Senate Bill S5852

2011-2012 Legislative Session

Relates to the refund of certain taxes paid on certain credit card acounts determined to be worthless

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Archive: Last Bill Status - In Senate Committee Investigations And Government Operations Committee

Introduced
- In Committee Assembly
- In Committee Senate
- On Floor Calendar Assembly
- On Floor Calendar Senate
- Passed Assembly
- Passed Senate
Delivered to Governor
Signed By Governor

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Date of Action	Assembly Actions - Lowercase Senate Actions - UPPERCASE
Jan 04, 2012	referred to investigations and government operations
Jun 23, 2011	referred to rules

2011-S5852 (ACTIVE) - Details

Current Committee:: Senate Investigations And Government Operations
Law Section:: Tax Law
Laws Affected:: Amd §1132, Tax L

2011-S5852 (ACTIVE) - Summary

Relates to the refund of sales and compensating use taxes paid on certain credit card accounts determined to be worthless.

2011-S5852 (ACTIVE) - Sponsor Memo

                                BILL NUMBER:S5852

TITLE OF BILL:
An act
to amend the tax law, in relation to the refund of sales and
compensating use taxes paid on certain credit card accounts determined
to be worthless

PURPOSE:
To clarify that a retailer or lender may elect to claim a sales tax
refund, deduction or credit when sales tax is paid up front on the
entire amount of the sales price of a taxable item in an installment
or credit sale and a portion of the purchase price is charged off by
the lender as uncollectible for federal income tax purposes.

SUMMARY OF PROVISIONS:
This bill amends Section 1132 of the Tax Law by adding a new
subdivision (e-1) to clarify that a retailer or lender may claim a
sales tax refund on an account that has been charged-off for federal
income tax purposes.

JUSTIFICATION:
New York State Law requires a retailer to remit sales tax from credit
sales on its monthly returns prior to receiving payment from the
customer. However, longstanding New York State policy has permitted
retailers to claim a refund for sales taxes already paid on debts

that were subsequently charged off as uncollectible for Federal
Income Tax purposes. Sales tax in New York is imposed on the
consumer, with the retailer merely acting as a collection agent for
the State. When the customer defaults on their obligation, the
State's longstanding policy has been to refund the previously
remitted sales taxes to the retailer.

Prior to 2006, the sales and use tax law and regulations permitted a
taxpayer to claim a refund of sales tax remitted by the retailer on
defaulted accounts when the following three requirements were met:

* the taxpayer is the original retailer of a taxable product or service;
* the purchaser defaults on the financial obligation; and,
* the purchaser's debt is charged off on the taxpayer's retailer books.

However, the retail credit market has evolved over the years. More and
more retailers have contracted with third party private label credit
card lenders to operate and service their store credit cards. Private
label credit card companies typically handle all transactions with
retail customers, including issuing the credit card in the name of
the retailer, mailing the monthly bills and collecting payments. The
private label credit card can only be used in the retail
establishment for which it is issued.

When a retailer contracts with a third party private label credit card
lender, neither the retailer nor the private label credit card lender
satisfies all three requirements for receiving a refund of sales
taxes paid. The original retailer no longer holds the accounts, so it
cannot make the claim. Further, the third party private label credit
card lender, which wrote off the accounts, is not the original


retailer. Therefore, the State receives a windfall of sales tax
associated with these bad debts.
In 2006, the NYS Legislature recognized these developments and
unanimously passed (and the Governor signed into law) what is
referred to as the "Bad Debt Law." The law specified that either a
retailer or its third party private label credit card lender could
claim a sales tax refund when it pays sales tax up front on behalf of
a customer on the cost of a purchase only to have the purchaser then
default on all or part of a debt.

The 2006 law corrected inequities that existed in the sales and use
tax law by updating the statute to reflect these current commerce
practices and allow financial stakeholders to recover sales tax on
worthless accounts (i.e., debts that are charged off as uncollectible
for Federal Income Tax purposes). The intent of the law is to provide
relief to retailers and lenders who unjustly suffer an economic loss
when they ultimately fail to collect amounts upon which the
retailer/lender has essentially advanced the sales tax to the State
on behalf of the purchaser.

However, given the State's difficult financial situation in 2010, the
2006 law was repealed. This legislation would reinstate the "bad
debt" law as it was originally properly intended.

LEGISLATIVE HISTORY:
Originally passed the NYS Legislature by unanimous vote in 2006
(Chapter 664 of 2006).
Repealed in 2010-11 NYS Enacted Budget (Chapter 57 of 2010, Part W)

FISCAL IMPLICATIONS:
According to the 2010-11 NYS Budget estimates, approximately $18
million per year.
However, since the State of New York is currently keeping these sales
tax payments remitted by the third party private label credit card
but which have not actually been paid by the purchaser, it is
appropriate that this revenue be returned to the appropriate source.

EFFECTIVE DATE:
This act shall take effect on the first of January next succeeding the
date on which it shall have become a law.

2011-S5852 (ACTIVE) - Bill Text download pdf

                            
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5852

                       2011-2012 Regular Sessions

                            I N  S E N A T E

                              June 23, 2011
                               ___________

Introduced  by  Sen.  FARLEY -- read twice and ordered printed, and when
  printed to be committed to the Committee on Rules

AN ACT to amend the tax law, in relation to  the  refund  of  sales  and
  compensating use taxes paid on certain credit card accounts determined
  to be worthless

  THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. Section 1132 of the tax law is  amended  by  adding  a  new
subdivision (e-1) to read as follows:
  (E-1)  (1)  A  VENDOR  IS  RELIEVED  FROM LIABILITY FOR SALES TAX THAT
BECAME DUE AND PAYABLE, INSOFAR AS THE MEASURE OF THE TAX IS REPRESENTED
BY ACCOUNTS THAT HAVE BEEN FOUND TO BE WORTHLESS  AND  CHARGED  OFF  FOR
INCOME  TAX  PURPOSES BY THE VENDOR OR, IF THE VENDOR IS NOT REQUIRED TO
FILE INCOME TAX  RETURNS,  CHARGED  OFF  IN  ACCORDANCE  WITH  GENERALLY
ACCEPTED  ACCOUNTING  PRINCIPLES.  A VENDOR THAT HAS PREVIOUSLY PAID THE
TAX MAY, UNDER RULES AND REGULATIONS PRESCRIBED BY THE DEPARTMENT,  TAKE
AS A DEDUCTION THE AMOUNT FOUND WORTHLESS AND CHARGED OFF BY THE VENDOR.
IF  SUCH  ACCOUNTS ARE THEREAFTER COLLECTED, IN WHOLE OR IN PART, BY THE
VENDOR, THE AMOUNT COLLECTED SHALL BE INCLUDED IN THE FIRST RETURN FILED
AFTER THE COLLECTION AND THE TAX SHALL BE  PAID  WITH  THE  RETURN.  FOR
PURPOSES OF THIS SUBDIVISION, THE TERM "VENDOR" SHALL INCLUDE ANY ENTITY
AFFILIATED WITH THE VENDOR UNDER 26 U.S.C. S1504.
  (2)  A  VENDOR SHALL BE CONSIDERED THE VENDOR OF THE TANGIBLE PERSONAL
PROPERTY OR SERVICES GIVING RISE TO A WORTHLESS ACCOUNT EVEN THOUGH  THE
PROPERTY  OR  SERVICES  ARE  SOLD  BY  A LEASED DEPARTMENT OR CONCESSION
PROVIDED ALL THE FOLLOWING CONDITIONS ARE MET:
  (I) THE LEASED DEPARTMENT OR CONCESSION ACCOUNTS FOR AND PAYS OVER ALL
OF ITS RECEIPTS TO THE LESSOR-VENDOR;
  (II) THE LESSOR-VENDOR REPORTS AND REMITS TO THE DEPARTMENT THE TAX ON
ALL OF THE LEASED DEPARTMENT OR CONCESSION'S RECEIPTS; AND

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD09743-01-1

S. 5852                             2

  (III) THE TRANSFER OF ALL THE RECEIVABLES FROM THE  LEASED  DEPARTMENT
OR  CONCESSION TO THE LESSOR-VENDOR IS MADE WITHOUT ANY DISCOUNT FOR ANY
CREDIT TRANSACTIONS WHICH INVOLVE THE  LESSOR-VENDOR'S  RECEIVABLES  AND
WITHOUT RECOURSE TO THE LEASED DEPARTMENT OR CONCESSION.
  (3)  (I)  IN THE CASE OF ACCOUNTS HELD BY A LENDER, A VENDOR OR LENDER
WHO MAKES PROPER ELECTION PURSUANT TO SUBPARAGRAPH (IV)  OF  THIS  PARA-
GRAPH  SHALL  BE  ENTITLED  TO A DEDUCTION OR REFUND OF THE TAX THAT THE
VENDOR HAS PREVIOUSLY REPORTED AND PAID IF ALL OF THE  FOLLOWING  CONDI-
TIONS 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  IN  ACCORDANCE  WITH  THE  REQUIREMENTS OF PARAGRAPH ONE OF THIS
SUBDIVISION;
  (C) THE CONTRACT BETWEEN THE VENDOR AND THE LENDER CONTAINS AN  IRREV-
OCABLE  RELINQUISHMENT  OF  ALL RIGHTS TO THE ACCOUNT FROM THE VENDOR TO
THE LENDER; AND
  (D) THE PARTY ELECTING TO CLAIM THE DEDUCTION OR  REFUND  PURSUANT  TO
SUBPARAGRAPH (IV) OF THIS PARAGRAPH FILES A CLAIM IN A MANNER PRESCRIBED
BY THE DEPARTMENT.
  (II)  IF  THE VENDOR OR THE LENDER THEREAFTER COLLECTS, IN WHOLE OR IN
PART, ANY ACCOUNTS, ONE OF THE FOLLOWING SHALL APPLY:
  (A) IF THE VENDOR IS ENTITLED TO THE DEDUCTION  OR  REFUND  UNDER  THE
ELECTION  SPECIFIED PURSUANT TO SUBPARAGRAPH (IV) OF THIS PARAGRAPH, THE
VENDOR SHALL INCLUDE THE AMOUNT COLLECTED  IN  ITS  FIRST  RETURN  FILED
AFTER THE COLLECTION AND PAY TAX ON THAT AMOUNT WITH THE RETURN; OR
  (B)  IF  THE  LENDER  IS ENTITLED TO THE DEDUCTION OR REFUND UNDER THE
ELECTION SPECIFIED PURSUANT TO SUBPARAGRAPH (IV) OF THIS PARAGRAPH,  THE
LENDER SHALL PAY THE TAX TO THE DEPARTMENT;
  (III)  (A)  FOR  PURPOSES OF THIS SUBDIVISION, THE TERM "LENDER" SHALL
MEAN ANY OF THE FOLLOWING:
  (I) ANY PERSON WHO HOLDS A PRIVATE LABEL  CREDIT  CARD  ACCOUNT  WHICH
THAT PERSON PURCHASED DIRECTLY FROM A VENDOR WHO REPORTED THE TAX;
  (II) ANY PERSON WHO HOLDS A PRIVATE LABEL CREDIT CARD ACCOUNT PURSUANT
TO THAT PERSON'S CONTRACT DIRECTLY WITH THE VENDOR WHO REPORTED THE TAX;
OR
  (III)  ANY  PERSON WHO IS EITHER AN AFFILIATED ENTITY, UNDER 26 U.S.C.
S1504, OF A PERSON DESCRIBED IN ITEM (I) OR (II) OF THIS CLAUSE,  OR  AN
ASSIGNEE OF A PERSON DESCRIBED IN SUCH ITEM (I) OR (II).
  (B)  FOR  PURPOSES OF THIS SUBDIVISION, THE TERM "PRIVATE LABEL CREDIT
CARD" MEANS ANY CHARGE CARD OR CREDIT CARD THAT CARRIES, REFERS TO OR IS
BRANDED WITH THE NAME OR LOGO OF A VENDOR  AND  THAT  CAN  BE  USED  FOR
PURCHASES  FROM  THE  VENDOR (OR ANY SUBSIDIARIES OR AFFILIATES THEREOF)
WHOSE NAME OR LOGO APPEARS ON THE CARD. THE RECEIPTS OF  SUCH  PURCHASES
FROM  THE  VENDOR  WHOSE NAME OR LOGO APPEARS ON THE CREDIT CARD MUST BE
SEPARATELY STATED AND IDENTIFIABLE.
  (IV) THE LENDER AND THE VENDOR SHALL FILE A JOINT  ELECTION  WITH  THE
DEPARTMENT,  SIGNED BY BOTH PARTIES, DESIGNATING WHICH PARTY IS ENTITLED
TO CLAIM THE DEDUCTION OR REFUND. THIS ELECTION SHALL NOT BE AMENDED  OR
REVOKED UNLESS A NEW ELECTION, SIGNED BY BOTH PARTIES, IS FILED WITH THE
DEPARTMENT.
  (V) A LENDER MAY HAVE ITS DEDUCTION OR REFUND FOR BAD DEBTS CLAIMED ON
A  RETURN  FILED  BY A MEMBER OF AN AFFILIATED GROUP AS DEFINED UNDER 26
U.S.C. S1504.

S. 5852                             3

  (4) A VENDOR OR LENDER WHOSE VOLUME  AND  CHARACTER  OF  UNCOLLECTIBLE
ACCOUNTS  WARRANTS AN ALTERNATIVE METHOD OF SUBSTANTIATING THE DEDUCTION
OR REFUND MAY:
  (I) MAINTAIN RECORDS OTHER THAN THE RECORDS REQUIRED BY THE DEPARTMENT
IF  THE  RECORDS  FAIRLY  AND EQUITABLY APPORTION TAXABLE AND NONTAXABLE
ELEMENTS AND NEW YORK AND NON-NEW  YORK  ELEMENTS  OF  A  BAD  DEBT  AND
COMPUTE THE AMOUNT OF SALES TAX IMPOSED AND REMITTED WITH RESPECT TO THE
NEW YORK TAXABLE CHARGES REMAINING UNPAID ON THE DEBT; OR
  (II)  IMPLEMENT  A  SYSTEM  TO  REPORT ITS FUTURE TAX RESPONSIBILITIES
BASED ON A HISTORICAL PERCENTAGE CALCULATED  FROM  A  SAMPLE  OF  TRANS-
ACTIONS  IF THE SYSTEM UTILIZES RECORDS PROVIDED BY THE VENDOR OR LENDER
CLAIMING THE DEDUCTION OR REFUND.
  S 2. This act shall take effect on the first of January next  succeed-
ing the date on which it shall have become a law.

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Senate Bill S5852

Sponsored By

Archive: Last Bill Status - In Senate Committee Investigations And Government Operations Committee

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2011-S5852 (ACTIVE) - Details

2011-S5852 (ACTIVE) - Summary

2011-S5852 (ACTIVE) - Sponsor Memo

2011-S5852 (ACTIVE) - Bill Text download pdf

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Sponsored By

Hugh T. Farley

Archive: Last Bill Status - In Senate Committee Investigations And Government Operations Committee

Actions

2011-S5852 (ACTIVE) - Details

2011-S5852 (ACTIVE) - Summary

2011-S5852 (ACTIVE) - Sponsor Memo

2011-S5852 (ACTIVE) - Bill Text download pdf

Comments