taxes

Motor Vehicle Rental Tax Guide

Bad Debts

Bad debts are any amounts charged to your customers that you cannot collect, including motor vehicle rental tax. Bad debts can be deducted from your gross rental tax receipts.

Bad debts are those amounts that are:

• Determined to be uncollectable;
• Written off as uncollectable in your books; and
• Claimed as a bad debt deduction for federal income tax purposes.

To reduce your tax liability, you can deduct a bad debt from your gross rental receipts. If a bad debt includes taxable and non-taxable receipts, you can only deduct the taxable amount from gross rental receipts.

If you already remitted the tax to the Comptroller’s office, you can claim credit for the tax paid on the bad debt on your next rental tax return or amend your return for the period the bad debts were written off and taken as a federal income tax bad debt deduction. You can also take credit for bad debts on multiple rental tax returns up to the amount of the bad debts, until you have satisfied the amount of the debts.

For example, if you have bad debts from the rental of a motor vehicle in the amount of $600 (all taxable rental receipts), you can take credit(s) by deducting the $600 from the amount of taxable short-term or long-term rental receipts you report on your rental tax return or on multiple rental tax returns.

To support a claim for a bad debt deduction or credit, you must keep records of:

• The date of the rental;
• The name and address of the customer;
• The amount the customer agreed to pay;
• Any amount on which you have already paid tax;
• Payment or other credit applied to the account; and
• Evidence that the amount has been legally charged off as a bad debt for federal income tax purposes.

Any amount claimed as a bad debt cannot be used as a credit against the minimum gross rental receipts tax owed on a vehicle.

96-143
(06/2021)