(3) PROCEDURE.
(b)
Bad debts.
1. `Deduction from measure of tax.' A
supplier is relieved from the liability for motor vehicle fuel tax on accounts
which have become worthless and which have met the requirements to be charged
off for income or franchise tax purposes. The bad debt tax deduction shall be
reported and claimed on the supplier's monthly tax report for the month in
which the account becomes worthless. However, if a supplier is out of business
when the account becomes worthless, a bad debt deduction may be claimed on the
last return filed by that business or through a refund claim filed with the
department. A wholesaler distributor may claim a bad debt tax deduction for the
amount of tax liability for motor vehicle fuel tax on sales to other wholesaler
distributors or retail dealers on accounts which have become worthless and
which have met the requirements to be charged off for income or franchise tax
purposes by filing a refund claim with the department. A claim for refund
relating to a worthless account must be filed within 4 years of the 15th day of
the 4th month following the close of the supplier's or wholesaler distributor's
calendar or fiscal year within which the account becomes worthless.
Examples:
1) An account of a supplier who is still in
business becomes worthless and meets the requirements to be charged off for
income or franchise tax purposes on January 10, 2011. The supplier may claim a
bad debt deduction on the motor vehicle fuel tax return, form MF-002, filed for
the month of January 2011, even though the bad debt deduction may not be
claimed for income or franchise tax purposes until the 2011 income or franchise
tax return is filed in 2012.
2)
Assume the same facts as in Example 1, except the account is that of a
wholesaler distributor. Irrespective of when the wholesaler distributor files
the income or franchise tax return on which the bad debt deduction is claimed,
the wholesaler distributor may file a claim for refund to recover the
uncollected motor vehicle fuel tax any time between January 10, 2011 and April
15, 2016.
2. `Recovery
of bad debts charged off.' If a bad debt deduction has been claimed by a
supplier or wholesaler distributor for an account found worthless and charged
off and the account is thereafter in whole or in part collected by the supplier
or wholesaler distributor, the bad debt deduction shall be repaid to the
department. A supplier shall report the amount so collected in the first tax
report, form MF-002, filed after the collection, and the tax on the amount
collected shall be paid with the report. A wholesaler distributor shall file a
corrected refund claim and pay the tax collected within 30 days of
collection.
3. `Amount deductible.'
a. A deduction may only be claimed for the
unpaid amount of tax on an account found worthless and charged off. The total
amount charged off may include the cost of the fuel, interest, financing or
insurance costs in addition to the tax amount. To determine the unpaid amount
of tax to be deducted, all payments and credits to the account shall be
prorated to the various components of the total amount that the purchaser
contracted to pay.
Example: At the time when the tax rate is
30.9¢ per gallon, Supplier A sells 8,000 gallons of gasoline to Company B.
Company B has an agreement with Supplier A to delay payment of the tax. The
amount of the contract is $12,942, consisting of tax, $2,472, and the cost of
fuel, $10,470. Company B defaults and discontinues operations, leaving a
balance due Supplier A of $2,100, which includes interest of $200 not included
in the contract amount. The deductible tax loss is $363, computed as
follows:
|
Contract amount
|
$12,942
|
|
Unpaid contract amount
|
-1,900
|
|
Paid contract amount
|
$11,042
|
|
Portion constituting tax*
|
x.191
|
|
Tax paid
|
$2,109
|
b. No
deduction may be allowed for expenses incurred by a supplier or wholesaler
distributor in attempting to collect any account receivable, or for that
portion of a debt recovered that is reclaimed by or paid to a third party as
compensation for services rendered in collecting the account.
4. `Special situations.' A
purchaser of receivables may not claim a bad debt deduction for the motor
vehicle fuel tax on receivables that subsequently become worthless.
5. `Repossessions.' When motor vehicle fuel
is repossessed a tax deduction may be allowed only to the extent that the
supplier or wholesaler distributor sustains a net loss upon which tax was
paid.
(c)
Tax
rate change. If a deduction for uncollectible tax is claimed in a
period when the tax rate is different from the tax rate in effect when the tax
was reported on the tax report, an adjustment to the gallons claimed shall be
made to compensate for the tax rate differential. The number of gallons to
claim is computed by dividing the old tax rate by the new tax rate and
multiplying that percentage by the gallons sold.
Example: If tax was reported on an 8,000 gallon
sale when the tax rate was 23.2¢ per gallon and a deduction was taken at a
24¢ rate, only 7,733 gallons may be claimed on the monthly supplier's tax
report; [23.2 24] x 8,000 = 7,733.
