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Indiana Court Rules Finance Companies Can Recoup Sales Tax on Defaulted, Discounted Loans Using Market Discount Rules

Posted 8:30 PM by
On Dec. 24, 2014, the Indiana Tax Court issued its long-awaited decision in SAC Finance vs. Indiana Department of Revenue, a case that centered on the calculation of the allowable bad debt deduction afforded to the financing arm in a buy here-pay here structure. In SAC, the finance company purchased paper from a related retailer on a non-recourse basis at a discount. The central issue in the case was whether the finance company could calculate its allowable bad debt deduction using the Market Discount Rules. 
The Indiana Tax Court held that the finance company was entitled to use the Market Discount Rules and the Indiana Department of Revenue (IDR) was incorrect in disallowing refunds calculated on this basis; reversing course on the IDR’s long-standing position that the sales tax bad debt deduction calculation excluded market discount income. While we fully expect the IDR to file an appeal, the Indiana Tax Court has appellate authority, meaning the IDR is not guaranteed an appeal — the Indiana Supreme Court will decide whether or not to take the case if/when the IDR attempts to appeal the decision. The IDR has 30 days from the date of this decision to choose whether or not to file an appeal.


KSM will provide an update upon learning of the IDR’s decision regarding whether or not it will file an appeal. In the meantime, please do not hesitate to contact us.