Section Tax 11.30 - Credit sales, bad debts and repossessions(1) CREDIT SALES. (a)Sales. If taxable personal property or items, property, or goods under s. 77.52(1) (b), (c), or (d), Stats., are sold on credit, the entire amount of the retailer's sales price from the sale shall be taxable and shall be reported on the tax return for the period in which the sale is made, without any reduction in the amount of tax payable by the retailer by reason of the retailer's transfer at a discount of any open account, note, conditional sales contract, lease contract or other evidence of indebtedness. A sale involving the transfer of ownership of tangible personal property or items, property, or goods under s. 77.52(1) (b), (c), or (d), Stats., is completed at the time possession is transferred by the seller or the seller's agent to the purchaser or the purchaser's agent. The location to which the sale is sourced is based on s. 77.522, Stats. The tax shall be reported on the accrual basis, except when the department is satisfied that an undue hardship would exist and authorizes reporting on some other basis.(b)Repossessions. No deduction from the sales price shall be made if property, items, or goods sold on credit are repossessed unless the entire consideration paid by the purchaser is refunded to the purchaser or a deduction for worthless accounts is allowable as a bad debt under s. 77.585(1), Stats.(2) BAD DEBTS. (a)Definition of bad debt. "Bad debt" is defined in s. 77.585(1) (a), Stats., to mean the portion of the sales price or purchase price that the seller has reported as taxable and for which the seller has paid the tax under subch. III of ch. 77, Stats., and that the seller may claim as a deduction under section 166 of the Internal Revenue Code. "Bad debt" does not include financing charges or interest, sales or use taxes imposed on the sales price or purchase price, uncollectible amounts on tangible personal property or items, property, or goods under s. 77.52(1) (b), (c), or (d), Stats., that remain in the seller's possession until the full sales price or purchase price is paid, expenses incurred in attempting to collect any debts, debts sold or assigned to 3rd parties for collection, and repossessed property or items. (b)Deduction from measure of tax. A seller may claim as a deduction on a return under s. 77.58, Stats., the amount of any bad debt the seller writes off as uncollectible in the seller's books and records and that is eligible to be deducted as a bad debt for federal income tax purposes, regardless of whether the seller is required to file a federal income tax return. Only a seller who has previously paid sales or use tax to this state on the accounts may claim the bad debt deduction. However, if a seller uses a certified service provider to file the returns and report the taxes due, the certified service provider may claim the bad debt deduction on the seller's behalf if the seller has not and will not claim the same deduction. In either case, the deduction shall be claimed on the return for the period in which the seller writes off the amount of the deduction as uncollectible and the amount is eligible to be deducted as a bad debt for federal income tax purposes. That period is defined as any time within the seller's fiscal or calendar year in which the account is written off. If the seller 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 or amended return filed within the statutory time allowed. Notes, which later become worthless, received on the sale of tangible personal property or items, property, or goods under s. 77.52(1) (b), (c), or (d), Stats., shall be treated in the same manner as other worthless accounts.(c)Recovery of bad debts charged off. If any accounts found worthless and charged off as bad debts are thereafter in whole or in part collected by the seller, the amount so collected shall be included in the first return filed after such collection and the amount of the tax thereon paid with the return. The amounts recovered are first applied to the price of the property, item, good, or service and the proportionate share of the sales tax on that property, item, good, or service and then to interest, service charges and other charges related to the sale.(d)Amount deductible.1. 'Nontaxable receipts.' If an account found worthless and charged off as a bad debt is comprised in part of nontaxable receipts, such as interest, financing, or insurance, and in part of taxable receipts upon which tax has been paid, a bad debt deduction may be claimed only for the unpaid amount upon which tax has been paid. In determining that amount, all payments and credits to the account shall be applied proportionately against the various charges comprising the amount the purchaser contracted to pay.2. 'Expenses of collection.' No deduction is allowable for expenses incurred by the seller in attempting to collect any account receivable, or for that portion of a debt recovered that is retained by or paid to a third party as compensation for services rendered in collecting the account.(e)Special situations.1. A purchaser of receivables is not entitled to a bad debt deduction for the receivables which subsequently become worthless.2. A retailer who sells its receivables and agrees to bear any bad debt loss on them is entitled to a bad debt deduction to the same extent as if the accounts were not sold. However, a bad debt deduction is not allowable when receivables are sold outright at a discount.3. A contractor engaged in real property construction activities is not entitled to a bad debt deduction, even though the total amount due the contractor under a real property construction contract cannot be collected, as the contractor is the consumer, not the retailer, of the tangible personal property or item or property under s. 77.52(1) (b) or (c), Stats., used to fulfill the construction contract.4. A retailer permitted to report the sales price on the cash receipts basis may not claim a bad debt deduction.(f)Repossessions. When property, items, or goods on which a receivable exists are repossessed, a bad debt deduction is allowable only to the extent that the seller sustains a net loss of the sales price upon which tax was paid. A net loss occurs when the sum of the pro rata portion of all payments, credits and the wholesale value of the repossessed property, item, or good attributable to the cash sales price of the property, item, or good, is less than the cash sales price upon which sales or use tax was paid. Example: At the time when the tax rate is 5%, a motor home is purchased on January 1 of a year for a cash price of $15,000 and sales tax of $750. A down payment of $2,150 is made at the date of purchase, leaving a balance to finance of $13,600. The motor home is financed with the seller for a period of one year at the rate of 10% of the amount financed. After receiving periodic payments totaling $6,800, the motor home is repossessed. The wholesale value of the property is $6,000 on the date of repossession. The deductible bad debt loss upon repossession of the motor home is computed as follows:
Cash Sales Price | Sales Tax | Finance Charge | Total |
1. Sales price and tax | $15,000.00 | $750.00 | - | $15,750.00 |
2 . Down payment allocation (1) | 2,047.62 | 102.38 | - | 2,150.00 |
3. Balance to finance | $12,952.38 | $647.62 | - | $13,600.00 |
4. Add: Finance charge | 1,360.00 | 1,360.00 |
5. Contract balance | $12,952.38 | $647.62 | $1,360.00 | $14,960.00 |
6. Payments on contract (2) ....... | 5,887.45 | 294.37 | 618.18 | 6,800.00 |
7. Contract balance - date of repossession | $7,064.93 | $353.25 | $741.82 | $8,160.00 |
8. Wholesale value of repossession (2) | 5,194.81 | 259.74 | 545.45 | 6,000.00 |
9. Deductible loss | $1,870.12 | $1,870.12 |
10. Nondeductible loss | $93.51 | $196.37 | 289.88 |
11. Total loss | $2,160.00 |
12. Percentage of sales price and tax (Line 1) | 95.2381% | 4.7619% | 100% |
13. Percentage of contract balance (Line 5) | 86.5801% | 4.3290% | 9.0909% | 100% |
(1) The down payment on line 2 is allocated between the total cash sales price of the motor home and the sales tax thereon on the basis of the percentage of each to their total. The percentages are shown on line 12.(2) The payments on the contract on line 6 and the wholesale value on the date of repossession of the property repossessed on line 8 are allocated on the basis of the contract balances on line 5. The percentages thereof are shown on line 13.(3) TAX RATE CHANGE. If a deduction for bad debts is being claimed in a period when the tax rate is different from the tax rate in effect when the sale or sales were reported on tax returns, an adjustment to the deduction shall be made to compensate for the tax rate differential. Example: If tax was reported on a $1,000 sale when the tax rate was 4%, $40 tax was reported. If a bad debt deduction is taken for the sale in a 5% tax rate period, only 80% of the $1,000, or $800, may be taken as a bad debt, resulting in a tax credit of $40. Four percent divided by 5% equals 80%.
Wis. Admin. Code Department of Revenue Tax 11.30
Cr. Register, November, 1977, No. 263, eff. 12-1-77; am. (2) (a) and cr. (3), Register, September, 1984, No. 345, eff. 10-1-84; am. (2) (c) 1. and (d) 1., Register, June, 1991, No. 426, eff. 7-1-91; EmR0924: emerg. am. (1), r. and recr. (2), eff. 10-1-09; CR 09-090: am. (1), r. and recr. (2) Register May 2010 No. 653, eff. 6-1-10; CR 10-094: am. (2) (a), (d) 1. Register November 2010 No. 659, eff. 12-1-10. Section Tax 11.30 interpretss. 77.51(14) (c), (15b), 77.522, 77.58(6m), and 77.585(1), (4) and (8), Stats.
The interpretations in s. Tax 11.30 are effective under the general sales and use tax law on and after September 1, 1969, except that (a) the 4% tax rate was increased to 5% on May 1, 1982; (b) The deduction for bad debts was revised effective October 1, 2009 pursuant to 2009 Wis. Act 2; and (c) The change of the term "gross receipts" to "sales price" and the separate impositions of tax on coins and stamps sold above face value under s. 77.52(1) (b), Stats., certain leased property affixed to real property under s. 77.52(1) (c), Stats., and digital goods under s. 77.52(1) (d), Stats., became effective October 1, 2009, pursuant to 2009 Wis. Act 2.