As the COVID-19 pandemic continues, many businesses have seen their open receivables accounts swell. As you make tough decisions around writing off receivables, it is important to also consider the state sales tax and gross receipts tax implications.

Many state taxing authorities allow for a bad debt reduction against taxable gross receipts. For example, Ohio allows a bad debt reduction on the Ohio sales tax return that includes the reporting period in which the taxpayer charges off the receivable.

In addition, gross receipts taxes, such as the Ohio Commercial Activities Tax (CAT) and Washington Business & Occupation (B&O), often provide similar bad debt reductions. However, under both the sales tax and gross receipts tax regimes, in order for a business to obtain a deduction it must have previously reported and remitted tax on the sale giving rise to the bad debt.

As part of your efforts to maintain cash flow during these uncertain times, make it a part of your process to evaluate your state sales tax and gross receipts tax filings. Look for any potential opportunities to reduce taxable gross receipts and to recover sales tax paid on bad debts.

Contact Hannah Prengler at hprengler@cohencpa.com or a member of your service team to discuss this topic further.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.