Illinois ~ Sales and Use Tax: Creditor Entitled to Sales Tax Refund After Writing Off Bad Debts

CCH Tax Day Report

An Illinois appeals court held that a third-party creditor was entitled to a refund of sales taxes due that were a part of retail credit lines originated for, or purchased from, retailers. A bad debt credit is allowed for sales taxes when the taxpayer writes off the debt that includes the sales taxes on its federal return. When selling the credit lines to the creditor, the retailers also assigned the creditor their rights to pursue sales tax refunds. The retailers remitted the sales taxes to the Department of Revenue after the credit lines were purchased. The creditor was unable to collect all of the debts, including sales taxes that were part of the debts, and wrote the debts off on its federal return. The court ruled that the creditor had standing to seek the sales tax refunds because the retailers assigned their rights to pursue refunds to the creditor. Assigning the right to a sales tax refund is not limited by statute nor does it violate public policy. The court did not have jurisdiction to decide a second third-party creditor’s claims for refunds because the creditor did not file a timely appeal.

Citibank, N.A. v. Ill. Dept. of Revenue, Appellate Court of Illinois, First District, No. 1-13-3650 & 1-15-0812, November 2, 2016, ¶403-150

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