Home Depot Can’t Deduct a Bad Debt, Court Rules

(CN) - The Home Depot cannot claim a "bad debt" sales tax deduction because it did not carry the debt on its own books, the Ohio Supreme Court ruled.

The home-improvement retailer sought refunds from the years 1998 through 2003. Home Depot claimed that when the user of the Home Depot credit card defaulted on a purchase, the company is entitled to a refund of the sales tax.

The tax commissioner ruled that GE Capital, Home Depot's financial partner, actually carried the debt and was entitled to the refund.

Home Depot appealed the ruling to the Board of Tax Appeals, which upheld the ruling.

"The bad debt was never Home Depot's," the board ruled, "as when the transaction occurred, the vendor was paid in full."

Home Depot then took the case to the Ohio Supreme Court, which also ruled against the company.

"The key phrase in the statute for the purposes of this case is 'the amount deducted must be charged off as uncollectible on the books of the debtor," Justice Pfeifer wrote. "GE wrote the debts off on its own books and claimed a federal bad debt deduction."

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