BILL ANALYSIS �
AB 2271
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Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2271 (Perea) - As Amended: March 29, 2012
Majority vote. Fiscal committee.
SUBJECT : Sales and Use Tax Law: worthless accounts
SUMMARY : Provides that a "bad debt" deduction or refund shall
not be disallowed solely because a proper election was not
established before claiming the deduction or refund.
Specifically, this bill provides that a "bad debt" deduction or
refund shall not be disallowed solely on the ground that a
proper election was not established prior to claiming the
deduction or refund if a proper election was established after
claiming the deduction or refund.
EXISTING LAW :
1)Relieves retailers from sales and use tax (SUT) liability on
transactions that were reported on a retailer's SUT return,
but which were subsequently found to be worthless and written
off for income tax purposes. If a retailer is not required to
file income tax returns, the law allows a bad debt deduction
if the amount is charged off in accordance with generally
accepted accounting principles.
2)Provides that, in the case of accounts held by a lender, a
retailer or lender who makes a proper election, shall be
entitled to a deduction or refund of the SUT that the retailer
has previously reported and paid if the following conditions
are met:
a) No deduction was previously claimed or allowed on any
portion of the accounts;
b) The accounts have been found worthless and written off
by the lender;
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; and,
AB 2271
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d) The party electing to claim the deduction or refund
files a claim in a manner prescribed by the State Board of
Equalization (BOE).
FISCAL EFFECT : The BOE notes, "While enactment of this proposed
change in law would allow additional refunds or deductions that
are not currently allowable, it would not result in a revenue
loss per se. These are amounts that would otherwise be subject
to refund or eligible for a deduction that the claimant failed
to obtain the election form claim."
COMMENTS :
1)The BOE notes the following in its staff analysis of AB 2688
(Committee on Revenue and Taxation), of the current
legislative session, which contains nearly identical
provisions:
The purpose of this revision is to address an unintended
consequence that has resulted in situations where the
lenders have failed to file properly completed election
forms when claiming the deduction or refund. In such
cases, the claim for deduction or refund is not considered
valid. Currently, staff allows the claimant to prepare and
file a proper election form after the claim for deduction
or refund is filed, but will not consider the claim valid
until such time as the election form is filed (see
Regulation 1642 (i)(5)(F), which interprets and explains
these provisions). Consequently, if an election form is not
filed by the lender within the general limitations period
for which a claim for refund or credit may be accepted as
timely under the law, the BOE is barred from accepting the
claim for deduction or refund for those periods that fall
outside the statute of limitations for filing refund claims
pursuant to Section 6902 (even if the claim itself was
filed within the limitations period). Consequently, staff
has disallowed otherwise valid claims for deductions or
refunds by lenders for periods beyond the limitations
period.
This bill would delete the requirement that the election
form be prepared and retained prior to claiming a deduction
or refund. Therefore, the date of filing of a proper
election will have no �effect] on the date of filing of the
claim for a deduction or refund. Even where the lender
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files a proper election form outside the limitations
period, the timeliness of the claim will still be
determined by the date of filing of the claim itself.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098