Ezel / Tax Rulings / CA

Could a business successor claim bad-debt deductions on receivables from the predecessor's sales?

Short answer Yes, assuming the successor paid full consideration for the receivables and satisfied every other condition for the bad-debt deduction.
State
CA
Ruling
Annotation 130.0260
Tax type
Sales and Use Tax
Issued
1959-09-30
Issued by
California State Board of Equalization
Requested by
The Board's Santa Rosa audit office asking about a business successor's acquired receivables
Topics
bad debts business acquisition
Source
View Original PDF

Apply this to your situation

This page answers the general question as of 1959. Ask about yours and see what current California tax law says, with citations.

Currency note: this ruling is from 1959
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 brief September 30, 1959 California State Board of Equalization internal sales-tax-counsel memorandum. Its answer assumed that the business successor paid full consideration for the acquired receivables and complied with every other bad-debt condition. It cites revised Sales and Use Tax Ruling 61 and a September 18, 1959 law amendment without reproducing them. Current acquisition, successor, receivables, and bad-debt 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

Sales-tax counsel concluded that a business successor could claim a bad-debt deduction for account sales originally made by its predecessor.

The answer was conditional. The memorandum assumed the successor paid full consideration for the receivables when it acquired the business, and the successor still had to comply with all other requirements for the deduction. Counsel also directed the audit office to revised Sales and Use Tax Ruling 61 and an amendment to the law effective September 18, 1959.

Common questions

Did merely buying the business create the deduction?

No. The opinion assumed full consideration was paid for the receivables and required compliance with all other bad-debt conditions.

Does the source identify the amended statute?

No. It refers only to revised Ruling 61 and an amendment effective September 18, 1959.

Citations and references

  • Revised Sales and Use Tax Ruling 61 (as cited but not reproduced)
  • The law amendment effective September 18, 1959 (mentioned without a statutory citation)

Source

Original ruling text

State of California

Board of Equalization

Memorandum

To:

Santa Rosa – Auditing

From:

Headquarters – Sales Tax Counsel

Subject:

[X]

130.0260

Date:

September 30, 1959

This is in reply to your inquiry of August 26 enclosing a copy of an inquiry from the Eureka office. It is our opinion that a successor is entitled to take a bad debt deduction on account of sales made by a predecessor, assuming, of course, that all of the other conditions for taking the deduction are complied with. As you state, it would be assumed that full consideration was paid for the accounts receivable at the time the successor acquired the business. Note the provisions of revised Ruling 61 relative to the amendment to the law, effective September 18, 1959.

E. H. Stetson
EHS:tl

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