Citibank (South Dakota), N.A.
Department of Taxes Sears, Roebuck & Co.
Department of Taxes
Court On Appeal from Superior Court, Washington Unit, Civil
Division Mary Miles Teachout, J.
L. Wilschek of Primmer Piper Eggleston & Cramer PC,
Montpelier, and Michael J. Bowen of Akerman LLP,
Jacksonville, Florida, for Plaintiffs-Appellants.
William H. Sorrell, Attorney General, Will S. Baker and Mary
L. Bachman, Assistant Attorneys General, Montpelier, for
PRESENT: Dooley, Skoglund, Robinson and Eaton, JJ., and
Kupersmith, Supr. J. (Ret.), Specially Assigned
1. Citibank (South Dakota), N.A., ("lender") and
Sears, Roebuck and Co. ("retailer") (collectively
"plaintiffs") appeal from a superior court
decision affirming the determination of the Vermont
Department of Taxes ("Department") that the
parties, who had partnered to operate a private label credit
card program through retailers' stores, were not entitled
to sales tax refunds related to bad debts. The Department
denied lender's refund requests because it is not a
registered vendor under Vermont law that remitted the sales
tax it seeks to recover, and denied retailer's deductions
because it did not incur the bad debt at issue. On appeal,
plaintiffs argue that because they acted in combination to
facilitate the sales giving rise to the bad debts, they are
not barred from obtaining relief. We affirm.
2. The parties have stipulated the following facts. Lender
entered into an agreement with retailer-among others-to
provide retailer's customers with private label credit
cards that would allow them to finance their purchases at
retailer's stores. When a customer charged a purchase on
a lender credit card, pursuant to their agreement, lender
would pay retailer the amount charged; that is, the sale
amount plus any applicable sales tax. As required by 32
V.S.A. §§ 9775-9776, retailer would report all
taxable sales to the Department and remit all applicable
3. During the period between June 1, 2004 and June 30, 2007
(the period), the dates at issue for both parties'
requests for bad debt refunds, lender was not a vendor
registered with the Department for sales tax purposes under
32 V.S.A. § 9707 and therefore was not permitted to
collect and remit sales tax to the Department on sales of
tangible personal property.
4. Several of retailer's Vermont customers made purchases
using the credit card but defaulted and failed to pay lender.
Lender determined that the unpaid balances of these accounts,
which included money that had been applied to the sales taxes
collected by retailer and then remitted to the Department,
were uncollectable. Under its agreement with retailer, lender
could not collect the unpaid amounts, including the sales tax
amounts, from retailer. Lender charged off these accounts as
uncollectable in its financial records and took bad debt
deductions for these accounts on its federal corporate income
tax returns during the period, pursuant to 26 U.S.C. §
166. Lender then filed seven claims with the Department for
the period between February 1, 2004 and June 30, 2007,
requesting refunds of the sales tax paid on the bad debt
accounts pursuant to 32 V.S.A. § 9780 in the amount of
$866, 364. The Department denied the requests.
5. Meanwhile, throughout the period, retailer took sales tax
bad debt deductions on its monthly sales tax returns for
sales that were fully taxable, but where the customer had not
repaid the purchase price to lender. The Department audited
retailer, disallowed the deductions, and assessed the company
$350, 215-not including penalties and interest-in improperly
claimed bad debt deductions.
6. Retailer and lender appealed the Department's
assessments and requested a hearing before the Commissioner
of the Department pursuant to 32 V.S.A. § 9777(a). The
Commissioner affirmed the respective refund request denial
and tax assessment in written decisions. The Commissioner
considered the "plain language" of 32 V.S.A. §
9780, which authorizes her to exclude from sales tax
liability sales that have been cancelled or that result in
The Commissioner may provide by regulation for the exclusion
from taxable receipts, amusement charges of amounts
representing sales where the contract of the sale has been
cancelled, the property returned on the receipt or charge has
been ascertained to be uncollectable or, in the case the tax
has been paid upon that receipt or charge, for refund or
credit of the tax so paid.
Stat. Ann. tit. 32, § 9780. She noted that 10 060 033
Vermont Code Regulation § 1.9780 [hereinafter SUT
Regulation] implements § 9780 and provides that:
A. Where the seller or person required to collect tax is
unable to collect accounts receivable in connection with
which he or she has already remitted the tax to the
commissioner, that person or seller may apply to the
commissioner for a refund or credit. Bad debt shall be
defined as in Section 166 of the Internal Revenue Code. 26
U.S.C. § 166.
. . .
C.A claimant seeking recovery for bad debt shall deduct the
debt on the return for the period during which the bad debt
is written off as uncollectable in that claimant's books
and records and is eligible to be deducted for federal income
D. If a claimant takes a deduction for bad debt, and the debt
is subsequently collected in whole or in part, the tax on the
amount so collected must be paid and reported on the return