Could a retailer or lender use an alternative method to compute a bad-debt loss under proposed Regulation 1642?

Plain-English summary

The proposed regulation allowed a retailer or lender to justify an alternative method for computing a bad-debt loss, subject to Board approval. Removing the phrase "which approval shall not be unreasonably withheld" did not change the intended meaning because counsel viewed it as superfluous.

The Board could refuse a method that did not fairly compute the loss and would explain its objection. If the Board representative could not state a reason for denial, the letter said there was no basis to deny the method and it should be approved.

Citations and references

• Proposed California Sales and Use Tax Regulation 1642(f)(1) (quoted and discussed)

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/130-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/130-0110.pdf

Original ruling text

130.0110
STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

CLAUDE PARRISH
Third District, Torrance

450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0082
TELEPHONE (916) 445-5550
FAX (916) 323-3387

JOHN CHIANG
Fourth District, Los Angeles
JOHAN KLEHS
First District, Hayward

www.boe.ca.gov

DEAN ANDAL
Second District, Stockton
KATHLEEN CONNELL
State Controller, Sacramento

April 19, 2001

JAMES E. SPEED
Executive Director

--- --- ----- --- ----- --- --Re:

Proposed Regulation 1642

Dear --- --- ---:
During the Business Taxes Committee meeting today, the Board authorized publication of proposed Regulation 1642. You asked for confirmation that one change in the proposed regulation will not have a substantive effect. Subdivision (f)(1) of the proposed regulation explains the allowable methods of computing loss. A new last sentence has been added permitting the use of an alternative method. The language submitted to the Board in the issue paper stated: “An alternative method of computing a bad debt loss may be used subject to approval by the Board which approval shall not be unreasonably withheld.” As requested by staff, the Board authorized publication with a modification to this sentence so that the current language is now: “An alternative method of computing a bad debt loss may be used subject to approval by the Board.” I can confirm that the original language and the current language have the identical meaning. That is, the omitted language was superfluous, which is the reason that staff requested the language to be omitted. Assuming the Board adopts the regulation with the current language, a person claiming a bad debt deduction or refund will be permitted by subdivision (f)(1) to use an alternative method of computing bad debt loss. A person who uses an alternative method will, of course, be subject to the requirement of justifying the alternative method. The Board will approve the use of an alternative method unless there is a basis for refusing approval. Under the current language (as with the original language), the Board will not act arbitrarily to deny an alternative method of computing bad debt loss. If the Board concludes that a proposed alternative method does not fairly compute the bad debt loss, then the Board would refuse approval, and would inform the proponent (i.e., the retailer or lender as applicable) of the basis for the Board’s disapproval so that the proponent should understand the Board’s objection.

--- --- ---

-2-

April 19, 2001
130.0110

If the Board representative is unable to enunciate a reason for the denial, then that would mean that there is no basis for a denial and the alternative method would be approved. I hope this explanation satisfies your concerns. Sincerely,

David H. Levine
Tax Counsel IV
DHL/cmm
cc:

Mr. Ramon J. Hirsig (MIC:43)
Ms. Freda Orendt-Evans (MIC:47)
Mr. William D. Dunn (MIC:49)
Ms. Charlotte Paliani (MIC:92)
Mr. Robert L. Buntjer (MIC:39)
Ms. Janice L. Thurston (MIC:82)