State seeks to overturn sales tax credit on bad debt

Feb 25, 2021
Written by Mark Johnson, Senior Vice President of Policy and Government Affairs

House Bill 1539, prime sponsored by Representative Noel Frame (D-Seattle) at the request of the Department of Revenue would overturn a recent Washington State Supreme Court ruling. It stated that a business could take a credit against its sales tax obligation for sales tax paid to the state and then defaulted on by the customer.

This bill by the Chair of the House Finance Committee is unfair and should be rejected because it will adversely affect both consumers and retailers.

When a merchant sells an item to a customer on credit, they collect the sales tax and send it to the state. If the customer defaults and fails to pay their credit bill the merchant is out the price of the item AND the sales tax. The court ruling said that a merchant could take a credit against their sales tax obligation in the future. The merchant can’t ask for a refund or arrange for a check to be mailed to them. That would be administratively difficult and expensive.

Now the state is seeking to overturn this just and fair court ruling in hopes of keeping $35,000,000 of taxes they should never have collected. It is plain wrong. Many sales tax states are taking notice and passing laws to allow merchants to take the sales tax credit for bad debt. They recognize the issue of fairness.

House Bill 1539 has not yet been scheduled for a hearing. However, being that it increases revenues, it is immune from cut-offs and can be incorporated into the final budget proposal until the scheduled adjournment on April 25. Most disappointingly, the state has received yet another windfall of unanticipated revenue – to the tune of $270,000,000! All predictions show that the legislature could easily write a balanced budget with existing resources. HB 1539 is about fairness – legislators should do the right thing and reject this ill-conceived measure.