United States

Illinois: Retailer’s Occupation Tax Law Amended to Allow Certain Bad Debt Deductions

Aug 10, 2015
From KPMG TaxWatch

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On July 31 2015, the Governor of Illinois signed into law a measure that allows retailers to deduct certain bad debts from the amount of Retailer’s Occupation Tax required to be remitted to the Department of Revenue. It has been the Department’s long-standing policy to allow a retailer a bad debt deduction when a customer does not pay for merchandise purchased on credit, and the retailer is forced to write off the uncollectable amount as bad debt on its federal income tax return. The Department has not, however, extended the deduction to lenders, including lenders that administer a retailer’s private label credit cards. Senate Bill 507 codifies the bad debt deduction and clarifies that before a retailer may take the general bad debt deduction if three conditions are met: the tax must be represented by amounts that are found to be worthless or uncollectible; the tax must have been charged off as bad debt on the retailer's books and records; and the tax must have been claimed on the retailer’s federal income tax return as a bad debt deduction.

Senate Bill 507 also allows a retailer to deduct Retailers’ Occupation Taxes remitted on private-label credit card purchases when the accounts or receivables have been charged off as bad debt by the lender (i.e., the private label credit card issuer), and the lender has deducted such amounts as bad debt on its federal income tax returns. A private label credit card is essentially a card branded with the name or logo of a retailer that can only be used to make purchases from that retailer or the retailer’s affiliates. The deduction may only be taken by the retailer that filed the return and remitted the tax on the original sale, or its successors. This change is effective upon becoming law. For more information on the deduction, please contact Jill Nielsen at 312-665-2794.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.