California State Board of Equalization v. Sierra Summit, Inc

• Decision Date: 12 June 1989
• Docket Number: No. 88-681,88-681
• Citation: 104 L.Ed.2d 910,490 U.S. 844,109 S.Ct. 2228
• Parties: CALIFORNIA STATE BOARD OF EQUALIZATION, Petitioner v. SIERRA SUMMIT, INC
• Court: U.S. Supreme Court

490 U.S. 844

109 S.Ct. 2228

104 L.Ed.2d 910

CALIFORNIA STATE BOARD OF EQUALIZATION, Petitioner

v SIERRA SUMMIT, INC.

No. 88-681.

Argued April 19, 1989.

Decided June 12, 1989.

Syllabus

In holding that a Bankruptcy Court's injunction against petitioner Board of Equalization's assessment of a state sales tax upon the proceeds of a trustee's liquidation sale of inventory also barred the collection of a use tax from the purchaser's lessees, the Court of Appeals rejected petitioner's argument that it had wrongly decided California State Board of Equalization v. Goggin, 245 F.2d 44 (Goggin II). There, the court had held (1) that a tax on liquidation sales places a burden on the federal function of the bankruptcy court and violates principles of intergovernmental tax immunity, and (2) that 28 U.S.C. § 960—which specifically authorizes the States to impose taxes on a bankruptcy trustee's business operations—sets forth the sole area in which the States can impose a tax of any type and negates by implication their power to tax bankruptcy liquidations.

Held: Neither the doctrine of intergovernmental tax immunity nor § 960 proscribes the imposition of a sales or use tax on a bankruptcy liquidation sale. Pp. 847-854.

(a) Under this Court's recent decisions, the intergovernmental tax immunity doctrine prohibits the States from directly taxing the United States, or an agency or instrumentality so closely related to the Government tha the two cannot realistically be viewed as separate entities insofar as the activity being taxed is concerned, but permits States to tax private parties with whom the United States does business even though the financial burden falls on the Government, as long as the tax does not discriminate against the United States or those with whom it deals. Thus, whatever immunity the bankruptcy estate once enjoyed from a tax on its operations has long since eroded. Such a tax does not discriminate against bankruptcy trustees or those with whom they deal, since a purchaser at a judicial sale is only required to pay the same tax that he would have been bound to pay had he purchased from anyone else. Nor is the bankruptcy trustee so closely connected to the Federal Government that the two cannot be viewed as separate entities. The trustee is the representative of the debtor's estate, not an arm of the Government; and the tax is an administrative expense of the debtor, not of the Gov- ernment. There is no material distinction between those municipal and state withholding and property taxes on the bankruptcy trustee which have been upheld, see Otte v. United States, 419 U.S. 43, 52-54, 95 S.Ct. 247, 254-255, 42 L.Ed.2d 212; Swarts v. Hammer, 194 U.S. 441, 444, 24 S.Ct. 695, 696, 48 L.Ed. 1060, and the tax on the liquidation sale presented here. Pp. 848-850.

(b) The Goggin II court's reading of § 960 is contrary to this Court's general approach to claims that the States' power to tax has been preempted, to the plain meaning and legislative history of the statutory provision, and to the structure of the Bankruptcy Code. Section 960 is not a clear expression of an exemption from state taxation. Rather, it evinces Congress' intention that a State be permitted to tax a bankruptcy estate notwithstanding any intergovernmental tax immunity objection that might be interposed and that, as a matter of federal law, a business in receivership, or being conducted under court order, should be subject to the same tax liability as the owner had he been in possession of, and operating, the enterprise. Pp. 850-854.

847 F.2d 570 (CA9 1988), vacated and remanded.

STEVENS, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, O'CONNOR, SCALIA and KENNEDY, JJ., joined. BLACKMUN, J., filed a dissenting opinion, in which BRENNAN and MARSHALL, JJ., joined, post, p. 854.

Robert F. Tyler, Jr., for petitioner.

David Ray Jenkins, Fresno, Cal., for respondent.

Justice STEVENS delivered the opinion of the Court.

Enmeshed in a tangled skein of procedural and state-law issues is a ruling on an important federal question that was critical to the decision of the Court of Appeals in this case. The court's ultimate holding was that a Bankruptcy Court's in- junction against the assessment of a state sales tax upon the proceeds of a trustee's liquidation sale of an inventory of skis also barred the collection of a use tax from the purchaser's lessees. In the process of reaching its decision, the Ninth Circuit rejected an argument that a case well known to California bankruptcy lawyers as "Goggin II " ¹ was wrongly decided. The three-judge panel that heard the case concluded that it was not within its power—"and not within its heart—to change a rule of this circuit that has been in force for over thirty years." In re China Peak Resort, 847 F.2d 570, 572 (1988). Because the rule of "Goggin II " conflicts with the rule applied in other Circuits,² and because we have both the power and the duty to resolve the conflict, we granted certiorari. 488 U.S. 992, 109 S.Ct. 554, 102 L.Ed.2d 581 (1988).³

The Goggin cases concerned the attempt by the California State Board of Equalization, petitioner here, to assess sales and use taxes on a bankruptcy liquidation sale. In Goggin I, 191 F.2d 726 (1951), cert. denied, 342 U.S. 909, 72 S.Ct. 302, 96 L.Ed. 680 (1952), the Court of Appeals for the Ninth Circuit rejected the Board's attempt to assess a nondiscriminatory sales tax imposed on retailers to a liquidation sale made by a bankruptcy trustee under court order. Although the court based its decision on a construction of state law that excluded the trustee from the definition of retailer, Judge Fee in concurrence wrote that the assessment constituted an unlawful tax upon court processes. Six years later, Judge Fee, writing for the Circuit panel in Goggin II, made those views law. 245 F.2d 44, cert. denied, 353 U.S. 961, 77 S.Ct. 863, 1 L.Ed.2d 910 (1957). At issue was a California law which required the bankruptcy trustee to collect and remit use taxes imposed on the use of goods from a liquidation sale on which no sales tax had been paid. The court held the tax unlawful, finding that while it was nondiscriminatory it nonetheless burdened the "essential processes" of the bankruptcy court.

The Goggin opinions were based on two premises, each of which respondent argues supports the judgment here. First, the court held that a tax on liquidation sales places a burden on the federal function of the bankruptcy court and therefore violates principles of intergovernmental tax immunity first recognized in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 4 L.Ed. 579 (1819). Second, it found that a federal statute specifically authorizing the States to impose taxes on business operations of the bankruptcy trustee negated by implication their power to tax bankruptcy liquidations. Neither argument is persuasive.

The argument that a tax on a bankruptcy liquidation sale places an undue burden on a governmental operation derives from the once established view that a state tax on income or assets an individual receives from a contract with the Federal Government constit ted a tax on the contract and thereby imposed a burden on governmental operations. See, e.g., Panhandle Oil Co. v. Knox, 277 U.S. 218, 48 S.Ct. 451, 72 L.Ed. 857 (1928); Collector v. Day, 78 U.S. (11 Wall.) 113, 20 L.Ed. 122 (1871); Dobbins v. Commissioners of Erie County, 41 U.S. (16 Pet.) 435, 10 L.Ed. 1022 (1842); Weston v. City Council of Charleston, 27 U.S. (2 Pet.) 449, 7 L.Ed. 481 (1829). The Court drew a distinction between a tax imposed on a Government agent's property and a tax imposed on its operations. While the former was permissible, the latter was constitutionally proscribed. See, e.g., Railroad Co. v. Peniston, 85 U.S. (18 Wall.) 5, 33, 21 L.Ed. 787 (1873); McCulloch v. Maryland, 17 U.S. (4 Wheat.), at 345; see also James v. Dravo Contracting Co., 302 U.S. 134, 163, 58 S.Ct. 208, 222, 82 L.Ed. 155 (1937) (footnotes omitted) (Roberts, J., dissenting) ("No tax can be laid upon th[e] franchises or operations [of government instrumentalities], but their local property is subject to non-discriminating state taxation"). Thus, although this Court held as early as 1904 that States could impose a property tax on a bankruptcy estate, see Swarts v. Hammer, 194 U.S. 441, 24 S.Ct. 695, 48 L.Ed. 1060 (1904), other courts reasonably concluded that the State could not tax the operations of the bankruptcy trustee. See, e.g., In re Flatbush Gum Co., 73 F.2d 283 (CA2 1934), cert. denied sub nom. New York v. Arnold, 294 U.S. 713, 55 S.Ct. 509, 79 L.Ed. 1247 (1935).

In James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155 (1937), however, this Court rejected the distinction between a tax on the property of an agent and a tax on the agent's operations. With the Court's decision in Dravo Contracting, "the doctrine of intergovernmental tax immunity started a long path in decline and [it] has now been 'thoroughly repudiated.' " Cotton Petroleum Corp. v. New Mexico, 490 U.S. 163, 174, 109 S.Ct. 1698, 1706, 104 L.Ed.2d 209 (1989) (quoting South Carolina v. Baker, 485 U.S. 505, 520, 108 S.Ct. 1355, 1365, 99 L.Ed.2d 592 (1988)). "[U]nder current intergovernmental tax immunity doctrine the States can never tax the United States directly but can tax any private parties with whom it does business, even though the financial burden falls on the United States, as long as the tax does not discriminate against the United States or those with whom it deals." Id., at 523, 108 S.Ct., at 1366. Absolute tax immunity is appropriate only when the tax is on the United States itself "or on an agency or instrumentality so closely connected to the Government that the two cannot realistically be viewed as separate entities, at least insofar as the activity being taxed is concerned." United States v. New Mexico, 455 U.S. 720, 735, 102 S.Ct. 1373, 1383, 71 L.Ed.2d 580 (1982).

It is evident...