Case Title: Chrysler Financial Co., L.L.C. v. Wilkins

Citation: 2004-Ohio-3922

Docket Number: 

State: ohio

Court: Ohio Supreme Court

Date: 2004-08-11T00:00:00Z

Document:
[Cite as Chrysler Financial Co., L.L.C. v. Wilkins, 102 Ohio St.3d 443, 2004-Ohio-3922.] 
 
 
CHRYSLER FINANCIAL COMPANY, L.L.C., N.K.A. DAIMLERCHRYSLER 
SERVICES NORTH AMERICA, L.L.C., APPELLANT, v. WILKINS, TAX COMMR., 
APPELLEE. 
[Cite as Chrysler Financial Co., L.L.C. v. Wilkins, 102 Ohio St.3d 443, 2004-
Ohio-3922.] 
Taxation — Sales tax refund claim — Requirements for asserting a claim for a 
bad-debt deduction or refund under R.C. 5739.121 — R.C. 5739.121, 
construed and applied. 
(No. 2003-0233 — Submitted April 14, 2004 — Decided August 11, 2004.) 
APPEAL from the Board of Tax Appeals, No. 2001-T-36. 
__________________ 
 
ALICE ROBIE RESNICK, J. 
{¶1} 
This case concerns a claim for a sales tax refund filed by Chrysler 
Financial Company, L.L.C. (“Chrysler”) for bad debts resulting from retail 
installment contracts that Chrysler purchased from its dealers.  Chrysler contends 
that it is entitled to claim a refund based on these bad debts because it is a vendor 
and an assignee of the dealers who made the sales.  We disagree. 
{¶2} 
Retail installment contracts are initially entered into between a 
dealer handling a Chrysler motor vehicle and its customer to finance the 
customer’s purchase of the motor vehicle.  The amount the dealer finances 
includes the purchase price of the motor vehicle plus sales tax and any extras such 
as an extended warranty, less the customer’s down payment. 
{¶3} 
If the retail installment contract meets the guidelines previously 
agreed to between Chrysler and the dealer, Chrysler accepts assignment of the 
contract and pays the dealer the full amount owing on the contract.  The contract 
assignment language provides that the dealer assigns its “entire right, title and 
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interest in and to” the retail installment contract to Chrysler, thereby authorizing 
Chrysler “to do every act and thing necessary to collect and discharge obligations 
arising out of or incident to this contract and assignment.” 
{¶4} 
All the retail installment contracts consisted of simple interest 
loans, and the assignments were made to Chrysler without recourse. 
{¶5} 
If a customer fails to make the required installment payments and 
the loan is deemed uncollectible, Chrysler moves the loan from its retail system to 
its recovery system.  After about six months in the recovery system without 
collection, the loan is charged off.  As part of its recovery efforts, Chrysler 
repossesses the motor vehicle, if possible, and sells it at auction.  After deduction 
of expenses, the proceeds that Chrysler receives from the auction are applied to 
the balance of the amount owed by the customer, exclusive of finance charges.  
The balance that remains uncollected after application of the sale proceeds is 
considered by Chrysler to be a loss. 
{¶6} 
Because the amount financed includes both taxable and nontaxable 
amounts, Chrysler has to calculate the percentage of the loss representing taxable 
sales to determine its bad debt for tax purposes.  To calculate the percentage of 
the loss representing a taxable sale, Chrysler divides the amount of the original 
taxable sale price by the original total cash sales price.  The amount of the loss 
representing taxable sales is then determined by multiplying the amount of the 
loss by the percentage of the loss representing a taxable sale.  Chrysler considers 
the loss represented by the taxable sale to be its bad debt.  The refund amount 
claimed by Chrysler is determined by multiplying the sales tax rate applicable to 
each sale by the amount of the bad debt.  Chrysler’s witness stated that it took the 
losses for the years at issue, 1997-1999, as a bad-debt deduction on its federal tax 
return. 
{¶7} 
Chrysler holds a vendor’s license in Ohio and files Ohio sales tax 
returns for its direct sales of lease cars and its leasing business.  However, 
January Term, 2004 
3 
Chrysler did not make any of the sales that resulted in the bad debts involved with 
the refund claim.  Chrysler did not pay any sales tax or file any sales tax returns 
for any of the sales that resulted in the bad debts it is claiming. 
{¶8} 
The Tax Commissioner denied Chrysler’s claim for a refund, 
finding that Chrysler was not a vendor or seller but a provider of financing.  
Chrysler appealed the Tax Commissioner’s final determination to the Board of 
Tax Appeals (“BTA”), which affirmed it.  The BTA found that Chrysler was not a 
vendor within the statutory definition and, therefore, not the proper entity to seek 
the refund. 
{¶9} 
This cause is before the court upon an appeal as of right. 
{¶10} Chrysler’s situation in seeking a refund in this matter under R.C. 
5739.121 is analogous to that of the taxpayer in Key Serv. Corp. v. Zaino (2002), 
95 Ohio St.3d 11, 764 N.E.2d 1015.  In that case, Key Services Corporation filed 
its claim under a statute that authorized a refund of a portion of the use tax paid 
on certain equipment.  In discussing how the refund statute should be construed, 
the court noted that refund provisions for taxes erroneously paid, or paid under 
erroneous assessments, should be liberally construed.  However, when the 
taxpayer is not seeking the return of an illegal or erroneous payment, the refund 
claim is more analogous to a claim for exemption and is to be strictly construed.  
Id. at 15, 764 N.E.2d 1015.  Chrysler is not seeking the refund of a tax alleged to 
be erroneous or illegal.  Therefore, its claim for a refund is to be strictly 
construed, like a claim for exemption. 
{¶11} The statute at issue, R.C. 5739.121, provides: 
{¶12} “As used in this section, ‘bad debt’ means any debt that has 
become worthless or uncollectible in the time period between a vendor’s 
preceding return and the present return, have [sic] been uncollected for at least six 
months, and that may be claimed as a deduction pursuant to the ‘Internal Revenue 
Code of 1954’ * * *.  ‘Bad debt’ does not include any interest or sales tax on the 
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purchase price, uncollectible amounts on property that remains in the possession 
of the vendor until the full purchase price is paid, expenses incurred in attempting 
to collect any account receivable or for any portion of the debt recovered, any 
accounts receivable that have been sold to a third party for collection, and 
repossessed property. 
{¶13} “In computing taxable receipts for purposes of this chapter, a 
vendor may deduct the amount of bad debts, as defined in this section.  The 
amount deducted must be charged off as uncollectible on the books of the vendor.  
A deduction may be claimed only with respect to bad debts on which the taxes 
pursuant to sections 5739.10 and 5739.12 of the Revised Code were paid in a 
preceding tax period.” 
{¶14} Chrysler is claiming a refund rather than a bad-debt deduction by 
virtue of the Tax Commissioner’s rule set forth in Ohio Adm.Code 5703-9-44(E), 
which provides, “In the event that the bad debt deduction exceeds the net taxable 
sales of the vendor for that period, the tax attributable to the excess amount can 
only be recovered by refund claim pursuant to sections 5739.07 and 5741.10 of 
the Revised Code.” 
{¶15} According to R.C. 5739.02(A), “[t]he [sales] tax applies and is 
collectible when the sale is made, regardless of the time when the price is paid or 
delivered.”  Thus, even though the full price of the sale will not be collected by 
the vendor until sometime in the future, the tax applies and is due on the full price 
when the sale is made.  R.C. 5739.03(B) provides that where the price is to be 
paid other than at or before the time of delivery of possession, the vendor shall 
charge the tax “to the account of the consumer, which amount shall be collected 
by the vendor from the consumer in addition to the price.”  Even though the 
vendor will not have collected the full amount of the price from the consumer 
until sometime in the future, R.C. 5739.03(B) provides that “[s]uch sale shall be 
reported on and the amount of the tax applicable thereto shall be remitted with the 
January Term, 2004 
5 
return for the period in which the sale is made, and the amount of the tax shall 
become a legal charge in favor of the vendor and against the consumer.”  Thus, 
for an installment sale, the vendor reports the full sale price on his or her sales tax 
return to the Department of Taxation and pays the amount of the sales tax due on 
the price of the sale, even though the vendor may not have collected the sales tax 
from the customer at the time of the sale. 
{¶16} If the consumer defaults on paying the full sale price, the vendor 
will have paid tax to the Department of Taxation on a sale price that will not be 
collected.  However, R.C. 5739.121 permits the vendor to recoup a pro rata 
portion of the sales tax paid to the Department of Taxation based on the amount 
of the sale price that is not paid by the consumer. 
{¶17} The term “vendor” used in R.C. 5739.121 is defined in R.C. 
5739.01(C) as including the person “by whom the transfer effected or license 
given by a sale is or is to be made or given.”  The definition of “person” in R.C. 
5739.01(A) includes “individuals, receivers, assignees, trustees in bankruptcy, 
estates, firms, partnerships, associations, joint-stock companies, joint ventures, 
clubs, societies, corporations, the state and its political subdivisions, and 
combinations of individuals of any form.”  (Emphasis added.) 
{¶18} Chrysler contends that because R.C. 5739.01(A) defines “person” 
to include “assignee” and because it is an assignee of the original selling dealer, it 
is a vendor for purposes of R.C. 5739.121. 
{¶19} On the other hand, the Tax Commissioner contends that Chrysler is 
not the vendor, because it does not meet the statutory definition of “vendor.”  The 
Tax Commissioner focuses on that portion of the statutory definition of “vendor” 
in R.C. 5739.01(C) that defines the “vendor” as the person “by whom the transfer 
effected * * * by a sale is or is to be made.” 
{¶20} We agree with the Tax Commissioner.  While the definition of 
“person” includes “assignee,” merely being an assignee does not make the 
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assignee a vendor for the purposes of R.C. 5739.121.  R.C. 5739.01(C) defines 
“vendor” as the person “by whom the transfer effected * * * by a sale is or is to be 
made.”  Thus, an assignee, trustee, or any of the other entities included in the 
definition of “person” set forth in R.C. 5739.01(A) can be a vendor, but only if 
the entity makes the transfer effected by a sale.  The definition of “sale” in R.C. 
5739.01(B)(1) includes all “transactions for a consideration in any manner * * * 
by which title or possession, or both, of tangible personal property, is or is to be 
transferred.”  In Oberlander v. Porterfield (1971), 28 Ohio St.2d 171, 173, 57 
O.O.2d 406, 277 N.E.2d 198, the court looked at the relationship between the 
definition of “vendor” in R.C. 5739.01(C) and the definition of “sale” in R.C. 
5739.01(B), in the context of an auctioneer, and stated: 
{¶21} “A combined reading of these statutory definitions reveals that the 
person making the sale is the person who effects a transfer of title or possession, 
or both, of tangible personal property for a consideration.  * * *  To be a vendor, 
within the meaning of R.C. 5739.01(C), it is not necessary that one actually 
transfer title to or possession of tangible personal property.  The vendor is the 
person by whom the transfer is effected.”  (Emphasis sic.) 
{¶22} Thus, to be a vendor for purposes of R.C. 5739.121, the person 
must make the transfer of title or possession effected by the sale, for a 
consideration.  The transfer effected by the sale in this case is the transfer of title 
or possession from the dealer to the customer.  Chrysler did not make any transfer 
of title or possession of any motor vehicles to any customers being considered 
here.  Chrysler did not become involved until it purchased the retail installment 
contract from the dealer, which occurred after the sale.  Thus, Chrysler does not 
meet the statutory definition of “vendor” set forth in R.C. 5739.01(C), because it 
was not the vendor making the sales that gave rise to the bad debts. Therefore, 
Chrysler is not a vendor entitled to a bad-debt deduction or refund under R.C. 
5739.121. 
January Term, 2004 
7 
{¶23} Chrysler also argues that, by being the assignee of the retail 
installment contract, it stands in the shoes of the dealer.  In Inter Ins. Exchange of 
Chicago Motor Club v. Wagstaff (1945), 144 Ohio St. 457, 460, 30 O.O. 44, 59 
N.E.2d 373, the court recognized the general rule that “an assignee * * * of a 
claim stands in the shoes of the assignor * * * and succeeds to all the rights and 
remedies of the latter.”  (Emphasis sic.)  Chrysler apparently makes this argument 
so that it can assert any right the dealer has to a bad-debt deduction. 
{¶24} Assume, for purposes of discussion, that the assignment of the 
retail installment contract to Chrysler included an assignment of any claim the 
dealer had to a bad-debt deduction, that this specific assignment was specified in 
the general assignment, and that an assignment of such a claim to a deduction 
could be made.  Has Chrysler succeeded to a claim for a bad-debt deduction?  To 
answer that question we must consider whether the dealer had a claim for a bad-
debt deduction.  If the dealer never had a claim for a bad-debt deduction to assign, 
Chrysler cannot assert an assignment of such a claim. 
{¶25} Prior to the sale and assignment of the retail installment contract to 
Chrysler, the dealer had no claim to a bad-debt deduction, because the dealer had 
no bad debt.  After the retail installment contract was assigned to Chrysler, and 
the dealer had been paid in full, the dealer could not claim a bad-debt deduction.  
After the dealer assigned the retail installment contract to Chrysler, the customer’s 
debt to the dealer was paid in full, including any amount owed to the dealer for 
sales tax.  As far as the dealer is concerned, the sale of the retail installment 
contract to Chrysler produces the same result as if the customer had paid off the 
contract.  Thus, the dealer never suffered any bad debt that it could assert or that 
Chrysler could assert as the dealer’s assignee. 
{¶26} The plain language of R.C. 5739.121 permits only the vendor that 
made the sale and remitted the tax to the Department of Taxation to claim a bad-
debt deduction.  Chrysler, as an assignee of a retail installment contract from the 
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vendor who made the sale, does not meet the requirements for asserting a claim 
for a bad-debt deduction or refund under R.C. 5739.121. 
{¶27} Accordingly, we hold that the decision of the BTA was reasonable 
and lawful, and we affirm it. 
Decision affirmed. 
 
MOYER, C.J., F.E. SWEENEY, PFEIFER and O’CONNOR, JJ., concur. 
 
LUNDBERG STRATTON and O’DONNELL, JJ., dissent. 
__________________ 
 
O’DONNELL, J., dissenting. 
{¶28} I respectfully dissent.  It is undisputed that, for tax purposes, a 
vendor is authorized by R.C. 5739.121 to deduct certain bad debts from current 
taxable receipts. 
{¶29} That statute provides: 
{¶30} “As used in this section, ‘bad debt’ means any debt that has 
become worthless or uncollectible in the time period between a vendor’s 
preceding return and the present return, ha[s] been uncollected for at least six 
months, and that may be claimed as a deduction pursuant to the ‘Internal Revenue 
Code of 1954’ * * *.  ‘Bad debt’ does not include any interest or sales tax on the 
purchase price, uncollectible amounts on property that remains in the possession 
of the vendor until the full purchase price is paid, expenses incurred in attempting 
to collect any account receivable or for any portion of the debt recovered, any 
accounts receivable that have been sold to a third party for collection, and 
repossessed property. 
{¶31} “In computing taxable receipts for purposes of this chapter, a 
vendor may deduct the amount of bad debts, as defined in this section.  The 
amount deducted must be charged off as uncollectible on the books of the vendor.  
A deduction may be claimed only with respect to bad debts on which the taxes 
January Term, 2004 
9 
pursuant to sections 5739.10 and 5739.12 of the Revised Code were paid in a 
preceding tax period.” 
{¶32} Here, Chrysler Financial Company, L.L.C., which had been 
assigned the “entire right, title and interest in and to” the vendors’ installment 
contracts, filed a claim for a sales tax refund as a result of bad debts from the 
retail installment contracts it purchased from dealers that had financed the 
purchase of new vehicles.  The amounts financed included the purchase price and, 
relevant here, the full sales tax on the purchase price of the vehicles. 
{¶33} If a customer defaulted on an installment contract, Chrysler 
Financial would repossess the vehicle and sell it at auction, and any deficit 
constituted a loss.  Chrysler Financial here claims a refund of the sales tax 
collected by the state on its bad debt. 
{¶34} The majority asserts that if a dealer never had a claim for refund of 
the sales tax, Chrysler Financial could not assert an assignment of such a claim 
based on its status as an assignee of the dealer.  However, the assignment here 
consisted of the dealer’s “entire right, title and interest in and to” the installment 
contract, authorizing Chrysler Financial to “do every act and thing necessary to 
collect and discharge obligations arising out of or incident to this contract and 
assignment.”  This assignment then constitutes an assignment of all of the rights 
the vendor had pursuant to the contract, not merely the assignment of a right to 
assert a “claim.” 
{¶35} If the original dealer — i.e., the vendor — had the right to seek a 
tax refund prior to the assignment of the contract, then, by operation of the 
assignment, that right to seek a refund transferred to Chrysler Financial.  Thus, the 
right to assert a claim for a tax refund did not disappear merely because the dealer 
assigned its “entire right, title and interest in and to” the installment contract, 
because the assignment included the right to assert a refund claim. 
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{¶36} As the majority notes, “[i]f the consumer defaults on paying the 
full sale price, the vendor will have paid tax to the Department of Taxation on a 
sale price that will not be collected.”  (Emphasis added.)  By precluding the 
vendors’ assignees from taking the bad-debt reduction, today’s opinion will allow 
the Department of Taxation to collect and keep the full sales tax on incomplete 
sales.  Thus, preventing assignees from claiming these tax refunds results in the 
unjust enrichment of the Department of Taxation. 
{¶37} Accordingly, I would hold that Chrysler Financial may assert its 
right to the refund pursuant to the dealers’ assignment of that right.  Therefore, I 
respectfully dissent. 
 
LUNDBERG STRATTON, J., concurs in the foregoing dissenting opinion. 
__________________ 
 
Baker & Hostetler, L.L.P., and Edward J. Bernert; Akerman Senterfitt, 
David E. Otero, Peter O. Larsen and Cynthia D. Baines, for appellant. 
 
Jim Petro, Attorney General, and Janyce C. Katz, Assistant Attorney 
General, for appellee. 
_____________________