CoolFuel v. BD of Equalization

• Decision Date: 21 April 2000
• Docket Number: No. 98-56092,98-56092
• Citation: 210 F.3d 999
• Parties: (9th Cir. 2000) In re: COOL FUEL,INCORPORATED,Debtor. COOL FUEL, INCORPORATED, a California corporation, Appellant, v. BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA,Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 999

210 F.3d 999 (9th Cir. 2000)

In re: COOL FUEL,INCORPORATED,Debtor.

COOL FUEL, INCORPORATED, a California corporation, Appellant, v. BOARD OF EQUALIZATION OF THE STATE OF CALIFORNIA,Appellee.

No. 98-56092

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted February 11, 2000

Filed April 21, 2000

COUNSELL: James M. Harris, Thomas P. Hanrahan and Thomas E. Patterson, Sidley & Austin, Los Angeles, California, for the appellant.

Anthony Sgherzi, Joseph M. O'Heron, Deputy Attorneys General, Los Angeles, California, for the appellee.

On Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Jones, Ollason, and Brandt, Bankruptcy Judges Presiding. BAP No. CC-97-01641-JoOlBr

Before: Pamela Ann Rymer, Ferdinand F. Fernandez^* and Raymond C. Fisher, Circuit Judges.

FISHER, Circuit Judge:

Cool Fuel appeals the Ninth Circuit Bankruptcy Appellate Panel's ("BAP") decision that a claim for unpaid Use Fuel taxes filed by the California State Board of Equalization ("the Board") in Cool Fuel's bankruptcy proceeding was not barred by the three-year statute of limitations provided in California Revenue and Taxation Code ("R & TC")S 8971. It argues alternatively that if the Board's claim is not barred by S 8971, it is not ripe because the limitations period has not begun. Cool Fuel attempts to read the three-year statute of limitations in S 8971 to require the Board to elect between two alleged options under this statute. In so doing, Cool Fuel parses the language of the statute in ways that are not only internally inconsistent, but would pervert and frustrate the structure of the tax code itself.

In simple terms, the statute appears designed to assure that the Board brings an action to collect a delinquent tax within three years after either (a) the 25th day of the month following the date on which the taxable use of fuel occurred, when the taxpayer files an accurate return but does not pay on time; or (b) the date the Board's determination of the amount of tax the taxpayer actually owes becomes final. The Board is required to make such a determination under specified circumstances, such as when the taxpayer fails to file any return, files a return but claims an amount of taxes the Board disputes, or -as here -disputes the amount of tax that the Board initially determines.

FACTUAL and PROCEDURAL BACKGROUND

In this case, the Board seeks recovery of unpaid monthly Use Fuel taxes arising from alleged Cool Fuel sales of 11 million gallons of diesel fuel from January through September 1993. Cool Fuel filed monthly Use Fuel Tax returns during this period but did not report the alleged sales. The last taxable transaction at issue took place in September 1993, and Cool Fuel filed a return for September taxes on October 25, 1993. Following a field investigation of Cool Fuel's records by a Board auditor, the Board on March 8, 1994 made an initial Deficiency determination that Cool Fuel owed $2,514,284.22 in taxes and interest. Cool Fuel then exercised its right under the tax code to petition for a redetermination and request a hearing before the Board.

Before the Board issued a final determination on Cool Fuel's petition for redetermination, Cool Fuel filed a petition for bankruptcy protection on November 1, 1996. The petition for bankruptcy had the effect of staying the Board's administrative proceeding, thus preventing the Board from finalizing its determination. See 11 U.S.C. S 362(a)(1) (1994). On January 23, 1997, the Board filed in bankruptcy court a proof of claim for $2,606,570.40 in disputed taxes and interest. Cool Fuel objected to the Board's claim, alleging in part that it was barred by the three-year statute of limitations provided in R & TC S 8971.

Cool Fuel argues that because three years elapsed from the date the alleged taxes became "due and payable " under S 8751 -October 25, 1993 -the Board's claim in bankruptcy is barred. According to Cool Fuel, the Board elected not to proceed under the "final determination " option of S 8971 -as Cool Fuel construes it -and thus cannot date the three-year period from whenever the Board issues its final decision on Cool Fuel's petition for redetermination. In effect, Cool Fuel contends that, in allowing Cool Fuel to utilize an administrative remedy for its dispute over the tax due, the Board mistakenly believed the limitations period began when the redetermination became final.

This unlikely outcome was persuasive to the bankruptcy court, but was overturned by the BAP. The BAP reasoned that the taxes at issue were assessed pursuant to a Board determination and that, under R & TC S 8854, which provides that Board determinations do not become "due and payable" until they become final, the Board's claim was not barred by S 8971 because the Board had not issued a final determination. We agree with the Board that its claim is not barred by S 8971 and further conclude that, although the Board's cause of action has not yet accrued under S 8971, it is a ripe allowable claim under the Bankruptcy Code because it is based on Cool Fuel's pre-petition conduct that the Board contemplated would lead to a claim for unpaid taxes. We thus affirm the BAP.

STANDARD OF REVIEW

We review de novo the BAP's conclusions of law. See In re Century Cleaning Servs., Inc., 195 F.3d 1053, 1055 (9th Cir. 1999). Moreover, we independently review a bankruptcy court's ruling on appeal from the BAP. See In re Megafoods Stores, Inc., 163 F.3d 1063, 1067 (9th Cir. 1998).

DISCUSSION

I. APPLICABLE PROVISIONS OF THE CALIFORNIA REVENUE & TAXATION CODE

This controversy concerns when an amount of Use Fuel taxes determined by the Board becomes "due and payable," and thus triggers the three-year limitations period provided in R & TC S 8971. We must interpret R & TC S 8971 -which is not a model of draftmanship or clarity -in the context of the overall structure and purpose of the Use Fuel Tax scheme. Section 8971 provides, as relevant:

At any time within three years after any tax or any amount of tax required to be collected becomes due and payable and at any time within three years after the delinquency of any tax or any amount of tax required to be collected, . . . the board may bring an action . . . in the name of the state to collect the amount delinquent together with penalties and inter est.

Cal. Rev. & Tax. Code S 8971 (West 1994) (emphases added).

Cool Fuel alleges R & TC S 8751 defines the term "due and payable" as used in S 8971. Section 8751 is entitled "Due Dates," and provides that "[t]he excise tax imposed by this part is due and payable monthly on or before the 25th day of the month following each calendar month in which a taxable use of fuel occurs." Id. S 8751. Cool Fuel interprets S 8971 as giving the Board the mutually exclusive alternatives of either bringing an action under the "due and payable " clause as defined by S 8751, or making an administrative determination of the amount of tax due and bringing an action under the "delinquency" clause within three years after the Board's determination becomes final. Cool Fuel would have us bar the Board's claim under the first clause and require the Board to refile it under the second -a claim that would then be untimely and thus discharged under Cool Fuel's reorganization plan. However, the Board did not limit its claim as arising under the first clause when it filed its proof of claim; it simply filed under S 8971. The Board argues that S 8971 does not present mutually exclusive alternatives, and construes both the "due and payable" and "delinquency " clauses as allowing the Board to bring suit when the tax amount is finally determined -not before.

Were S 8751 the only definition of "due and payable" in the Use Fuel Tax provisions, Cool Fuel's reading of the "due and payable" clause might prevail. However, the R & TC provides another definition that specifically addresses when Board determinations of amounts of Use Fuel taxes become "due and payable." Section 8854, located in chapter 4 ("Determinations") of the Use Fuel Tax provisions and entitled "Due Date; penalties," provides:

All determinations made by the board under Articles 2 or 3 of this chapter are due and payable at the time they become final. If they are not paid when due and payable, a penalty of 10 percent of the amount of the determination . . . shall be added thereto.¹

Id. S 8854. A Board determination under Articles 2 or 3 becomes final 30 days after it is served on the party being taxed unless that party petitions for a redetermination before the 30 days expire. Id. S 8851. If -as occurred here -a taxpayer files a timely petition for redetermination, the Board must reconsider the determination and, if requested, grant an oral hearing. See id. S 8852. The Board's decision on a petition for redetermination will not become final until 30 days after the Board mails a notice of its decision. See id. S 8853.

The Board argues that because the amount of taxes involved in this case was assessed pursuant to its determination, S 8854 defines when this amount becomes "due and payable" under S 8971. Under S 8854, the amount of taxes determined by the Board never became "due and payable" because Cool Fuel filed a petition for redetermination in 1994 and then filed for bankruptcy before the Board could issue a final determination. The Board argues, therefore, that under S 8854, the S 8971 limitations period has not begun and thus its claim is not barred.

II. THE LIMITATIONS PERIOD IN S 8971

A. "Due and Payable"

We conclude that the Board's interpretation of "due and payable" to include amounts of tax assessed pursuant to a Board determination is correct. We can locate no case -state or federal -which interprets the meaning of "due and payable" in S 8971. However, the text of S 8971, California state court precedent interpreting a very similar limitations statute and the structure of the Use Fuel Tax amply support the Board's reading.

Cool Fuel...