IN RE INTERN. AUTOMATED MACH., INC., Bankruptcy No. B79-101.
| Decision Date | 26 January 1981 |
| Docket Number | Bankruptcy No. B79-101. |
| Citation | 9 BR 575 |
| Parties | In re INTERNATIONAL AUTOMATED MACHINES, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
George E. Ferstle, Ferstle & Gouttiere, Toledo, Ohio, for debtor-objector.
Raymond J. Studer, Asst. Atty. Gen., Columbus, Ohio, for claimant.
This matter is under the Court's consideration pursuant to the filing by the Debtor-In-Possession, International Automated Machines, Inc., of an Objection to the Proof of Claim No. 615 of the Ohio Bureau of Worker's Compensation in the amount of Seventy-Five Thousand One Hundred Seventy-Six and 53/100 Dollars ($75,176.53). The parties have agreed, however, that the claim is subject to a set-off of Three Thousand Dollars ($3,000.00), the amount of the premium security deposit. The Ohio Bureau of Worker's Compensation claims by its Amended Proof of Claim that the amount of Seventy-Two Thousand One Hundred Seventy-Six and 53/100 Dollars ($72,176.53) became due on February 28, 1979 for payroll premiums, as required by Chapter 4123 of the Ohio Revised Code, for January 1, 1978 through June 30, 1978 and for July 1, 1978 through December 31, 1978. Having considered the parties' supporting briefs, the Court finds that the sole issue is whether such a claim is entitled to priority under Section 64(a)(4) of the Bankruptcy Act as a tax claim, or whether it is to be treated as an insurance claim without priority.
The Bankruptcy Act, Section 64, provides:
"(a) The Debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of bankrupt estates, and the order of payment shall be * * * (4) taxes which became legally due and owing by the bankrupt to the United States or to any state or subdivision thereof which are not released by a discharge in bankruptcy: Provided, however, that no priority over general unsecured claims shall pertain to taxes not included in the foregoing priority."
Debtor refers the Court to, and primarily rests its argument upon, the police power/taxing power dichotomy, urging that the amount represented by the claimant is an insurance premium collected by the State of Ohio in exercise of its police power, not as an exercise of its taxing powers. The basis of the Debtor's argument lies in the further distinction that "taxes" are revenues collected for the support of the government, whereas maintenance by the State of Ohio of a worker's compensation program through employer paid premiums does not represent a tax because 1.) the money is not collected for support of the government, and 2.) none of the funds so collected may be used for general revenue purposes.
The Court recognizes the functional validity of the police power/taxing power dichotomy relative to the exercise of State authority generally, however, the Court is not persuaded that application of Section 64 priority "is to be controlled or varied by the particular characterization by local law or the state's demand." New York v. Feiring, 313 U.S. 283, 61 S.Ct. 1028, 85 L.Ed. 1333 (1941).
The Court in Feiring further stated, "the priority commanded by Section 64 extends to those pecuniary burdens laid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or of undertakings authorized by it." (emphasis supplied) Feiring, supra, at 285, 61 S.Ct. at 1029. Decisions of the state courts and provisions of the worker's compensation law are looked to, "not to learn whether they have denominated the obligation a `tax' but to ascertain whether its incidents are such as to constitute a tax within the meaning of Section 64." Feiring, supra, at 285, 61 S.Ct. at 1029.
The Ohio Worker's Compensation law establishes a comprehensive, compulsory system of employer contribution for work related injuries. The State Treasury bears the administrative costs (ORC 4123.024). The Debtor urges the Court to find that the premiums it is required to pay are not taxes, in part, because worker's compensation laws in Ohio have been upheld as an exercise of the police power. Referring to the case of In re Pan American Paper Mills, Inc., 618 F.2d 159 (1st Cir. 1980), the Debtor contends that the decision therein is incorrect because it "rests primarily on the...
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