Defaults and Repossessions on Motor Vehicle Loans

Refund allowed

You can request a refund of sales tax when a customer stops making payments on a motor vehicle in certain circumstances.

You must bear the loss on the unpaid amount or amount claimed as worthless and one of the following must apply:

You can’t repossess the vehicle.
If you repossess it, you must resell the vehicle seasonably in a public or private sale.

Refund not allowed

There are times you can’t request a refund of sales tax when a customer stops making payments. You can’t get a refund in either of these situations:

You don’t bear the loss because the buyer financed the vehicle through a third party.
You bear the loss and repossess the vehicle but don’t resell it seasonably.

Requesting a refund of the sales tax

Calculate the refund based on how much of the sales price the buyer paid before default. You can read more in our Bad Debt white paper.

You can request a refund in one of two ways:

Form 850

Take a credit on line 7 of Form 850, Idaho Sales and Use Tax Return:

Explain the details of the sale, default, repossession, and resale of the vehicle.
Provide documentation as described in the Bad Debt white paper.
Claim the refund in the month you record the bad debt adjustment in your accounting records or take back the vehicle in a rescinded sale.

Form TCR

You can request a refund on Form TCR – Sales Tax Refund Claim, if you don’t claim the refund in the month you record the bad debt adjustment. You must claim the refund within three years from the date you forwarded tax from the sale to the state.

Note: Companies that finance motor vehicle loans can request a proportionate refund of sales tax paid on those loans if the customer defaults. For detailed information, read our Bad Debt white paper.

Rescinded sale (Taking back a motor vehicle you’ve sold)

Both the seller and buyer in a rescinded sale must be in the same positions they were in before the sale.

You must refund the sales tax to the customer if you take back a motor vehicle and refund all the money.

It isn’t a rescinded sale if your customer has started making payments and misses a scheduled payment. In that case, the motor vehicle you take back is treated as a bad debt.
It isn’t a rescinded sale if you agree to take back a motor vehicle but require the buyer to buy another motor vehicle. In that case, the motor vehicle you take back is treated as a trade-in. (See “Trade-in allowances” under Sales price.)
- You must collect sales tax on the difference in the price if the second motor vehicle is more expensive than the motor vehicle you took back.
- You don’t collect sales tax if the second motor vehicle is less expensive than the motor vehicle you took back. However, you also can’t refund any of the original sales tax.