Ezel / Tax Rulings / CA

Could a successor claim a bad-debt deduction when the predecessor made the sale and paid the tax?

Short answer Yes, if the successor was statutorily liable for that tax and suffered the bad debt, subject to the successor-liability purchase-price limit.
State
CA
Ruling
Annotation 130.0093
Tax type
Sales and Use Tax
Issued
1978-01-25
Issued by
California State Board of Equalization
Requested by
Board staff asking whether a successor liable for a predecessor's sales tax could claim the resulting bad debt
Topics
bad debts successor predecessor liability business purchase accounts receivable retailer tax
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1978. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1978
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is a January 25, 1978 California State Board of Equalization internal legal memorandum about successor liability and bad-debt deductions under then-current sections 6811 and 6812 and Regulation 1642(h)(1)(A). It does not reproduce the underlying contract or state its amounts, and it limits successor tax liability to the purchase price payable by the successor. Current business-transfer, successor-liability, bad-debt, deduction, and sales-tax rules may differ. This summary is informational only and is not legal or tax advice.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.
View original ruling (PDF)

Plain-English summary

The person claiming a bad-debt deduction did not have to be the same retailer that originally reported and paid tax on the sale. A statutory successor could claim when it became liable for the predecessor's tax and itself suffered the worthless account.

For this purpose, the memorandum defined successor by sections 6811 and 6812, with liability—including the tax associated with the bad debt—limited by the purchase price payable for the business. It applied Regulation 1642(h)(1)(A), correcting an internal miscitation in the memorandum's footnote.

Citations and references

  • California Revenue and Taxation Code sections 6811 and 6812 (as cited)
  • California Sales and Use Tax Regulation 1642(h)(1)(A) (as cited and corrected in the source's footnote)

Source

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Mr. Robert Nunes

From:

Legal (PRD)

Subject:

Bad Debts

130.0093

January 25, 1978

The bad debt deduction is not limited to the retailer who reported (and paid) the tax on the sale which resulted in the bad debt. The bad debt deduction extends to the person who was liable for the tax on the original sale (and who suffered the bad debt) even if that person did not pay the tax resulting from that sale. “Successor” for the purposes of Regulation 1642(h)(1)(A) means a Sections 6811 and 6812 successor, who is liable for any tax of the preceding retailer, including the one which went bad (to the extent of the purchase price to be paid by the successor). In this way the predecessor may make the sale and pay the tax while the Sections 6811 and 6812 successor suffers the bad debt and is entitled to the deduction. The --- contract seems to be coverd by Regulation 1621(h)(1)(C).
1642(h)(1)(A).

PRD:jw

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