House Bill No. 5250 introduces a new section, Section 152.049, to the Tax Code, which allows sellers and lenders to claim refunds for motor vehicle sales taxes paid on certain bad debts. The bill defines "bad debt" as the unpaid balance of an account related to a retail installment transaction that has been charged off for federal income tax purposes. It outlines the conditions under which a seller or lender can file a claim for a refund, including the requirement that the tax was remitted on a passenger car sold in a retail installment transaction, the account is deemed worthless, and it has been written off for federal tax purposes. The refund amount is calculated based on the allocation of bad debt between taxable and nontaxable charges.

Additionally, the bill specifies that if a seller assigns the retail installment contract to a lender, the lender may also file a claim for the refund, provided certain conditions are met. It mandates that sellers or lenders maintain specific documentation to support their refund claims and stipulates that the section does not apply to seller-financed sales. The law will take effect on September 1, 2025, and it clarifies that any tax liabilities incurred before this date will remain under the previous law.

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