Deduction of certain bad debts from taxable sales; violations. [Effective January 1, 2006.]
1. If a retailer is unable to collect all or part of the sales price of a sale, he is entitled to receive a deduction from his taxable sales for that bad debt.
2. Any deduction that is claimed pursuant to this section may not include interest.
3. The amount of any deduction claimed must equal the amount of a deduction that may be claimed pursuant to 26 U.S.C. § 166 for that sale minus:
(a) Any finance charge or interest charged as part of the sale;
(b) Any sales or use tax charged on the sales price;
(c) Any amount not paid on the sales price because the tangible personal property that was sold has remained in the possession of the retailer until the full sales price is paid;
(d) Any expense incurred in attempting to collect the bad debt; and
(e) The value of any property sold that has been repossessed by the retailer.
4. A bad debt may be claimed as a deduction on the return that covers the period during which the bad debt is written off in the business records of the retailer that are maintained in the ordinary course of the retailer’s business and is eligible to be claimed as a deduction pursuant to 26 U.S.C. § 166 or, if the retailer is not required to file a federal income tax return, would be eligible to be claimed as a deduction pursuant to 26 U.S.C. § 166.
5. If a bad debt for which a deduction has been claimed is subsequently collected in whole or in part, the tax on the amount so collected must be reported on the return that covers the period in which the collection is made.
6. If the amount of the bad debt is greater than the amount of the taxable sales reported for the period during which the bad debt is claimed as a deduction, a claim for a refund may be filed pursuant to NRS 374.635 to 374.720, inclusive, except that the time within which the claim may be filed begins on the date on which the return that included the deduction was filed.
7. If the retailer has contracted with a certified service provider for the remittance of the tax due under this chapter, the service provider may, on behalf of the retailer, claim any deduction to which the retailer is entitled pursuant to this section. The service provider shall credit or refund the full amount of any deduction or refund received pursuant to this section to the retailer.
8. For the purposes of reporting a payment received on a bad debt for which a deduction has been claimed, the payment must first be applied to the sales price of the property sold and the tax due thereon, and then to any interest, service charge or other charge that was charged as part of the sale.
9. If the records of a retailer indicate that a bad debt may be allocated among other states that are members of the Streamlined Sales and Use Tax Agreement, the retailer may allocate the bad debt among those states.
10. Except as otherwise provided in subsection 11, upon determining that a retailer has filed a return which contains one or more violations of the provisions of this section, the Department shall:
(a) For the first return of any retailer which contains one or more violations, issue a letter of warning to the retailer which provides an explanation of the violation or violations contained in the return.
(b) For the first or second return, other than a return described in paragraph (a), in any calendar year which contains one or more violations, assess a penalty equal to the amount of the deduction claimed or $1,000, whichever is less.
(c) For the third and each subsequent return in any calendar year which contains one or more violations, assess a penalty of three times the amount of the deduction claimed or $3,000, whichever is less.
11. For the purposes of subsection 10, if the first violation of this section by any retailer was determined by the Department through an audit which covered more than one return of the retailer, the Department shall treat all returns which were determined through the same audit to contain a violation or violations in the manner provided in paragraph (a) of subsection 10.
12. As used in this section:
(a) “Bad debt” means a debt that may be deducted pursuant to 26 U.S.C. § 166.
(b) “Certified service provider” has the meaning ascribed to it in NRS 360B.060.
Last modified: February 27, 2006