333 U.S. 611 (1948), 157, Massachusetts v. United States

Docket Nº:No. 157
Citation:333 U.S. 611, 68 S.Ct. 747, 92 L.Ed. 968
Party Name:Massachusetts v. United States
Case Date:April 19, 1948
Court:United States Supreme Court
 
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Page 611

333 U.S. 611 (1948)

68 S.Ct. 747, 92 L.Ed. 968

Massachusetts

v.

United States

No. 157

United States Supreme Court

April 19, 1948

Argued December 10, 1947

CERTIORARI TO THE CIRCUIT COURT OF APPEALS

FOR THE FIRST CIRCUIT

Syllabus

1. Under R.S. § 3466, the United States has priority for payment from an insolvent debtor's estate of federal insurance contribution taxes under Title 8 and unemployment compensation taxes under Title 9 of the Social Security Act, as against a state's claim for unemployment compensation taxes imposed by a state statute conforming to the federal act's requirements, Illinois v. United States, 328 U.S. 8; Illinois v. Campbell, 329 U.S. 362 -- even though the fund available for distribution was more than sufficient to pay either the Title 8 or Title 9 taxes to the United States, but insufficient to pay both, and the debtor's assignee had paid to the state the full amount of its claim. Pp. 612-623.

(a) Upon the intervention of an act of bankruptcy, R.S. § 3466 cut off the taxpayer's right under Title 9 of the Social Security Act to pay the state 90% of the unemployment compensation tax and take federal credit therefor. Pp. 615-617.

2. Where the total assets of an insolvent debtor were not sufficient to pay all claims of the United States entitled to priority under R.S. § 3466, the part remaining for application to its claim under Title 9 of the Social Security Act after all other claims have been satisfied cannot be allocated between the United States and the state, but must be applied in settlement of the claim of the United States. Pp. 623-629.

(a) The effect of R.S. § 3466 depends on the fact of insolvency, not on the degree of it. P. 625.

(b) The priority given to the United States by R.S. § 3466 is absolute, not conditional; once attaching, it is final and conclusive, and not subject to defeasance. Pp. 625-628.

(c) Section 902 of the Social Security Act neither created an exception to R.S. § 3466 in favor of state claims for unemployment compensation taxes nor gives the state a claim prior to that of the United States for 90% of the amount of such taxes. Pp. 628-629.

3. Illinois v. United States, 328 U.S. 8, and Illinois v. Campbell, 329 U.S. 362, considered and reaffirmed. Pp. 629-635.

160 F.2d 614, affirmed.

Page 612

In a suit by the United States to recover from an insolvent debtor's estate federal insurance contribution taxes under Title 8 and unemployment compensation taxes under Title 9 of the Social Security Act, the District Court held that, under R.S. § 3466, the United States had priority as to the full amount of the Title 8 taxes due it and as to 10 of the Title 9 taxes due it. 65 F.Supp. 763. The Circuit Court of Appeals held that the United States was entitled to priority for the full amount of all its claims, including the Title 9 taxes. 160 F.2d 614. This Court granted certiorari. 332 U.S. 754. Affirmed, p. 635.

RUTLEDGE, J., lead opinion

MR. JUSTICE RUTLEDGE delivered the opinion of the Court.

This case is, for all practical purposes, a renewal of the litigation recently here in Illinois ex rel. v. United States, 328 U.S. 8, and the companion case of Illinois v. Campbell, 329 U.S. 362. The former unanimously held that the United States has priority, by virtue of Rev.Stat. § 3466, 31 U.S.C. § 191, for payment from an insolvent debtor's estate of federal insurance contribution taxes under Title 8

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and unemployment compensation taxes under Title 9 of the Social Security Act, 49 Stat. 620, as against a state's claim for unemployment compensation taxes imposed by its statute conforming to the federal act's requirements. The Campbell case, which was reargued on other issues, rested on this ruling for disposition of the common issue concerning the effect of § 3466.

The facts are substantially identical with those in Illinois v. United States1 except in two respects. One is that the fund available here for distribution is more than sufficient to pay either the Title 8 or the Title 9 taxes, though inadequate to pay both, while, in Illinois v. United States, the fund was not large enough to satisfy either tax in full. Here too, the debtor's assignee has paid to the commonwealth the full amount of its claim,2 while, in the Illinois cases, the fund remained in the assignee's hands for distribution.

The District Court sustained the federal priority for capital stock and Title 8 taxes in full, and for 10 percent of the Title 9 claim. It therefore deferred payment of any part [68 S.Ct. 750] of the state's claim until those claims were fully paid. But the court held the United States not

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entitled to priority for the remaining 90 percent of the Title 9 claim, on the ground that Title 9, § 902,3 gives the assignee "the alternative right" to pay that amount to an approved state unemployment fund. Accordingly, the judgment ordered Massachusetts to pay over to the United States, from the $803.72 received from the assignee, sufficient funds to satisfy in full the federal priorities sustained, and to retain the small balance remaining after making those payments to apply on its claim for 90 percent of the Title 9 taxes. 65 F.Supp. 763. This action was taken in the view that, while our previous decisions had sustained the federal priority for the capital stock and Title 8 taxes, they had not determined the question for Title 9 claims.4

However, on appeal by both parties, the Circuit Court of Appeals held the United States entitled, under the Illinois rulings, to priority for the full amount of all its claims, including the Title 9 taxes. That court therefore affirmed the District Court's judgment except insofar as it denied the Government's Title 9 claim. As to this, it reversed the District Court's ruling. 160 F.2d 614.

Page 615

Because of the obvious confusion concerning the effects of our prior decisions and the asserted differences between this case and the Illinois cases, certiorari was granted. 332 U.S. 754.

I

Massachusetts seeks to retain the entire $803.72 she has received, in priority to all the federal claims. She agrees with the district court that § 902 gives the taxpayer an "optional right" of payment, but does not accept its allocation creating priorities for all federal claims except 90 percent of the Title 9 taxes. To sustain this broad claim would require reversal of both of the Illinois decisions. In no other way, on the facts, could Massachusetts retain the whole amount she was paid.5

Illinois, as amicus curiae, takes a narrower position, conceding that the Illinois cases stand as decisive adjudications of priority for Title 8 taxes, but disputing that effect for Title 9 claims.6 This position seeks an allocation paying the state's claim after the Title 8 and other federal claims, including 10 percent of the Title 9 taxes, but before, or, rather, in "satisfaction" of, the [68 S.Ct. 751] remaining 90 percent of them.7

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Notwithstanding their substantial differences, the two states rest their respective positions on the same basic arguments, which, upon examination, turn out to be identical with those vigorously presented by Illinois in the earlier cases, except for wording and detail. Much is made of the fact that, here, the debtor's assignee has paid to the commonwealth the full amount of its claim, while in Illinois v. United States, the fund remained in the assignee's hands. Both states urge that § 902 gives the taxpayer, and here his assignee, the "optional right" of payment to the state. Moreover, with respect to the requirement of Rev.Stat. § 3466 that "the debts due the United States shall be first satisfied," it is said that payment to the state with resulting credit to the United States for 90 percent of the Title 9 claim "satisfies" the Government's debt as much as payment to it in cash.

In the Illinois cases, the foundation for the state's claim to be paid in preference to any of the federal claims lay in the credit provision of § 902, which is the identical provision for "optional payment." There was no question whatever that § 902 gave the taxpayer the "alternate right." But the precise issue in both cases was whether that right had been cut off by Rev.Stat. § 3466 when he became insolvent.

Obviously, there could have been but little point or effect to our decisions if, despite them, the assignee could have turned around immediately and deprived the Government of the priorities established simply by exercising a right to make the optional payment to the state. Nor would the decisions have been much more sensible or

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effective had they purported to sustain the federal priorities when the assignee has retained the fund, but to disallow them if he has paid the state before the federal claims are filed. We made no such ineffective or capricious rulings. The decision was broadly that, by intervention of the insolvency and the consequent bringing of Rev.Stat. § 3466 into play, the taxpayer's right to pay the state and take federal credit had been cut off.8

Our decisions went to the merits of that right, and not merely to rule that the state was not a proper party to enforce its exercise. The taxes due the United States were held to be debts, and, by virtue of § 3466, the debtor's prior obligation attaching as of the date of his insolvency was to the Government, not to the state. It followed necessarily that the assignee could not "satisfy" it by paying the state and giving the Government "credit." This was the very question at issue, and the one adjudicated. The "alternate right" contention, and the one that "satisfied" in § 3466 means "credit," are only verbal redressings of the basic issue decided in the Illinois cases.

II

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