 4 (commencing with Section 706.070) of
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Chapter 5 of Division 2 of Title 9 of Part 2 of the Code of Civil Procedure
in the manner provided for earnings withholding orders for taxes.
(2) Amounts imposed by a court of competent jurisdiction as an order
of restitution for criminal offenses shall be treated as final and due and
payable to the State of California on the date that amount is established on
the records of the board.
(b) This part shall apply to amounts collected under this section in the
same manner and with the same force and effect and to the full extent as if
the language of those laws had been incorporated in full into this section,
except to the extent that any provision is either inconsistent with this section
or is not relevant to this section.
(c) Notwithstanding Chapter 6 (commencing with Section 30361), a
refund or credit shall not be allowed for any amounts paid or payments
applied under this section.
(d) Amounts authorized to be collected pursuant to this section may
accrue interest at the greater of the rate applicable to the amounts being
collected or the rate provided under Section 6591.5 from and after the date
the amounts are established on the records of the board.
(e) Amounts authorized to be collected pursuant to this section shall not
be subject to any statute of limitations set forth in Chapter 5 (commencing
with Section 30301).
(f) Notwithstanding Chapter 14 (commencing with Section 7150) of
Division 7 of Title 1 of the Government Code, any portion of the amounts
authorized to be collected under this section that remain unsatisfied may be
collected by the recording ofa notice ofstate tax lien. The board may record
or extend a recorded notice of state tax lien at any time until the amount
due, including any accrued interest, is paid in full.
(g) This section shall apply on and after January 1,2012, to amounts
authorized to be collected pursuant to this section that are due and payable
to the board before, on, or after January 1,2012.
SEC. 20. Section 60709 is added to the Revenue and Taxation Code, to
read:
60709. (a) (1) Restitution orders or any other amounts imposed by a
court of competent jurisdiction for criminal offenses upon a person or any
other entity that are due and payable to the board may be collected by the
board in any manner provided by law for collection of a delinquent diesel
fuel tax liability, including, but not limited to, issuance of an order and levy
under Article 4 (commencing with Section 706.070) ofChapter 5 ofDivision
2 of Title 9 of Part 2 ofthe Code of Civil Procedure in the manner provided
for earnings withholding orders for taxes.
(2) Amounts imposed by a court of competent jurisdiction as an order
of restitution for criminal offenses shall be treated as final and due and
payable to the State of California on the date that amount is established on
the records of the board.
(b) Part 31 (commencing with Section 60001) shall apply to amounts
collected under this section in the same manner and with the same force
and effect and to the full extent as if the language of those laws had been
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Ch.727
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incorporated in full into this section, except to the extent that any provision
is either inconsistent with this section or is not relevant to this section.
(c) Notwithstanding Chapter 8 (commencing with Section 6050 I), a
refund or credit shall not be allowed for any amounts paid or payments
applied under this section.
(d) Amounts authorized to be collected pursuant to this section may
accrue interest at the greater of the rate applicable to the amounts being
collected or the rate provided under Section 6591.5 from and after the date
the amounts are established on the records of the board.
(e) Amounts authorized to be collected pursuant to this section are not
subject to any statute oflimitations set forth in Chapter 7 (commencing with
Section 6040 I).
(f) Notwithstanding Sections 60441 to 60445, inclusive, or Chapter 14
(commencing with Section 7150) of Division 7 ofTitle I of the Govemment
Code, any portion of the amounts authorized to be collected under this
section that remain unsatisfied may be collected by the recording ofa notice
of state tax lien. The board may record or extend a recorded notice of state
tax lien at any time until the amount due, including any accrued interest, is
paid in full.
(g) This section shall apply on and after January I, 2012, to amounts
authorized to be collected pursuant to this section that are due and payable
to the board before, on, or after January 1,2012.
SEC. 21. Sections I and 2 of this act are declaratory of existing law.
SEC. 22. Notwithstanding Section 2230 of the Revenue and Taxation
Code, an appropriation is not made by this act and the state shall not
reimburse any local agency for any sales and use tax revenues lost by it
under this act.
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Assembly Bill No. 2688
CHAPTER 362
An act to amend Sections 1154, 6055, and 6203.5 of the Revenue and
Taxation Code, relating to taxation.
[Approved by Governor September 17,2012. Filed with
Secretary of State September 17,2012.]
LEGISLATIVE COUNSEL'S DIGEST
AB 2688, Committee on Revenue and Taxation. Property taxes: sales
and use taxes.
Existing law requires the personal property of an air carrier to be taxed
at its fair market value, and the California Constitution requires property
subject to ad valorem property taxation to be assessed in the county in which
it is situated. Existing law requires air taxis which are operated in scheduled
air taxi operations to be assessed pursuant to a specified formula, and requires
all other air taxis to be assessed in the same manner as personal property,
as provided. Existing law defines "air taxi" for purposes ofthese provisions
to mean an aircraft used by an air carrier which does not utilize aircraft
having a maximum passenger capacity, as provided, and which does not
hold a specified certificate or other economic authority, as provided.
The bill would revise the definition of "air taxi," as provided.
Existing sales and use tax laws authorize a deduction or refund of tax in
the case of worthless and written-off accounts held by a retailer or lender
under specified circumstances, which include establisbing a proper election
by filing an election with the State Board of Equalization before claiming
the deduction or refund.
This bill would instead require the proper election to be established by
the retailer and lender preparing and retaining an election form that would
not need to be prepared or retained prior to claiming any deduction or refund.
The people ofthe State ofCalifornia do enact asfollows:
SECTION 1. Section 1154 ofthe Revenue and Taxation Code is amended
to read:
1154. (a) As used in this section, "air taxi" means aircraft used by an
air carrier which does not utilize aircraft having a maximum passenger
capacity of more than 60 seats or a maximum payload capacity of more
than 18,000 pounds in air transportation and which holds a certificate of
public convenience and necessity or other economic authority issued by the
United States Department of Transportation, or its successor.
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Ch.362
-2­
(b) Air taxis which are operated in scheduled air taxi operations are not
subject to the provisions of Part 10 (commencing with Section 5301) of this
division and shall be assessed in accordance with the allocation fOImula set
forth in Section 1152.
(c) All other air taxis shall be assessed in the county where the aircraft
is habitually situated in the same manner and at the same ratio as other
personal property in the county subject to general property taxation. Such
aircraft shall be taxed at the same rate and in the same manner as all other
property on the unsecured rolL
SEC. 2. Section 6055 of the Revenue and Taxation Code is amended to
read:
6055. (a) A retailer is relieved from liability for sales tax that became
due and payable, insofar as the measure of the tax is represented by accounts
that have been found to be worthless and charged offfor income tax purposes
by the retailer or, if the retailer is not required to file income tax returns,
charged off in accordance with generally accepted accounting principles.
A retailer that has previously paid the tax may, under rules and regulations
prescribed by the board, take as a deduction the amount found worthless
and charged off by the retailer. If these accounts are thereafter in whole or
in part collected by the retailer, the amount collected shall be included in
the first return filed after the collection and the tax shall be paid with the
return. For purposes of this subdivision, the teIm "retailer" shall include
any entity affiliated with the retailer under Section 1504 of Title 26 of the
United States Code.
(b) (1) In the case of accounts held by a lender, a retailer or lender that
makes a proper election under paragraph (4) shall be entitled to a deduction
or refund of the tax that the retailer has previously reported and paid if all
of the following conditions are met:
(A) A deduction was not previously claimed or allowed on any portion
of the accounts.
(B) The accounts have been found worthless and written offby the lender
in accordance with the requirements of subdivision (a).
(C) The contract between the retailer and the lender contains an
irrevocable relinquishment of all rights to the account from the retailer to
the lender.
(D) The retailer remitted the tax on or after January 1,2000.
(E) The party electing to claim the deduction or refund under paragraph
(4) files a claim in a manner prescribed by the board.
(2) If the retailer or the lender thereafter collects in whole or in part any
accounts, one of the following shall apply:
(A) If the retailer is entitled to the deduction or refund under the election
specified in paragraph (4), the retailer shall include the amount collected in
its first return filed after the collection and pay tax on that amount with the
return.
(B) If the lender is entitled to the deduction or refund under the election
specified in paragraph (4), the lender shall pay the tax to the board in
accordance with Section 6451.
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Ch.362
(3) For purposes of this subdivision, the tenn "lender" means any of the
following:
(A) Any person that holds a retail account which that person purchased
directly from a retailer who reported the tax.
(B) Any person that holds a retail account pursuant to that person's
contract directly with the retailer that reported the tax.
(C) Any person that is either an affiliated entity, under Section 1504 of
Title 26 of the United States Code, of a person described in subparagraph
(A) or (B), or an assignee ofa person described in subparagraph (A) or (B).
(4) For purposes of this section, a "proper election" shall be established
when the retailer that reported the tax and the lender prepare and retain an
election fonn, signed by both parties, designating which party is entitled to
claim the deduction or refund. This election may not be amended or revoked
unless a new election, signed by both parties, is prepared and retained by
the retailer and the lender.
SEC. 3. Section 6203.5 of the Revenue and Taxation Code is amended
to read:
6203.5. (a) A retailer is relieved from liability to collect use tax that
became due and payable, insofar as the measure of the tax is represented
by accounts that have been found to be worthless and charged off for income
tax purposes by the retailer or, if the retailer is not required to file income
tax returns, charged off in accordance with generally accepted accounting
principles. A retailer that has previously paid the amount of the tax may,
under rules and regulations prescribed by the board, take as a deduction the
amount found worthless and charged off by the retailer. If these accounts
are thereafter in whole or in part collected by the retailer, the amount
collected shall be included in the first return filed after the collection and
the amount of the tax shall be paid with the return. For purposes of this
subdivision, the tenn "retailer" shall include any entity affiliated with the
retailer under Section 1504 ofTitIe 26 of the United States Code.
(b) (1) In the case of accounts held by a lender, a retailer or lender that
makes a proper election under paragraph (4) shall be entitled to a deduction
or refund of the tax that the retailer has previously reported and paid if all
of the following conditions are met:
(A) A deduction was not previously claimed or allowed on any portion
of the accounts.
(B) The accounts have been found worthless and written offby the lender
in accordance with the requirements of subdivision (a).
(C) The contract between the retailer and the lender contains an
irrevocable relinquishment of all rights to the account from the retailer to
the lender.
(D) The retailer remitted the tax on or after January 1,2000.
(E) The party electing to claim the deduction or refund under paragraph
(4) files a claim in a manner prescribed by the board.
(2) If the retailer or the lender thereafter collects in whole or in part any
accounts, one of the following shall apply:
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Ch.362
-4­
(A) lfthe retailer is entitled to the deduction or refund under the eleetion
specified in paragraph (4), the retailer shall include the amount collected in
its first return filed after the collection and pay tax on that amount with the
return.
(B) lfthe lender is entitled to the deduction or refund under the election
specified in paragraph (4), the lender shall pay the tax to the board in
accordance with Section 6451.
(3) For purposes of this subdivision, the term "lender" means any of the
following:
(A) Any person that holds a retail account which that person purchased
directly from a retailer who reported the tax.
(B) Any person that holds a retail account pursuant to that person's
contract directly with the retailer that reported the tax.
(C) Any person that is either an affiliated entity, under Section 1504 of
Title 26 of the United States Code, of a person described in subparagraph
(A) or (B), or an assignee ofa person described in subparagraph (A) or (B).
(4) For purposes of this section, a "proper election" shall be established
when the retailer that reported the tax and the lender prepare and retain an
election form, signed by both parties, designating which party is entitled to
claim the deduction or refund. This election may not be amended or revoked
unless a new election, signed by both parties, is prepared and retained by
the retailer and the lender.
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94
Board of Equalization
State of California Memorandum
To Ms. Cynthia Bridges
Executive Director, MIC: 73
Date:
July 25, 2013
~ L-r::;i Ei2:s
From
~, Chief Counsel
Legal Department, MIC: 83
Subject : Board Meeting, August 13, 2013
Item J - Chief Counsel's Rulemaking Calendar
Regulation 1642, Bad Debts
We request your approval to place proposed changes to Sales and Use Tax Regulation 1642,
Bad Debts, on the Chief Counsel's Rulemaking Calendar for the August 13, 2013, Board
meeting. The proposed changes incorporate and make the regulation consistent with
amendments to Revenue and Taxation Code (RTC) sections 6055 and 6203.5 made by
Assembly Bill No. (AB) 242 (Stats. 2011, ch. 727) and AB 2688 (Stats. 2012, ch. 362).
RTC sections 6055 and 6203.5 allow a retailer to be relieved of liability for the sales or use
tax when the measure of tax is represented by accounts receivable that are held by the
retailer, which have been found to be worthless and charged off for income tax purposes or,
if the retailer is not required to file income tax returns, charged off in accordance with
generally accepted accounting principles. These sections also allow a retailer or lender to
claim a deduction or refund for tax the retailer has previously reported or paid on the portion
of accounts receivable, held by the lender, which is written off as worthless. However,
before the enactment of AB 242, a retailer or lender could only claim a deduction or refund
for accounts receivable held by the lender if, prior to making such claim, the retailer and the
lender filed an election form with the Board, signed by both parties, designating which party
was entitled to claim the deduction or refund for the portion of the accounts receivable which
is written off as worthless.
AB 242 amended RTC sections 6055 and 6203.5 to remove the requirement that the election
form be filed with the Board, and instead required that the lender and retailer prepare, sign,.
and retain the election form prior to claiming the deduction or refund.
AB 2688 amended RTC sections 6055 and 6203.5 to remove the requirement that an election
form be prepared, signed, and retained by the lender and the retailer prior to claiming a
deduction or refund.
We will request the Board's authorization to make the changes to Sales and Use Tax
Regulation 1642 to incorporate and make the regulation consistent with the amendments to
RTC sections 6055 and 6203.5 made by AB 242 and AB 2688 and make minor grammatical
Item J2
08/13/13
Ms. Cynthia Bridges
July 25, 2013
-2-
edits under California Code of Regulations, title I, section (Rule) 100, without the normal
notice and public hearing process. The changes are appropriate for processing under Rule
] 00 because they make the regulation consistent with the statutory changes made by AB 242
and AB 2688, make other minor grammatical edits, and do not materially alter any
requirement, right, responsibility, condition, prescription or other regulatory element of any
California Code of Regulations provision.
Attached is a strikeout and underlined version of the regulation illustrating the proposed
changes.
If you have any questions regarding this request, please let me know or contact Mr. Bradley
Heller at 916-323-3091.
Approved:
Approved:
BOARD APPROVED
At the JBoard Meeting
/13/13
9&tt~1~ ;({d'#J~
Joan1iRkhmond, Chief
Board Proceedings Division
Attachments
cc: Mr. Jeffrey L. McGuire MIC: 43
Ms. Joann Richmond MIC: 80
Mr. Robert Tucker MIC: 82
Ms. Susanne Buehler MIC: 92
Mr. Bradley M. Heller MIC: 82
Ms. Kirsten Stark MIC: 50
Mr. Clifford Oakes MIC:50
Ms. Kim Rios MIC: 50
Text of Proposed Changes to California Code of Regulations, Title 18, Section 1642 Regulation 1642. BAD DEBTS
Reference:
Sections 6055 and 6203.5, Revenue and Taxation Code.
(8) IN GENERAL. A retailer is relieved from liability for sales tax (section 6055 of the Revenue and Taxation
Code) or from liability to collect use tax (section 6203.5 of the Revenue and Taxation Code) insofar as the
measure of the tax is represented by accounts found worthless and charged off for income tax purposes (which
include circumstances where the retailer's income is reported on a related person's income tax return and the bad
debt is charged off on that return) or, if the retailer is not required to file income tax returns and the retailer's
income is not reported on another person's return, charged off in accordance with generally accepted accounting
principles. A retailer may claim a bad debt deduction provided that the sales tax, or amount of use tax, was
actually paid to the state.
This deduction should be taken on the return filed for the period in which the amount was found worthless and
charged off for income tax purposes or, if the retailer is not required to file income tax returns, charged off in
accordance with generally accepted accounting principles.
Failure to take the deduction on the proper return will not in itself prevent the allowance of a refund measured by
an amount for which a retailer could have taken a timely deduction provided a claim for refund is filed with the
b.§oard within the limitation periods speCified in section 6902 ofthe Revenue and Taxation Code.
(b) AMOUNT SUBJECT TO DEDUCTION.
(1) TAXABLE RECEIPTS. If the amount of an account found to be worthless and charged off is comprised in
part of nontaxable receipts such as interest, insurance, repair, or installation labor and in part of taxable receipts
upon which tax has been paid, a bad debt deduction may be claimed only with respect to the unpaid amount upon
which tax has been paid. In determining that amount, all payments and credits to the account may be applied
ratably against the various elements compriSing the amount the purchaser contracted to pay (pro rata method),
may be applied as provided in the contract of sale (contract method), or may be applied by another method which
reasonably determines the amount of the taxable receipts (alternative method). When claiming a bad debt
deduction or refund using an alternative method, the retailer must include a clear explanation of that method
along with the claiming of the deduction or refund. After having applied payments and credits using one method
and claiming a deduction or refund based on such method, a retailer shall not thereafter reapply the payments or
credits using another method with respect to such losses previously claimed.
(2) EXPENSES OF COLLECTION. No deduction is allowable for expenses incurred by the retailer in
attempting to enforce collection of any account receivable, or for that portion of a debt recovered that is retained
by or paid to a third party as compensation for services rendered in collecting the account.
(c) REPORTING. All retailers must report sales tax liability on an accrual basis. Bad debt deductions will not be
disallowed solely for the reason that a retailer is on a cash reporting basis for income tax purposes.
(d) WORTHLESS ACCOUNT SUBSEQUENTLY COLLECTED. If any account found worthless and charged off
is thereafter collected by the retailer, in whole or in part, the taxable percentage of the amount so collected shall
be included in the first return filed after such collection and tax shall be paid on such amount with the return. The
same percentage of the account which the retailer claimed as an allowable bad debt deduction or refund shall be
used to determine the taxable percentage of the recovery. The taxable percentage of any amounts received from
a third party for the sale of an account after the retailer has found them to be worthless and has claimed a bad
debt deduction or refund are regarded as amounts subsequently collected for purposes of this provision, and the
retailer must include such amounts in the first return filed after receipt of such amounts and pay tax thereon.
(e) RECORDS. In support of deductions or claims for refund for bad debts, retailers must maintain adequate and
complete records showing:
(1) Date of original sale.
(2) Name and address of purchaser.
(3) Amount purchaser contracted to pay.
(4) Amount on which retailer paid tax.
(5) The junsdiction(s) where the local taxes and, when applicable, district taxes were allocated.
(6) All payments or other credits applied to account of purchaser.
(7) Evidence that the uncollectible portion of gross receipts on which tax was paid actually has been legally
charged off as a bad debt for income tax purposes (whether or not the income tax return has yet been filed) or, if
the retailer is not required to file income tax returns and the retailer's income is not reported on another person's
return, charged off in accordance with generally accepted accounting principles.
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(8) The taxable percentage of the amount charged off as a bad debt properly allocable to the amount on which
the retailer reported and paid tax. (See Appendix 1.)
(f) ALLOWABLE METHODS OF COMPUTING LOSS.
(1) IN GENERAL. When there is a repossession, a bad debt deduction is allowable only to the extent that the
retailer sustains a net loss of gross receipts upon which tax has been paid. This will be when the amount of all
payments and credits allocated to the purchase price of the merchandise, including the wholesale value of the
repossessed article, is less than that price. If the pro rata method is used to apply payments, a retailer incurs an
allowable bad debt deduction if the wholesale value of the repossessed merchandise is less than the net contract
balance (after excluding unearned insurance and finance charges) at the date of repossession. If the contract
method is used to apply payments, a retailer incurs an allowable bad debt deduction if the wholesale value of the
repossessed merchandise is less than the net contract balance at the date of repossession. An alternative
method of computing a bad debt loss may be used sUbject to approval by the Board.
(2) METHOD OF COMPUTING LOSS - PRO RATA METHOD.
(A)
LOSS PER RECORDS. The loss per records is the bad debt loss the retailer writes off for income tax
purposes. An estimate of bad debt losses based in part upon the history of the business or industry averages, may
not be used to claim bad debt deductions or refunds for sales and use tax purposes.
(B)
TAXABLE PORTION OF LOSS PER RECORDS. Only that portion of a bad debt loss attributable to the
amount on which the retailer paid tax may be used to claim a bad debt deduction or refund for sales and use tax
purposes. Even an account with all sales subject to tax may include some amounts on which tax was not paid, such
as the tax or tax reimbursement charged to the consumer which is included in the account balance. The percentage
of loss on which tax was paid for an account which is secured by the merchandise purchased, or which represents a
Single purchase of a significant amount, should be calculated on an actual basis. The percentage of loss on which
tax was paid for accounts involving a large volume of small transactions may be calculated based on an analysis of
the composition of the accounts receivable. All accounts of the retailer for which this calculation is made should use
the same method of applying payments for the calculation (e.g., use FIFO for all accounts or use LIFO for all
accounts). Examples using the pro rata method are attached as Appendices 1 and 2.
(3) METHOD OF COMPUTING LOSS CONTRACT METHOD. The allowable bad debt deduction is calculated
by subtracting all payments and credits from the purchase price of the merchandise pursuant to the method of
applying payments set forth in the applicable contract(s) with the customer and, to the extent the contract is silent
on the method of applying payments, the loan accounting systems used by the retailer in the ordinary course of
business, and from that amount subtracting the proceeds of the sale of any repossessed merchandise in
accordance with (4) below.
(4) DETERMINING THE WHOLESALE VALUE OF REPOSSESSED MERCHANDISE. The wholesale value of
repossessed merchandise must be determined in order to calculate the allowable bad debt deduction, if any, for
the account. When the retailer sells the repossessed merchandise to a reseller in an arm's length transaction, the
amount the retailer receives for the sale, less the direct cost of reconditioning the property prior to that sale and
direct auction expenses paid to a third party, is the wholesale value. Otherwise, other sources must be used to
determine the wholesale value. In the case of automobiles, industry-recognized price guides are generally the
best source of such information. Adjustments should be made to the published wholesale prices in those
instances where the automobile is in other than average condition.
Establishing the wholesale value of other types of repossessed merchandise, such as jewelry, furniture,
appliances, etc., presents a more difficult problem if the retailer does not sell the merchandise to a reseller in an
arm's length transaction. Each case must be considered on its own merits. Generally, if the retailer places the
repossessed property into resale inventory, the retailer should use the amount at which the merchandise is
recorded in resale inventory as its wholesale value. This amount should not. however, include any costs of
repossessing, reconditioning, or other expense to put the merchandise in saleable condition.
(5) CONSOLIDATION OF NUMEROUS REPOSSESSED ITEMS. Retailers who have several repossessions
each reporting period will find it convenient and time saving to consolidate the pertinent data. When this is done,
only one calculation for each set of transactions need be made to compute the allowable deduction. The
consolidations may be made by using 15-column working paper with one column for each of the elements
required to compute the deduction (see Appendix 2).
Only those repossessions on which a loss is incurred should be scheduled. The retailer may quickly determine
whether a particular transaction should be scheduled by comparing the net payoff with the wholesale value of the
merchandise. If the net payoff is greater, a loss has been suffered and the transaction should be scheduled.
(g) BAD DEBT LOSSES OTHER THAN REPOSSESSIONS. Allowable bad debt deductions or refunds also
may arise from sales made on an open account or on an unsecured installment basis. The deduction or refund
should be computed in substantially the same manner as those involving repossessions (Le., by prorating all
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payments or credits between the sales price of the merchandise on which the retailer paid tax and the nontaxable
charges or by applying all payments and credits as provided in the contract of sale and, if the contract is silent,
the loan accounting systems used by the retailer in the ordinary course of business). No deduction or claim for
refund will be allowed in any period subsequent to the period in which a bad debt deduction is taken based on a
method of calculating the bad debt deduction different from that originally used in calculating the bad debt
deduction.
(h) SPECIAL SITUATIONS.
(1) BAD DEBT DEDUCTIONS FOR PERSONS OTHER THAN THE RETAILER OR LENDER.
(A) A successor who pays full consideration for receivables acquired from the predecessor is entitled to a bad
debt deduction to the same extent that the predecessor would have been entitled had the predecessor continued
the business. A 'successor" for purposes of this provision is one who is required by Revenue and Taxation Code
section 6811 to withhold sufficient of the purchase price of Ihe subject business to cover amounts due from the
seller of the business under the Sales and Use Tax Law. A predecessor may not claim a bad debt deduction for
any transaction or account for which a successor is entitled te: a bad debt deduction under this provision.
(8) Except as provided in subdivision (h)(1)(A) and subdil/ision (i), a purchaser of receivables cannot claim a
bad debt deduction or refund for accounts which are not collt~l:;ted.
(C) A retailer who sells receivables with recourse so that the retailer will bear any bad debt loss on them is
entitled to a bad debt deduction to the same extent as if the ;(lceivables had not been sold. The fact that a retailer
sells receivables at a discount, however, with or without remurse, does not in itself entitle the retailer to a bad
debt deduction to the extent of the discount.
(2) BAD DEBTS OF CONSTRUCTION CONTRACTORS.
A construction contractor who is a consumer of materials or fixtures, or both, under Sales and Use Tax Regulation
1521 cannot claim a bad debt deduction or refund with mspect to such materials or fixtures. A United States
construction contractor as defined in subdivision (a)(3) of Regulation 1521 is always the consumer of both materials
and fixtures, and thus can never claim a bad debt deduction or refund with respect to such materials or fixtures. A
construction contractor, other than a United States construction contractor, is generally the consumer of materials,
and thus may claim a bad debt deduction with respect tr; materials only when the contractor is regarded as selling
those materials under subdivision (b)(2)(A)2. of Regu~:Jtion 1521. A construction contractor, other than a United
States construction contractor, is the retailer of fixtures and thus may claim a bad debt deduction or refund with
respect to its retail sales of such fixtures. A construct/In contractor incurring a bad debt loss for which it is entitled to
a bad debt deduction or refund as just explained mll.it claim the deduction or refund in the same manner as those
resulting from other types of taxable retail sales ofta,lgible personal property.
(3) ENTITY AFFILIATED WITH RETAILER. The f):ovisions of this subdivision (h)(3) apply only with respect to
bad debt losses incurred on accounts created as a r:asult of retail sales of tangible personal property for which the
retailer remitted California sales or use tax on or after January 1, 2000.
(A) If a retailer wishes to assign to a person viflo is its affiliated entity under section 1504 of Title 26 of the
United States Code the right to claim a doduction or refund for the amount of bad debts for which the
retailer is otherwise entitled to a deductioll or refund, the retailer and the affiliated entity must file an
election with the Board prior to the affiliated \!ntity's claiming of any deduction or refund. This election filed
with the Board must include all the following lilements:
1. The name, address, and seller's permit numher of the retailer who reported or will report the tax; and the
name, address, and seller's permit number of the affiiated entity of the retailer to whom the assignment is made.
2. A statement clearly specifying that the affiliat~d entity is entitled to any (and all) deductions or refunds as a
result of any bad debt losses charged off on the acwunt(s) covered by the election and the effective date of that
election, and a statement that the retailer relinquishes all claims to such deductions or refunds.
3. A list of accounts to which the election pertains.
4. The agreement of the retailer to furnish any and all documentation required by the Board to support the
claiming of deductions or refunds by the affiliated entit)'.
5. The acknowledgement by both the retailer and its affiliated entity that the Board may disclose relevant
confidential information to all parties involved in order to support and confirm any deductions or refunds claimed.
6. A statement that the election may not be amended or revoked unless a new election signed by both the
retailer and its affiliated entity is filed with the Board.
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7. The acknowledgement by the affiliated entity that it cannot further assign the right to claim a deduction or
refund for bad debts charged off on the account.
8. The dated signatures of the retailer and its affiliated entity, or their authorized representatives. If a copy of the
signed election is filed with the Board rather than the original, the affiliated entity must retain the election with the
original signatures.
(B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and (i» includes an entity
affiliated with a retailer under section 1504 of Title 26 of the United States Code with respect to those accounts for
which the affiliated entity is the person entitled to the bad debt deduction or claim pursuant to an election filed
under this subdivision (h)(3).
(i) BAD DEBTS INCURRED IN CONNECTION WITH ACCOUNTS HELD BY LENDERS. The provisions of this
subdivision (i) apply only with respect to bad debt losses incurred on accounts created as a result of retail sales of
tangible personal property for which the retailer remitted California sales or use tax on or after January 1, 2000.
(1) LENDER DEFINED. A "lender" for purposes of this regulation is defined as any of the following:
(A) A person who holds an account which that person purchased without recourse directly from a retailer who
reported Califomia sales or use tax with respect to the sales of tangible personal property for which credit was
extended under the retail account.
(B) A person who holds an account without recourse pursuant to that person's contract directly with a retailer
who reported California sales or use tax with respect to the sales of tangible personal property for which credit
was extended under the retail account.
(C) A person who is either an affiliated corporation (or affiliated entity electing to be taxed as a corporation)
under section 1504 of Title 26 of the United States Code or an assignee of a person described in subdivision
(i)(1 )(A) or (i)(1 )(B). A person is a "lender" under this subdivision (i)(1)(C) only if an election is fileGprepared and
retained under subdivision (i)(4).
(2) CONDITIONS TO CLAIMING DEDUCTION OR REFUND. With respect to an account held by a lender without
recourse, a deduction or refund may be claimed for bad debt losses on the account only if all of the following
conditions are met:
(A)
NaA deduction or refund was not previously claimed or allowed on any portion of the account.
(B) The account has been found worthless and charged off by the lender for income tax purposes (which
include circumstances where the lender's income is reported on a related person's income tax return and the bad
debt is charged off on that return) or, if the lender is not required to file income tax returns and the lender's
income is not reported on another person's return, charged off in accordance with generally accepted accounting
principles.
(C) The contract between the retailer and the lender under which the lender has the right to the account contains
an irrevocable relinquishment of aI/ rights to the account from the retailer to the lender.
(D) The account is for sales for which the retailer remitted Califomia sales or use tax on or after January 1, 2000.
(E) The retailer and the lender fileprepare and retain an election '....ith the Boam, signed by both parties, which
contains the elements specified in subdivision (i)(3) and wJ::H6R-designates either the r:etailer or the lemler as the
peFS9Rwhich party is entitled to claim any deduction or refund under this regulation for tax previously paid by the
retailer measured by the amount of the account found to be worthless and charged off. No seSYctioR or refuRs caR be
claimed YRtil this eleetieR is files with the Board.
(3) ELECTION BETWEEN RETAILER AND LENDER.
(A) In order for the retailer or the lender to claim a deduction or refund for bad debt losses from an account held by
the lender without recourse, the retailer and the lender must fileprepare and retain an election .....ith the
8eafQdesignating which of them may claim such deduction or refund, The election may be in any form, including an
existing contract between the retailer and the lender, so as long as the election contains the following elements:
1. The name, address, and seller's permit number of the retailer who reported or wilt report the tax and the
name, address, and seller's permit number, if any, of the lender to whom the account(s) is assigned.
2. An agreement that the retailer relinquishes all rights to the account to the lender.
3, A statement clearly specifying whether the retailer or the lender is entitled to claim any (and all) deductions
or refunds as a result of any bad debt losses charged off by the lender for the account(s) covered by the election,
4 of 10
the effective date of that election, and a statement that the other party relinquishes all rights to claiming such
deductions or refunds.
4. A list of accounts to which the election pertains. If the election is a blanket election for all accounts
assigned without recourse by the retailer to the lender or all accounts held by the lender without recourse
pursuant to the lender's contract directly with the retailer, the election must so state.
5. The agreement of both the retailer and the lender to furnish any and all documentation requested by the
Board to support the deductions or refunds claimed.
6. The acknowledgement by both the retailer and the lender that the Board may disclose relevant confidential
information to all parties involved in order to support and confirm any deductions or refunds claimed.
7. If the lender is the person entitled to claim any deduction or refund for bad debts on the account, the
Certificate of Registration - Lender account number of the lender. If the lender does not yet hold such a
registration, the agreement of the lender that it will apply for the Certificate of Registration - Lender no later than
on the date the lender first claims a deduction or refund for bad debts charged off on the account.
8. A statement that the election may not be amended or revoked unless a new election... signed by both
parties. is prepared and retained by the retailer and the lender is filed ....Ath the 80arEi.
9. The date of the election and the signatures of the retailer and the lender, or their authorized representatives. #
a copy of the signed eleetien is filed witR the 8eard Father than tRe original. tThe person with the right under the
election to claim the bad debt deduction or refund must retain the election with the original signatures. An election
may be signed in counterparts, anEi its filing 'NoI:lIEI be FegardeEi as ~erfeeteEi as of the filing of the seCORd signec:l
oel:lnterpart, provided each counterpart is identical except for the signature and date of the Signature. If GO~ies of the
signeEi GOl:lnteF~arts are filed with the 8earEl, tIhe person with the right under the election to the bad debt deduction
or refund must retain all counterparts with the original signatures Ret filed 'Nith the 80ard.
(B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and (i» includes a lender
with respect to those accounts for which the lender is the person entitled to the bad debt deduction or claim
pursuant to an election fi!eQ...under this subdivision (i)(3).
(4) ELECTION BETWEEN LENDER AND AFFILIATED ENTITY OR OTHER ASSIGNEE.
(A) If a person who is a lender under subdivision (i)(1}(A) or (i)(1)(B) and who has the right to claim any
deduction or refund for bad debts the lender charges off on the account wishes to assign to a person who is its
affiliated entity under section 1504 of Title 26 of the United States Code or to some other assignee the right to
claim any deduction or refund for the amount of bad debts charged off on the account, the lender and the affiliated
entity or other assignee must fileprepare and retain an election signed by both partieswith the 80arc:l ~riar to tRe
affiliatec:l entity's er atRer assignee's claiFAing of aRY deEll:lotion or raklRd. The election filec:l with the 80am may be
in any form, but must include all the following elements:
1. The name, address, and seller's permit number of the retailer who reported or will report the tax; the name,
address, seller's permit number, if any, and Certificate of Registration - Lender account number, if any, of the
lender under subdivision (i)(1)(A) or (i)(1)(B) making the aSSignment; and the name, address, seller's permit
number. if any. and Certificate of Registration - Lender account number. if any, of the person to whom the
assignment is made under subdivision (i)(1)(C).
2. A copy of the election between the retailer and the lender under which the lender has the right to any (and
all) deductions or refunds as a result of any bad debt losses charged off by the lender on the account(s). If that
election has not yet been preparedfilec:l witR the 80arEl, then that election must be file9prepared along with the
election between the lender and its affiliated entity or other assignee. ff-tlhe election~ with the original signature~
was retainec:l by the lenc:ler rather tRan filing it with the 80arc:l, IRat eleetion FAl:lst either be filec:l witR tRe Boam
ermust be retained by the affiliated entity or other assignee.
3. A statement clearly specifying that the affiliated entity or other assignee is entitled to any (and all)
deductions or refunds as a result of any bad debt losses charged off on the account(s) covered by the election
and the effective date of that election, and a statement that the lender under subdivision (i)(1 )(A) or (i}(1 )(B)
relinquishes all claims to such deductions or refunds.
4. A list of accounts to which the election pertains. If the election is a blanket election for all accounts held by
the lender, the election must so state.
5. The agreement of the lender to furnish any and all documentation required by the Board to support the
claiming of deductions or refunds by the affiliated entity or other assignee.
5 of 10
6. The acknowledgement by both the lender and its affiliated entity or other assignee that the Board may
disclose relevant confidential information to all parties involved in order to support and confirm any deductions or
refunds claimed.
7. If the affiliated entity or other assignee does not yet hold a Certificate of Registration - Lender, the
agreement that it will apply for that certificate no later than on the date it first claims a deduction or refund for bad
debts charged off on the account.
8. The acknowledgement by the affiliated entity or other assignee that it cannot further assign the right to
claim a deduction or refund for bad debts charged off on the account.
9. A statement that the election may not be amended or revoked unless a new election~ signed by both
parties, is prepared and retained by getR-the lender and the affiliated entity or assignee is filee witA tAe Beare.
10. The date of the election and the signatures of the lender and the affiliated entity or other assignee, or their
authorized representatives. If a oo~y aftAe sigRe6 elestiaR is filee witA tAe Baare ratAer tAaR the erigiRal, tThe person
with the right under the election to claim the bad debt deduction or refund must retain the election with the original
signatures. An election may be signed in counterparts, aRe its filiRg v:9l:1le be regareee as ~erfestee as of tAe filiRfJ af
the seooRe sigRee GeI:lRte~art, provided each counterpart is identical except for the signature and date of the
Signature. If Gopies of tAe sigRee OOI:lRte~arts are filed witA the Beare, tThe person with the right under the election to
the bad debt deduction or refund must retain all counterparts with the original signatures Rat filee with the Baare.
(i»
includes an entity
(B) The term "retailer" as used in this regulation (except as used in subdivisions (h) and
affiliated with a lender under section 1504 of Title 26 of the United States Code, or other assignee, with respect to
those accounts for which the affiliated entity or other assignee is the person entitled to the bad debt deduction or
claim pursuant to an election fileQ..under this subdivision (i)(4).
(5) REGISTRATION, RETURNS. CLAIMS FOR DEDUCTION AND REFUNDS, AND PAYMENT OF TAX.
(A) A retailer who has the right to claim deductions or refunds for bad debts charged off by a lender on an
account held by that lender pursuant to an election fileEl-under subdivision (i)(3) shall claim those deductions or
refunds under the provisions of this regulation in the same manner as if the retailer held the account itself.
(B) Without regard to whether a lender holds a seller's permit for its own sales of tangible personal property, a
lender who has the right to claim deductions or refunds for bad debts charged off on accounts pursuant to an
election fileEl-.under subdivision 0)(3) and, if applicable, subdivision (i)(4), shall register with the Board for a
Certificate of Registration - Lender no later than the date on which it first claims such a deduction or refund.
(C) A lender who has the right to claim deductions or refunds for bad debts charged off pursuant to an election
fileEl-under subdivision (i)(3) and, if applicable, subdivision (i)(4) , is entitled to the same amount of deduction or
refund, calculated in the same manner under the provisions of this regulation, as if the lender were the retailer
who had sold the tangible personal property for which the retailer had reported and paid tax. If the lender has
provided the name, address, and seller's permit number of the retailer responsible for paying the tax, in
determining whether to grant the lender's claim for deduction or refund, the Board shall regard the retailer as
having paid the applicable tax due unless the Board establishes otherwise. (Regardless of the Board's action on
the lender's claim for deduction or refund, a retailer who failed to pay the applicable tax due remains liable for that
tax.)
(D) A lender who claims a deduction or refund for bad debts charged off shall be liable for tax on the taxable
percentage of worthless accounts subsequently collected under subdivision (d), including amounts received for
the sale of accounts for which the lender has claimed a bad debt deduction or refund.
(E) A lender who has a seller's permit for its own sales of tangible personal property may not commingle the
claiming of its deductions pursuant to an election under subdivision (i)(3) and, if applicable, subdivision (i)(4), with
any bad debt deductions related to its own sales of tangible personal property but must instead report such
deductions on a separate return or schedule in the form specified by the Board. If the lender files a schedule
attached to its sales and use tax return, it may apply the amount of its deduction calculated on that separate
schedule against its liability for sales and use tax. To the extent that the deduction is not fully exhausted when
applied to the lender's own sales and use tax liability, the lender may file a claim for refund.
(F) The filing by a lender of a claim for deduction or refund for bad debts on accounts covered by this
subdivision (i) is not valid if an election pursuant to subdivision (i)(3) and, if applicable, an election pursuant to
subdivision (i)(4), has Ret beeR is not prepared and retained that is signed by both parties.filee ...·Ath the Beare.-If..a
leReer files a Glaim fer eeSl:IstieR aF reruRe aRe the a~pliGable eleGtioR(s} is filee thereafter, the Glaim fer eeal:lstisR
eF refI:IRe '/~II be regareee as ha'.'iRg been filee eR tAe eate of the filiRfJ of the elestioR(s).
(G) A lender holding a Certificate of Registration - Lender shall file a return in a form specified by the Board to
report the taxable percentage of recoveries and claim losses on accounts covered by an election pursuant to
6 of 10
subdivision (i)(3) and, if applicable, an election pursuant to subdivision (i)(4). This return shall be filed on a
quarterly basis unless otherwise specified by the Board. The return shall include the taxable percentage of the
amount of any recoveries for which the lender is liable for tax under subdivision (i)(5)(0). The lender may offset
the amount of tax for which it would otherwise be entitled to a bad debt refund for the reporting period against the
amount of tax for which it is liable for the taxable percentage of recoveries received during that same reporting
period. The lender must file a return without regard to whether the lender received any net recoveries of
previously claimed bad debts in the filing period. If the lender files a return under a seller's permit it holds for its
own sales of tangible personal property, the lender must file a separate schedule to report the taxable percentage
of its bad debt recoveries and losses on accounts covered by an election pursuant to subdivision (i)(3) and, if
applicable, an election pursuant to subdivision (i)(4), in a form specified by the Board, as an attachment to the
lender's sales and use tax return rather than filing a separate return for such recoveries and losses.
(H) A lender claiming a deduction or refund for bad debts, or reporting tax on recoveries for accounts for which
it previously claimed a bad debt deduction or refund, must properly allocate the local and district taxes. If the
transactions were approved by the lender on a transaction-by-transaction basis or the lender has the necessary
information to do so, local and district taxes should be allocated on an actual basis. The lender may allocate local
and district taxes related to all other accounts on an appropriate basis subject to approval by the Board.
7 of 10
Appendix 1 EXAMPLE OF COMPUTING ALLOWABLE BAD DEBT DEDUCTION FOR A REPOSSESSED VEHICLE USING PRO RATA
METHOD
l. Step One. Compute the Repossession Loss Per Records
a.
b.
$12,000
~
Retail sales price
Taxuhle fees (i.e.,
12,230
c.
d.
e.
f.
Total amount subject to tax
Sales tax (6%)
License fees
(c*.06)
734
240
---.J!
974
g. h. i. j. k. I. m. n. o. p. q. (a+b)
Total non-taxable charges
Total sales price
Down payment
13,204
2.000
11,204
Balance on contract
Finance charges/accrued interest
3,000
14,204
Total contract value
Payments received on contract
(d+e+f)
(c+g)
(h-i)
(j+k)
--'..1QQ
Balance on date of repossession
Unearned finance charges
Net contract balance
Value of repossession
12,104
(I-m)
2.750
9,354
(n-o)
6.000
~
r.
Repossession loss per records
Step Two. Compute the Taxable Percentage ofLoss.
This is done by dividing the total amount subject to tax (line c) by the total sales price (line h).
12,230/13,204 = 92.62%.
Step Three. Compute the Allowable Deduction.
This is done by multiplying the taxable percentage of loss (step Two) by the repossession loss per records (step One).
*' 3,354 :; ~~~"'-
8 of 10
507
521
540
575
09-30-00
10-27-00
11-04-00
12-09-00
Sales
Tax
(6%)
Sales
Price of
A
Mdse
S1,680
:628,000
(1 )
$ 540
480
360
300
$ 9,000
8,000
6,000
5,000
[cw.06]
(D)
(C)
B
t5.8Q
$200
160
120
100
Insurance
(Net)s
(F)
Includes taxable amounts, such as doc and smog fees.
=$4,251 t5.QO
--...m
$160
140
110
License
Fee
(E)
Original insurance charge less rebate of unearned premium.
C Total finance charges per contract less unearned charges.
A
Computation of Allowable Deduction: 91.03% x $4,670(3)
Computation of the Taxable Percentage of Loss:
$28,000(1) = 91.03%
$30,760(2)
Totals
Car#
Date
Repos­
session
of
(8)
(A)
9 of 10
(2)
S30,Z60
$ 9,900
8,780
6,590
5,490
[C ... F]
Total
Sales
Price
(G)
$ 7,900
. 7,080
5,290
4,390
S2~,660
~
[G-H]
Balance
to
Finance
(I)
$2,000
1,700
1,300
1.100
Down
Payment
(H)
W1Q
$ 400
350
260
~
(Net)
Char~es
Finance
(J)
CONSOLIDATION OF ALLOWABLE BAD DEBT DEDUCTION FOR MULTIPLE
REPOSSESSED VEHICLES USING PRO RATA METHOD
Appendix 2
S25,8Z0
$ 8,300
7,430
5,550
4,590
[I+J]
Net
Contract
Balance
(K)
:65,800
$1,900
1,650
1,250
1,000
Payment
s
(L)
~
:615 ~QQ
(3)
$1,400
1,380
1,000
890
[K-L-M]
Repos­
session
Loss
Per
Records
(N)
$ 5,000
4,400
3,300
2,700
sessio
n
Value
of
Repos
(M)
160
2013 MINUTES OF THE STATE BOARD OF EQUALIZATION
Tuesday, August 13, 2013
CHIEF COUNSEL MATTERS
RULEMAKING
Second Readoption of Emergency Regulation 2000, Retailer Reimbursement
Retention
Bradley Heller, Tax Counsel, Tax and Fee Programs Division, Legal Department,
made introductory remarks regarding staff's request for second readoption of emergency
Regulation 2000 to maintain the status quo while the Board considers the adoption of a
permanent regulation (Exhibit 8.3).
Action:
Upon motion of Ms. Vee, seconded by Mr. Runner and unanimously carried,
Mr. Horton, Ms. Steel, Ms. Yee, Mr. Runner and Ms. Mandel voting yes, the Board readopted
emergency Regulation 2000 as recommended by staff.
Section 100 Changes
Proposed Amendments to Regulation 1642, Bad Debts
Bradley Heller, Tax Counsel, Tax and Fee Programs Division, Legal Department,
made introductory remarks regarding staff's request for authorization to make Rule 100 changes
to make the regulation consistent with amendments to Revenue and Taxation Code sections 6055
and 6203.5 (Exhibit 8.4).
Action:
Upon motion of Ms. Vee, seconded by Ms. Steel and unanimously carried,
Mr. Horton, Ms. Steel, Ms. Yee, Mr. Runner and Ms. Mandel voting yes, the Board approved
authorization to make Rule 100 changes to Regulation 1642, Bad Debts, as recommended by
staff.
PUBLIC HEARING
Proposed Adoption of Sales and Use Tax Regulation 1566.1, Auto Auctions and
Auto Dismantlers (Continued)
Bradley Heller, Tax Counsel, Tax and Fee Programs Division, Legal Department,
made introductory remarks regarding the adoption of a new regulation to implement, interpret,
and make specific the presumption established by Revenue and Taxation Code section 6092.5
(see Exhibit 8.\).
Speakers were invited to address the Board, but there were none.
Action:
Upon motion of Mr. Runner, seconded by Ms. Steel and unanimously carried,
Mr. Horton, Ms. Steel, Ms. Yee, Mr. Runner and Ms. Mandel voting yes, the Board adopted
Regulation 1566.1, Auto Auctions and Auto Dismantlers, as recommended by staff.
Page 1
FORE THE CALIFORNIA STATE BOARD OF EQUALIZATION
450 N STREET
SACRAMENTO, CALIFORNIA
REPORTER'S TRANSCRIPT AUGU
13, 2013 ITEM J CHIEF COUNSEL MATTERS
SECTION 100 CHANGES
PROPOSED AMENDMENTS TO REGULATION 1642, BAD DEBTS
REPORTED BY:
Kathleen Skidgel
CSR NO. 9039
Electronically signed by Kathleen Skidgel (601-100-826-6264)
d2bd2694-de8f-4a93-acbO-f32e2ccc9d71
Page 2
PRE SEN T 1
2
3
For the Board
of Equaliz ion:
Jerome E. Horton
Chairman
4
Michelle Steel
Vice-Chairwoman
5
6
Betty T. Yee Member 7
8
George Runner Member 9
10
Marcy Jo Mandel
Appearing for John
Chiang, State Controller
(per Government Code
Section 7.9)
11
12
13
14
Joann Richmond
Chief, Board Proceedings
Division
15
16
17
Board of
Equalization Staff:
18
Bradley Heller
Legal Department
19
20
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21
22
23
24
25
26
27
28
Electronically signed by Kathleen Skidgel (601-100-826-6264)
d2bd2694-de8f4a93-acbO·f32e2ccc9d71
Page 3
1
450 N STREET
2
SACRAMENTO, CALIFORNIA
3
AUGUST 13, 2013
-
4
5
MS. RICHMOND:
6
100 change; J2,
7
1642, Bad Debts.
-000--­
Our next item is a Section
Proposed Amendments to Regulation
8
MR. HORTON:
Mr. Heller. 9
MR. HELLER:
Thank you. 10
11
12
I'm here to request that the Board authorize staff to complete
e 100 changes to
gulation 1642, bad debts, to make the regul
th recent amendments to
ion
13
consistent
14
Taxation Code that were sponsored by the Board.
15
MS. YEE:
16
MR. HORTON:
17
18
19
second by Member
Revenue and
Move approval. Move approval by Member Yee, eel.
Without obje
ion, Members, such will be
the order.
20
-000­
-
21
22
23
24
25
26
27
28
Electronically signed by Kathleen Skidgel (601-100-826-6264)
d2bd2694-de8f-4a93-acbO-f32e2ccc9d71
Page 4
1
REPORTER'S CERTIFICATE
2
3
State of California
ss
4
5
County of Sacramento
6
7
I, KATHLEEN SKIDGEL, Hearing Reporter for
8
the California State Board of Equalization certify
9
that on August 13, 2013 I recorded verbatim, in
st of my ability, the
10
shorthand, to the
11
proceedings in the above-entitled hearing; that I
12
transcribed the shorthand writing into typewriting;
13
and that the preceding pages 1 through 3 constitute
14
a complete and accurate transcription of the
15
shorthand writing.
16
17
Dated:
August 27, 2013
18
19
20
21
KATHLEEN SKIDGEL, CSR #9039
22
Hearing Reporter
23
24
25
26
27
28
Electronically signed by Kathleen Skidgel (601-100-826-6264)
d2bd2694-de8f-4a93-acbO-f32e2ccc9d71
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