TIR 07-3: Sales Tax Bad Debt Credit Statute - Household Credit Services, Inc. v. Commissioner of Revenue
On January 16, 2007, the Supreme Judicial Court [SJC] decided the case of Household Credit Services, Inc. v. Commissioner of Revenue, ______ Mass. _______ (2007). Household Credit Services, Inc. [Household] had purchased for value certain credit accounts from vendors of retail goods. The Court held that Household was not entitled to claim the credit for sales taxes paid under the bad debt reimbursement statutes, G.L. c. 64H, § 33, 64I, § 34, when the accounts were later determined to be worthless. This TIR sets forth the Department’s response to that case.
II. THE STATUTE AND CASE
Under G.L. c. 64H, § 33,
Any vendor who has paid to the commissioner an excise under this chapter upon a sale for which credit is given to the purchaser, and such account is later determined to be worthless, shall be entitled to reimbursement without interest of the excise paid on such worthless account.
The sole issue in the case was whether Household, a financial services company that contractually obtained a retailer's rights to certain consumer credit accounts, was entitled to a reimbursement of sales tax on the consumer accounts subsequently determined to be worthless. Household argued that it was so entitled because, as an assignee of the debts, it "stepped into the shoes" of the assignor vendors, whose right to tax recovery under the bad debt statute would have been unquestioned had those vendors continued to hold receivables they then properly wrote off as uncollectible. The Appellate Tax Board denied Household’s claim because it was not itself a vendor as required by the statute and the SJC affirmed, stating that “[r]esolution of this case turns on whether Household, as assignee of the accounts at issue, may be considered a ‘[v]endor’ under the bad debt statute. See G.L. c. 64H, § 1. . . . We conclude that the board correctly held that the term ‘vendor’ did not apply to Household, which did not collect the sales tax from the consumers or remit those taxes to the Commonwealth, and which was not engaged in selling the underlying goods to the consumers who later defaulted on their credit accounts.” Id. at ________, and fn.2.
Household Credit Services, Inc. reaffirms the Department’s longstanding position with respect to claims for reimbursement under the worthless accounts statute. See e.g., TIR 00-3. In the Department‘s view, a claimant must (1) have been a vendor within the meaning of the statute, see G.L. c. 64H, § 1; (2) must have been the original vendor of the particular good or services upon which the excise under G.L. c. 64H was due; and (3) must have collected and remitted the tax sought to be reimbursed to the Commonwealth. The Department will entertain no claim for reimbursement under the statute unless all these conditions are satisfied. The filing and other procedural requirements of TIR 00-3, Claiming the Bad Debt Reimbursement, remain in force.
Commissioner of Revenue
February 15, 2007