12A-1.012. Repossessed Merchandise and Bad Debts

(1) Repossessions:

(a) The repossession of tangible personal property by the seller or the lienholder is not subject to tax.

(b) The redemption of repossessed tangible personal property by the debtor prior to the sale of the repossessed property is not subject to tax.

(c) The subsequent sale of repossessed tangible personal property is subject to tax.

(d) A dealer who collected and remitted sales tax to the Department on the selling price of tangible personal property sold under a retail installment, title loan, retain title, conditional sale, or similar contract in which the dealer retains a security interest in the property may, upon repossession of the property, take credit on a subsequent tax return for, or obtain a refund of, that portion of the tax that is applicable to the unpaid balance of the contract. The credit or refund is based on the ratio that the total tax bears to the unpaid balance of the sales price, excluding finance or other nontaxable charges. A credit or refund must be claimed within 12 months following the month in which the property was repossessed.

(e) When a dealer claims a tax credit or a refund of tax paid on tangible personal property sold and repossessed, the dealer must complete a Schedule of Tax Credits Claimed on Repossessed Tangible Personal Property (Form DR-95B, incorporated by reference in Rule 12A-1.097, F.A.C.).

(f) The dealer may claim a tax credit or refund on tangible personal property, including any aircraft, boat, mobile home, motor vehicle, or any other titled property sold by the dealer for which the dealer holds a security interest in the property under the terms of a retail installment, title loan, retain title, conditional sale, or similar contract when:

1. The dealer sold the property and remitted Florida sales tax to the Department;

2. The dealer financed the property, or the property was financed by a financing institution with recourse;

3. The property was subsequently repossessed upon default of the terms of the contract by the purchaser of the property; and,

4. The dealer acquired ownership of the repossessed property (e.g., certificate of title or other evidence establishing possession and ownership of the repossessed property).

(g) When claiming a tax credit or refund, the dealer must complete a Schedule of Tax Credits Claimed on Repossessed Tangible Personal Property (Form DR-95B, incorporated by reference in Rule 12A-1.097, F.A.C.). When claiming a tax credit, the completed Form DR-95B must be retained with the dealer’s applicable sales and use tax return. When claiming a tax refund, a Sales and Use Tax Application for Refund (Form DR-26S, incorporated by reference in Rule 12-26.008, F.A.C.), the completed Form DR-95B, and the information and documentation required to be included with Form DR-26S must be filed with the Department.

(h) Dealers must retain documentation required to establish the right to a credit or refund, including the retail installment, title loan, retain title, conditional sale, or similar contract, and documents establishing ownership or title to the property after repossession. The records required in this subsection must be maintained by the dealer until tax imposed by Chapter 212, F.S., may no longer be determined and assessed under Section 95.091(3), F.S., and must be made available to the Department upon request.

(3) Bad Debts.

(a)1. A dealer, who reported and paid the tax imposed by Chapter 212, F.S., on an account later determined to be a bad debt, may take a credit or obtain a refund for any tax paid by him on the unpaid balance due on worthless accounts within 12 months following the month in which the bad debt has been charged off for federal income tax purposes or, if the dealer is not required to file federal income tax returns, within 12 months following the month in which the bad debt has been charged off in accordance with generally accepted accounting principles. Any refund applied for, or credit taken from the amount of tax to be reported on the dealer’s sales and use tax return, shall be within 12 months following the period in which the account is found to be worthless. That period is defined as any time within the dealer’s fiscal year in which the account is charged off for federal income tax purposes or, if the dealer is not required to file federal income tax returns, any time within the dealer’s fiscal year in which the account is charged off in accordance with generally accepted accounting principles.

2.a. If the amount of an account found to be worthless and charged off is comprised in part of nontaxable receipts, such as interest, insurance, and other charges exempt from sales or use tax, and in part of taxable receipts upon which tax has been paid, a bad debt deduction may be claimed only with respect to the unpaid amount upon which tax has been paid. In determining that amount, all payments and credits to the account shall be applied in proportion against the various elements comprising the amount the purchaser contracted to pay.

b. No deduction is allowable for expenses incurred by the dealer in attempting to enforce collection of any account receivable, or for that portion of a debt recovered that is retained by or paid to a third party as compensation for services rendered in collecting the account.

c. If the tax rate in effect at the time of the sale is different from the rate in effect at the time that the bad debt is charged off, the amount of the credit or refund shall be adjusted to reflect the rate that was in effect when the sale was made.

d. If the dealer maintains a reserve for bad debts, only actual charges against the reserve account representing uncollectible debts or accounts may be deducted for sales tax bad debt purposes. Contributions to the reserve account are not deductible as a sales tax bad debt.

(b) If a dealer recovers in whole, or in part, amounts previously claimed as bad debt credits or refunds, the amount so collected shall be included in the first sales and use tax return filed after such collection occurred.

(c)1. A dealer claiming a bad debt credit or refund must be able to substantiate the validity of such credit or refund by maintaining records of the following:

a. The name of the purchaser;

b. The original date of sale or sales giving rise to the bad debt;

c. The original taxable amount of the transaction;

d. The amount of tax remitted to the Florida Department of Revenue on the original transaction;

e. The amount of interest, finance or service charges incorporated in the debt;

f. All payments or other credits applied to the account of the purchaser;

g. The portion of the debt or account representing a charge that was not subject to tax on the original transaction;

h. The date the bad debt was charged off for federal income tax purposes or, if the dealer is not required to file federal income tax returns, the date the bad debt was charged off in accordance with generally accepted accounting principles;

i. The taxable amount charged off for federal income tax purposes or, if the dealer is not required to file federal income tax returns, the taxable amount charged off in accordance with generally accepted accounting principles;

j. The amount of tax credit or refund claimed for the bad debt;

k. Evidence that the uncollectible portion on which tax was paid has been charged off as a bad debt for federal income tax purposes or, if the dealer is not required to file federal income tax returns, evidence that the uncollectible portion on which tax was paid has been charged off in accordance with generally accepted accounting principles.

2. These records must be maintained until tax imposed by Chapter 212, F.S., may no longer be determined and assessed under Section 95.091(3), F.S., and shall be made available to the Department upon request.

Rulemaking Authority 212.17(6), 212.18(2), 213.06(1) FS. Law Implemented 212.06(1), 212.13(2), 212.17(1), (2), (3), 212.18(2), 213.35, 215.26 FS. History–New 10-7-68, Amended 1-17-71, 6-16-72, 2-21-77, 9-28-78, 7-20-82, Formerly 12A-1.12, Amended 12-13-88, 2-16-93, 4-16-18.