• Illinois: Retailers not subject to tax liability for certain bad debts
  • August 14, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • The governor recently signed Public Act 099-0217/SB0507 into law, effective July 31, 2015. The new law amends the Retailers' Occupation Tax Act, and relieves a retailer from tax liability if:
    • The tax is represented by amounts that are found to be worthless or uncollectible.
    • The amounts have been charged off in accordance with generally accepted accounting principles.
    • The amounts have been claimed as a deduction pursuant to Section 166 of the Internal Revenue Code on the taxpayer's federal income tax return.
    When a retailer has previously paid the tax, it may deduct the amount charged off. But if after taking the deduction the retailer ends up collecting the amount, it must include and pay it in the first return filed after collection.

    Similarly, with respect to the payment of taxes on purchases made on a private label credit card, which is a credit card with a specific seller’s brand or logo on it, a retailer may claim a deduction or obtain a refund on taxes remitted on an unpaid balance under these conditions:
    • The accounts or receivables have been charged off as bad debt on the lender's books and records on or after Jan. 1, 2016.
    • The accounts or receivables have been claimed as a deduction under the above-mentioned Section 166 of the Internal Revenue Code on the lender’s federal income tax return.
    • The retailer has not already claimed a deduction and received a refund on the bad debt.
    The limitations period for claiming the deduction or refund remains unchanged, and starts on the day that the account or receivable was claimed as a bad debt. The deduction or refund does not apply to amounts resulting from purchases of titled property, and includes only those amounts that represent purchases from the retailer whose name or logo appears on the private label credit card used to make those purchases.