News and Insights

North Carolina Department of Revenue Denies Taxpayer's Bad Debt Refund Claim

Tax Development Nov 24, 2015

The North Carolina Department of Revenue (“Department”) issued a final determination regarding a taxpayer’s right to claim a sales and use tax deduction for bad debts. The taxpayer in question had an agreement with a third-party bank to provide credit to its customers in the form of credit cards, which were owned by the bank. Upon reviewing the full record and other documents filed or submitted by the parties, the Department determined that the taxpayer did not meet all the requirements under the bad debt and, therefore, was not entitled to the deduction. The basis for the Department’s determination included the fact that the bank and not the taxpayer held the benefits of holding the card account receivables, including the right to payment for interest and finance charges associated with each transaction and the ability to charge off bad debt on its federal income tax return when a cardholder defaulted. Due to this and other factors, the taxpayer’s refund claim was denied. To read the full opinion, see Office Depot, Inc. v. North Carolina Department of Revenue, Office of Administrative Hearings, November 9, 2015. 


Jeremiah T. Lynch 

Linda Falcone