REQUEST LETTER

01-007

Response 3/20/01

We would appreciate an answer to the following questions concerning motor fuel taxes.

Our client sells motor fuel to certain customers on a credit basis. Our client pays motor fuel taxes upon its purchase of the fuel. In some instances, the purchasers have defaulted on their payments and the accounts have been written off as bad debts.

Would our client qualify to recover refund of the fuel taxes paid on accounts deemed to be bad debts?

Should you have any questions feel free to contact me at PHONE.

Yours Truly,

NAME

RESPONSE LETTER

DATE

NAME

RE: Advisory Opinion – Motor Fuel Taxes and Bad Debt

Dear NAME,

You have requested an advisory opinion concerning Utah’s motor fuel tax. Specifically, your client sells fuel, on which motor fuel tax has already been paid, to customers on a credit basis. When a customer defaults on payment, your client sometimes writes off his or her account as bad debt. Under these circumstances, you inquire whether your client can recover the motor fuel taxes associated with the bad debt account.

Utah Code Ann. §59-13-204 provides that distributors of motor fuel tax are primarily liable to report and pay the tax. Although they are allowed to pass the tax through to the customers on their bills, the tax is legally imposed at the distributor level. This approach necessarily results in taxes being collected on fuel which may evaporate or be lost in handling or which is sold on an account later written off as bad debt. Under such circumstances, the entity that paid the motor fuel tax would not recoup all the taxes it paid. To provide relief from this result, Utah Code Ann. §59-13-207 allows a motor fuel distributor to deduct 2% from the gross amount of motor fuel taxes he or she would otherwise be liable for, as follows:

(1) There is deducted 2% from the gross amount of motor fuel taxable under this part to allow for all evaporation, loss in handling, and expenses of collection. All distributors shall report the gross amount of taxable motor fuel which is produced, received, refined, or sold in this state from which this deduction shall be made.

(2) At the time of submitting the report and payment of the tax, the producers and refiners shall further submit evidence to the satisfaction of the commission that from the amount of the 2% deduction made by them, one half of the deduction has been paid to the registered retail dealers on quantities sold to them during the period covered by the report.

This “up front” relief is given to the motor fuel distributors, who are required to compute and remit the tax, to account for all losses, including bad debt accounts. This section also provides relief from losses incurred by retail dealers by requiring distributors who are producers and refiners to distribute to the dealers one half of the authorized tax relief (i.e., 1% of the gross amount of motor fuel taxable). No other motor fuel tax refund for bad debt is provided under Utah law.

Please contact us if you have any other questions.

For the Commission,

Marc B. Johnson

Commissioner

MBJ/KC

01-007