Sponsor Statement for House Bill 239

"An Act relating to the liability of motor fuel dealers for payment of tax imposed on certain credit transactions involving motor fuel sales or transfers that become worthless debt or on sales or transfers to persons who declare bankruptcy; and providing for an effective date"

The Alaska motor fuel tax is an excise tax designed to be paid ultimately by the consumer or user of the fuel. For administrative reasons, state law requires the tax to be collected and paid by the motor fuel wholesaler at the time the fuel is sold or transferred. As a practical matter, this transaction often occurs at the wholesale level with businesses that subsequently resell the fuel to the consumer or user of the fuel.

In commercial transactions of this nature, it is customary and typical to extend reasonable credit terms that may result in a deferral or delay in the collection of both the debt and the motor fuel tax by the dealer. In some cases, the debt may become wholly or partially worthless because of a bankruptcy filing or other similar reasons.

House Bill 239 allows motor fuel dealers in these cases to receive a nonrefundable credit in an amount equal to the tax previously remitted to the state. The credit would be applied against subsequent tax liabilities only, and could only be taken for sales with a total tax liability of $500 or more.

The language specifies that dealers may only apply for a bad debt credit by filing written proof of the bankruptcy petition, or after reporting the debt as worthless or partially worthless on the dealer’s federal income tax return.

Many states and local governments authorize credits or deductions for taxes paid on accounts that are later found to be worthless. It is also typical to require the tax be repaid if the account or debt is subsequently recovered. House Bill 239 includes a provision requiring repayment of the tax if the account or debt is subsequently repaid, with partial payments to be handled on a proportional or pro rata basis.

HB239/SS/1/20/98