Maine - Retailer Not Entitled to Bad Debt Sales Tax Credit

Tri-State Tax Alert

From our offices in Boston, Portland, and Portsmouth, Pierce Atwood’s State and Local Tax Group provides litigation, planning, transaction, regulatory, and legislative services to business, associations, and individuals on all Massachusetts, Maine, and New Hampshire tax issues and development incentives. 


Retailer Not Entitled to Bad Debt Sales Tax Credit

The Supreme Judicial Court denied a retailer’s claim of a bad debt sales tax credit for sales made to customers that were eventually charged off as worthless debt. Me. Rev. Stat. Ann. 36 § 1811-A allows for a credit for the taxes paid on sales accounts charged off as worthless. However, the retailer had a financing agreement with a third-party creditor that applied when customers made purchases using a payment plan.  Under the agreement, the retailer received full payment for the goods, including sales tax, and the third-party creditor assumed the right to collect payment, including sales tax and interest, for the goods purchased.  The third party creditor took the risk of a lack of payment, not the retailer.  Based on the plain reading of the statute, the retailer did not qualify for the bad debt sales tax credit because the third-party creditor wrote off the debt and the retailer was fully compensated for the purchases.  Sears, Roebuck & Co. v. State Tax Assessor, Me. Sup. Jud. Ct., Dkt. No. BCD-11-597 (Aug. 28, 2012).

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