Section 3.442 - Bad Debts or Accelerated Credit for Non-payment of Taxes(a) Bad Debt Deductions. A licensed distributor, supplier, permissive supplier, or compressed natural gas and liquefied natural gas dealer may file a claim for refund on the monthly return of taxes paid on fuel that was sold on account that is later determined to be uncollectible, worthless, and previously written off as bad debt at the time that the distributor, supplier, permissive supplier, or compressed natural gas and liquefied natural gas dealer held an active license. (1) The claim for refund must be in writing, state the fuel type (gasoline, diesel, compressed natural gas, or liquefied natural gas), state the beginning and ending date of sales on which the bad debt is claimed, the number of gallons, and the dollar amount of bad debts. The licensed distributor, supplier, permissive supplier, or compressed natural gas and liquefied natural gas dealer must establish the bad debt amount by providing information on the form required by the comptroller. Required information includes but is not limited to the following: (A) the date of sale or invoice date;(B) invoice fuel amount and invoice fuel tax amount;(C) the name and address of the purchaser, and if applicable, the license number of the purchaser;(D) all payments or credits applied to the account of the purchaser; and(E) uncollected amounts in the purchaser's account that were written off as bad debt in the distributor's, supplier's, permissive supplier's, or compressed natural gas and liquefied natural gas dealer's, records, including the number of gallons of fuel represented by the motor fuel portion of the bad debt.(2) All payments and credits made by the purchaser must be applied to the purchaser's account to determine the bad debt amount, and if the purchaser's account also contains purchases of goods other than motor fuel, then the payments and credits to that account should be applied ratably between motor fuel, including tax, and other goods sold to the purchaser. The comptroller will only allow a claim for refund of tax on the number of gallons represented by the motor fuel portion of the bad debt. The maximum amount of refund claimed cannot exceed the tax paid on the fuel sold on account that has been written off as a bad debt.(3) A claim for refund of taxes based on a bad debt must be filed within four years from the date the account is entered in the distributor's, supplier's, permissive supplier's, or compressed natural gas and liquefied natural gas dealer's books as a bad debt.(b) Accelerated Credit. If a licensed supplier or permissive supplier reported and remitted taxes on a tax return for fuel sold on account to a purchaser who is licensed as a distributor or importer at the time of the transaction and who subsequently fails to pay the taxes to the seller, the licensed supplier or permissive supplier may take a credit against tax liability on a subsequent tax return if the licensed supplier or permissive supplier notifies the comptroller of the default. (1) The notification to the comptroller for credits claimed before June 19, 2009, must be made no later than 60 days after the date of default. The notification to the comptroller for credits claimed on or after June 19, 2009, must be made no later than 15 days after the date of default.(2) The notification to the comptroller may be made by taking a credit on an original or amended return or in writing. If the notification is in writing the credits may be taken beginning with the return for the reporting month in which the notification is made. When credits are taken on a return, the licensed supplier or permissive supplier must submit with that return information required by the comptroller.(3) A licensed supplier or permissive supplier who fails to notify the comptroller of the default within the prescribed period in paragraph (1) of this subsection cannot take a credit on a return, but may seek a refund of taxes based on bad debts subject to the requirements provided by subsection (a) of this section.(4) For credits claimed before June 19, 2009, all payments and credits made by the purchaser must be applied to the purchaser's account to determine that non-payment amount, and if the purchaser's account contains the purchase of goods or items other than motor fuel, then the payments and credits to that account should be applied ratably between motor fuel, including tax, and other goods or items sold to the purchaser. The comptroller will only allow a credit of tax on the number of gallons represented by the motor fuel portion of the unpaid amount. The maximum amount of credit taken cannot exceed the tax paid on the fuel sold on account that has been unpaid. For credits claimed on or after June 19, 2009, the supplier or permissive supplier may claim credit on the amount of the deferred tax payment defaulted by the distributor or importer.(5) If the notification of default was timely made to the comptroller as prescribed by paragraph (1) of this subsection, credits for taxes that were not collected from the licensed purchaser must be taken within four years from the date of default.(6) A distributor or importer whose right to defer payment of tax to a supplier or permissive supplier has been suspended before June 19, 2009, may seek reinstatement of the right to defer payment when all motor fuel tax liability has been satisfied and considered in good standing with the comptroller. The distributor or importer must request that the comptroller issue a notice of good standing for motor fuel taxes.(7) A distributor or importer on which a supplier or permissive supplier has notified the comptroller of default of the deferred tax payment on or after June 19, 2009, loses the right to defer payment of tax to that supplier or permissive supplier for one year following the date that the supplier or permissive supplier notified the comptroller of default. The distributor or importer may seek reinstatement of the right to defer payment if the supplier or permissive supplier erroneously claimed a credit or the default was due to circumstances beyond the distributor's or importer's control, such as a bank error. Request for reinstatement of the right to defer taxes should be made to the comptroller in writing.(c) Credit card sales. The refund for bad debts or credit for non-payment of taxes allowed under this section does not apply to sales of fuel that is delivered into the supply tank of a motor vehicle or motorboat when payment is made through the use and acceptance of a credit card. For purpose of this section, a credit card is defined as any card, plate, key, or like device by which credit is extended to and charged to the purchaser's account. Sales made through the use and acceptance of a fuel access card, where the only use of the access card is to record the quantity and type of fuel or other information acquired merely for the purpose of reconciling accounts and no credit is extended to the holder are eligible for the bad debt credit. Credit sales to commercial or agricultural customers at locations not open to the general public are eligible for the bad debt credit.(d) A supplier, permissive supplier, distributor, or compressed natural gas and liquefied natural gas dealer who collects all or part of an account that was written off as a bad debt for which a refund was sought under subsection (a) of this section or who collects all or part of the unpaid tax after a credit was taken under subsection (b) of this section, must report and remit the collected amount on an amended return for the reporting period in which the bad debt was originally claimed. The comptroller may assess a deficiency, including 10% penalty at the rate provided by Tax Code, § 111.060, if the amount recovered is not reported and tax is not paid to the state during the month in which the recovery is made. Interest will accrue from the date the credit was taken.(e) If the comptroller determines that a taxpayer obtained a refund from the comptroller or took a credit on a return when he knew or should reasonably have known that the account or tax was collectible, the comptroller may issue a deficiency for the tax plus 10% penalty and interest imposed from the date the refund was granted or the credit taken. In addition, other penalties provided by this section or by Tax Code, Chapters 111 or 162, may be imposed.(f) The comptroller may issue a deficiency assessment for tax, plus penalty and interest applicable under Tax Code, Chapter 111, against the purchaser whose account was the subject of a refund for bad debt obtained or a credit claimed by a distributor, supplier, permissive supplier, or compressed natural gas and liquefied natural gas dealer.(g) Criminal and civil penalties for issuing bad checks. (1) A person commits an offense if he issues a check to a licensed distributor, licensed supplier, or permissive supplier for the payment of fuel knowing that his account with the bank on which the check is drawn has insufficient funds and if the payment is for an obligation that includes tax imposed by Tax Code, Chapter 162, that is required to be collected by the licensed distributor, licensed supplier, or permissive supplier. The offense is a Class C misdemeanor.(2) If a licensed distributor, licensed supplier, or permissive supplier receives an insufficient fund check causing a refund to be sought or a credit taken in accordance with the provisions in this section, the licensed distributor, licensed supplier, or permissive supplier may notify the comptroller of the receipt of the insufficient fund check. When making the notification, a photocopy of both sides of the returned check should be furnished.(3) A person who issues an insufficient fund check to a licensed distributor, licensed supplier, or permissive supplier for payment of an obligation that includes tax imposed by Tax Code, Chapter 162, that is required to be collected by the licensed distributor, licensed supplier, or permissive supplier may be assessed a penalty equal to 100% of the total amount of tax not paid to the licensed distributor, licensed supplier, or permissive supplier. This penalty is in addition to any penalties, interest, and collection actions authorized by the Tax Code.34 Tex. Admin. Code § 3.442
The provisions of this §3.442 adopted to be effective April 13, 2005, 30 TexReg 2093; amended to be effective November 16, 2009, 34 TexReg 8039; amended to be effective February 27, 2014, 39 TexReg 1162