In re AH Robins Co., Inc., Bankruptcy No. 85-01307-R.

• Decision Date: 05 April 1991
• Docket Number: Bankruptcy No. 85-01307-R.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re A.H. ROBINS COMPANY, INCORPORATED, Debtor.

126 B.R. 227 (1991)

In re A.H. ROBINS COMPANY, INCORPORATED, Debtor.

Bankruptcy No. 85-01307-R.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

April 5, 1991.

Craig D. Bell, Mays & Valentine, Richmond, Va., for debtor.

Robert Weinberger, West Virginia State Dept. of Tax and Revenue, Compliance Div., Charleston, W.Va., for West Virginia State Department of Tax and Revenue.

MEMORANDUM OPINION

BLACKWELL N. SHELLEY, Bankruptcy Judge.

This matter comes before the Court on the motion of A.H. Robins Company, Inc. ("Robins"), for summary judgment on its objection to Claim No. 85329-00077 filed by the State Tax Department of West Virginia ("West Virginia" or the "State"). Robins objects to the proof of claim on the basis that West Virginia's Business and Occupation ("B & O") Tax was found to be unconstitutional by the Supreme Court and, alternatively, that it did not conduct business subject to the B & O Tax in West Virginia. Robins' motion is supported by an affidavit setting forth the manner in which Robins' products were sold to West Virginia doctors.

West Virginia only contests Robins' objection to the taxes assessed for the period between 1978 and 1982. At the hearing on the motion, it was uncontroverted that Robins was served with proper notice of the taxes assessed for this period, and the State asserts it has "lien claims" for these taxes. The State argues generally that Robins failed to object to the tax assessment during the 60 day period provided under West Virginia law, and therefore is now precluded by West Virginia Code § 11-10-8(a) from objecting to their validity. The State does not challenge Robins' affidavit stating that it did not do business in West Virginia which was subject to the B & O Tax. In response to a hypothetical question posed by the Court, the State argues that even if a company has never had business dealings in West Virginia and fails to challenge a tax assessment, it is still liable for the tax.

The first issue which the Court must address is whether under 11 U.S.C. § 505(a) it has authority to determine the validity of West Virginia's tax claim. In pertinent part, § 505(a)(1) states that, except as provided for in § 505(a)(2),

the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.

Section 505(a)(2) provides that a bankruptcy court may not make such a determination if the amount or legality of the tax was contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction. The State and Robins agree that the validity of the taxes in question was never actually adjudicated.

The State argues that because Robins did not contest the assessment within 60 days, it became final and not subject to judicial review pursuant to West Virginia Code § 11-10-8(a).¹ The State urges the Court to either find this statutory finality prevents the Court from determining the validity of the tax on Robins, or to decline to exercise its right to make the determination. In support of its position, the State cites two cases, both of which are distinguishable from the case presently before the Court, and the Court is unable to find any other support for the State's position.

In In re Galvano, 116 B.R. 367 (Bankr.E. D.N.Y.1990), the court found that it was precluded from redetermining the amount and legality of a tax assessment against the debtor in his capacity as the principal officer of a corporation where the corporations tax liability had already been determined in a state administrative proceeding and the debtor failed to timely challenge his individual liability under state law. Unlike the present case, in Galvano the debtor's liability was previously adjudicated, at least as to amount and legality of the taxes claimed as allowed under § 505(a). There was a full contest and adjudication of the amount and legality of the tax for which the corporation was liable, and the debtor's individual liability was found to have been previously adjudicated because it flowed directly from the corporate liability. Id. at 374-75.

The State also relies on In re Washington Manufacturing Company, 120 B.R. 918 (Bankr.M.D.Tenn.1990), in which the debtor's request for a lower appraisal value of its 1985 real property tax was denied and the debtor failed to timely appeal the denial, thus rendering it final. The court found that the County Board of Equalization's pre-petition denial of the debtor's request constituted an administrative adjudication of the amount of the tax and therefore refrained from addressing the issue. Id. at 920. The court also found that as the debtor had not contested its 1986, 1987, and 1988 tax assessments, there had been no final adjudication as to the taxes owed for those years, and those amounts were subject to determination by the court. Id. Instead of supporting West Virginia's arguments, these cases support Robins'...