FAQs - Sales and Use Tax

How do I handle bad debts and returned merchandise?

A vendor may recover sales tax paid to the state on a sale that becomes a bad debt. The debt must be uncollected for at least six months and written off for federal income tax purposes. The amount of the bad debt and tax previously paid should be deducted from the vendor's sales tax return for the filing period during which the bad debt is written off.

If a customer returns merchandise and the vendor refunds the entire purchase price, including sales tax before the return is filed, the vendor should not report the sale on their tax return. If the tax has already been reported and paid, the vendor may file a refund claim or adjust the current tax return.

Note: In no case should you make an adjustment to your return that causes your taxable sales and tax liability to fall below zero. If an adjustment for a period exceeds your taxable sales and tax liability for a reporting period, you must apply for a refund on form ST-AR, which is available on our Web site at Tax Forms.