Georgia ~ Sales and Use Tax: Bank Financing Private Label Credit Cards Not Entitled to Bad Debt Deduction

The Georgia Court of Appeals has held that a bank providing financing for private label credit cards was not entitled to a refund of sales tax paid on bad debt. The bank provided financing for private label credit cards through which shoppers financed purchases from retailers. The bank paid the retailers the amounts due on the credit card accounts, and the retailers disclaimed ownership of the accounts. When customers defaulted on the credit cards, part of the uncollected debt included amounts used to pay Georgia sales tax. The bank claimed the uncollected accounts as a bad debt deduction for purposes of federal income tax and sought a refund from the state of the part of the bad debt that represented the payment of the state’s sales tax. The state denied the refund, as did the trial court.

In following the literal language of the state’s sales and use tax statute governing bad debt deductions, the Court of Appeals upheld the denial of the refund. The court found that following the literal language did not produce contradiction, absurdity, or an inconvenience. The court also found that the legislative intent was purposefully not to provide such a refund under the statute.

The court additionally held that the bank was not entitled to a refund under the state’s general refund statute because only the taxpayer bearing a burden for a tax is entitled to receive a refund of taxes paid. In this case, it was not the bank that paid the sales tax or remitted it to the state, but, instead, it was the customers who paid the tax and the retailers who remitted the tax.

Citibank (South Dakota), N. A. v. Graham, Georgia Court of Appeals, No. A11A2211, March 23, 2012

Other References:

Explanations at ¶61-120

Explanations at ¶61-610

Explanations at ¶89-224

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Wolters Kluwer Tax and Accounting

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