Did transferring accounts receivable under a federal bankruptcy-court order accelerate unpaid Texas sales tax?

Plain-English summary

Rule 3.302(c) generally required a retailer that sold, factored, or assigned credit-sale receivables to report all remaining unpaid sales tax in that reporting period.

The Comptroller declined to apply that acceleration rule to a transfer made under a United States Bankruptcy Court order, in view of the federal bankruptcy laws governing the transaction. The company that assumed collection responsibility under the court order could continue reporting and remitting tax on the cash basis.

What this means for you

This was a narrow bankruptcy exception to the ordinary acceleration rule for transferred receivables. The result depended on the federal bankruptcy-court order described in the letter.

Common questions

What normally happened when a credit account was sold or assigned? Rule 3.302(c) required the retailer to report all remaining unpaid sales tax in that period.

Did the Comptroller apply that rule here? No.

Why not? The receivables transferred under a federal bankruptcy-court order and the Comptroller considered the governing bankruptcy laws.

Could the new collector continue cash-basis reporting? Yes.

Citations and references

• 34 Tex. Admin. Code § 3.302(c) (sale, factoring, or assignment of credit accounts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9101L1067A09

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, TEXAS 78774

JOHN SHARP
Comptroller January 10, 1991

Dear ** :

Thank you for your letter of December 18, 1990. As I understand it,
you wanted to know the tax consequences of the transfer of accounts
receivable to a third party under the terms of a United States Bank-
ruptcy Court order.

As you pointed out in your letter, our Rule 3.302 (c) states that
upon sale, factor or assignment of the right to receive payments due
under a credit sale, all remaining unpaid sales tax must be reported
by the retailer in the reporting period in which the credit contract
or account receivable was sold, factored, or assigned.

*****, an attorney in our Revenue Accounting Division, advises
that we will not invoke this provision to accelerate payment of tax
in the case you describe, in view of the federal bankruptcy laws un-
der which this transaction was effected.

The company that, pursuant to a bankruptcy court order, has assumed
responsibility for collecting accounts receivable may continue to re-
port and remit tax on a cash basis of accounting.

This opinion is based on the facts presented. Different facts, though
similar, might lead to different answers. If you have further ques-
tions, feel free to write or call me at 1-800-531-5441, ext. 3-3889.

Sincerely,
John Christian
Tax Administration