Taxpayer Who Has the Legal Liability to Remit the Sales Tax on the Retail Sales is Entitled to the Bad Debt Deduction
In Home Depot USA, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 301341, May 24, 2012 a retailer that entered into private label credit card (PLCC) agreements with certain finance companies was entitled to a bad-debt deduction for Michigan sales taxes remitted on purchases made by PLCC holders who later failed to pay their credit-card bills because the taxpayer met the requirements set forth in the applicable statute, MCL 204.54i(1)(e).
The taxpayer sought a refund of taxes paid between September 1, 1999, and January 31, 2007, despite having received compensation for the purchases and the tax pursuant to its contracts with the finance companies. In Daimler Chrysler Service of North America, LLC v. Department of Treasury, Michigan Court of Appeals, No. 264323, July 25, 2006, the court held that parties acting in concert could be viewed as a unit for purposes of the bad-debt statute. In amending the statute in 2007, the Legislature did not expressly override this conclusion but merely stated that only the retailer was entitled to the bad-debt deduction for periods on or before September 30, 2009. The taxpayer in the present case did have the legal liability to remit the sales tax on the retail sales for which the bad-debt deduction is recognized for federal income tax purposes. The fact that the finance companies wrote off the bad debts did not diminish the taxpayer's qualification under the statute. According to the principles of Daimler Chrysler, the finance companies' actions in writing off the debts satisfied the requirements of MCL 204.54i(2).