In re Peiffer, Bankruptcy No. BK 90-72014
| Decision Date | 22 April 1991 |
| Docket Number | Bankruptcy No. BK 90-72014,Adv. No. 90-70182. |
| Citation | 126 BR 364 |
| Parties | In re Robert Eric PEIFFER, Debtor. Robert Eric PEIFFER, Plaintiff, v. ALABAMA DEPARTMENT OF REVENUE, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
E. Calhoun Wilson, Tuscaloosa, Ala., for debtor/plaintiff.
Mark D. Griffin, Duncan Crow, Montgomery, Ala., for Alabama Dept. of Revenue.
C. Michael Stilson, Tuscaloosa, Ala., Chapter 13 Trustee.
This matter came before the court on Robert Eric Peiffer's Motion (complaint) for Discharge of Taxes. The debtor took the position that 1981-82 taxes owed to the State of Alabama were excise taxes of the type contemplated in 11 U.S.C. § 507(a)(7)(E) and could be discharged after three years. The defendant, Alabama Department of Revenue, contended that the state sales tax obligation is a nondischargeable "trust fund" tax under 11 U.S.C. § 507(a)(7)(C). The court has reviewed the record of the Peiffer case in the context of the applicable law and finds that the sales taxes at issue are NONDISCHARGEABLE.
On May 31, 1985, the Bankruptcy Court in Birmingham, Ala., granted debtor Robert Eric Peiffer a discharge of personal liability "from all dischargeable debts" in a Chapter 7 liquidation case filed April 29, 1982. Peiffer filed his Chapter 7 proceeding as "Robert Eric Peiffer fdba Sav-U-Warehouse Foods, Wilson Bradley Used Car Sales, B & P Farms, Peiffer Enterprises and Peiffer Hog Farm."
The debtor's Schedule A in that proceeding listed the Alabama Department of Revenue "Sales tax" at $10 and the City of Winfield for $10 (although it did not specify what type of tax was owed the City of Winfield). The records in this case do not reveal a proof of claim filed by the Alabama Department of Revenue.
On October 5, 1988, Robert Eric Peiffer filed a Chapter 13 petition to allow reorganization of personal finances. The debtor's Chapter 13 plan was confirmed January 12, 1989, with unsecured creditors to be paid one percent. That case was dismissed September 7, 1990.
On September 11, 1990, Mr. Peiffer filed the Chapter 13 case in which this adversary proceeding arose. The debtor listed the Alabama Department of Revenue as an unsecured creditor for $39,000 in 1981-82 "sales tax and penalties." The debtor's pleading commencing the adversary proceeding was filed September 12, 1990. The pleading contended "That taxes owed to the Alabama Department of Revenue are for the years 1981 and 1982, and that under Section 507(a)(7)(A)(i), `the debts should be discharged'" and "Debtor would show the tax returns in question were filed timely and that there were no other factors involved which would prevent a discharge of the debts."
The State of Alabama filed its Response to Motion for Discharge of Taxes November 7, 1990. It stated that the debtor owed sales taxes to the State of Alabama; Marion County and the City of Winfield for October 1, 1981 through January 31, 1982. The state contended that such taxes fall under 11 U.S.C. § 507(a)(7)(C) as "A tax required to be collected or withheld and for which the debtor is liable in whatever capacity." Such taxes, the state contended, were excepted from discharge by 11 U.S.C. § 523(a)(1)(A). Additionally, the state alleged that Mr. Peiffer filed no state income tax return for the tax year 1982, contending that obligation was also nondischargeable under the provisions of Section 523(a)(1).
Mr. Peiffer's Chapter 13 plan was confirmed on November 1, 1990 with his payments to the Trustee's Office set at $290.00 per month. In addition to payments on his attorney's fees, the plan provided for a $15.00-per-month fixed payment to Standard Furniture Co. on secured debt and that the Internal Revenue Service would be allowed in a special class of creditors and paid 100 percent for federal income taxes for 1982. The plan would distribute one percent of the amounts owed prorata to unsecured debtors.
The bar date for claims against Mr. Peiffer was set at January 17, 1991. On December 4, 1990, the Alabama Department of Revenue filed the following claims on behalf of state and local governments which shared sales tax for transactions at Winfield, Alabama. Claims include: Claim No. 5, Marion County sales tax for November of 1981 through the end of January, 1982, $6,471.83 ($2,095.57 in interest computed through September 11, 1990, the petition date); Claim No. 6, State of Alabama sales tax for October of 1981, $3,071.84 (including $2,355.71 in interest); Claim No. 7, State of Alabama sales tax for November of 1981 through the end of January, 1983, $21,157.69 ($7,825.05 in interest); and Claim No. 8, Winfield City sales tax for November of 1981 through the end of January, 1982, $12,906.53 including $4,188.20 in interest.
None of the proofs of claim filed by the state seek any penalty for the delinquent sales tax they seek. The total amounts claimed compute taxes assessed and interest, then deduct some credits for the taxpayer to arrive at the balances claimed in Claims Nos. 5, 6, 7 and 8. The Alabama Department of Revenue at this writing had filed no claim for 1982 state income tax it mentioned in its initial pleading in this adversary proceeding.
On January 15, 1991, counsel for the debtor filed a memorandum brief. Then on January 31, 1991, the state also filed a brief. On February 14, 1991, the adversary proceeding was set for trial. Counsel for Mr. Peiffer told the court that the debtor had been in the grocery business in 1981 and 1982. At that time, the debtor owed the state of Alabama, he said, but did not know it. He said that shortly after the business closed, Mr. Peiffer mailed the state a check of $4,000.00 to $5,000.00 on a bank account containing $8,000.00 to $9,000.00. However, the bank froze the account and the check was never paid.
The court allowed counsel for both sides 15 days to file supplemental briefs in the case after receipt from Birmingham of records in the old Chapter 7 case. The case went under submission March 4, 1991 on the pleadings in the adversary proceeding and the record.
This case hinges on the question of whether Alabama's sales tax, collected for both state and local governments by the state, is a "trust fund" tax as contemplated in 11 U.S.C. § 507(a)(7)(C)1 or an excise tax under 11 U.S.C. § 507(a)(7)(E)2. A trust fund tax is always given a priority and is never subject to discharge in bankruptcy. See 11 U.S.C. §§ 507(a)(7)(C) and 523(a)(1)(A)3. An excise tax, however, is given a priority and may be discharged if the transaction underlying the tax took place more than three years prior to the debtor's bankruptcy filing. See 11 U.S.C. § 507(a)(7)(E) and 523(a)(1)(A). (The Alabama Department of Revenue had not filed a claim for the 1982 income tax nor offered any proof of its allegation that Mr. Peiffer failed to submit a return for that year.)
If the taxes in dispute here were deemed to be excise taxes, they would be "stale" excise taxes and could be discharged in this bankruptcy. However, State of Alabama sales taxes are clearly "trust fund" taxes based on state law definition of their structure, and upon precedent of the United States Court of Appeals for the Eleventh Circuit in a Georgia bankruptcy case. Consequently, this debtor's sales tax obligation may not be discharged.
Ala.Code § 40-23-26 sets up the sales tax levy and collection structure that is the backbone of state and local revenue in Alabama. It provides that all entities doing business in the state "shall add to the sales price and collect from the purchaser on all sales" the tax due.
More specifically, Section 40-23-26(c) provides: "All taxes paid in pursuance to this division or any other statute enacted in this connection shall conclusively be presumed to be a direct tax on the retail consumer, precollected for the purpose of convenience and facility only." (emphasis added) Given the unambiguous wording of the statute, Alabama state case law has also viewed the sales tax as a direct levy on buyers, rather than on the merchants/sellers/retailers who are charged with collection and remission to the state.
While the tax law views the role of taxpayer buyer and tax collector-merchant as interlocked, it puts the responsibility for gathering the money due and seeing that it gets to the state on the merchant. As noted in Calhoun Publishing Co., Inc. v. State, 513 So.2d 643 (Ala.Civ.App.1987):
In this case, the record does not indicate that the debtor has challenged the totals in sales tax and interest under Ala.Code § 40-23-26(c) claimed by the Alabama Department of Revenue for the State of Alabama, for Marion County and for the City of Winfield, much less contended that such were not owed. In fact, Mr. Peiffer's own schedule of debts listed $39,000 in sales tax and penalties owed to the state for 1981 and 1982.
The United States Court of Appeals for the Eleventh Circuit last considered the issue of where a state sales tax fits in 11 U.S.C. § 507(a) in Matter of Waite, 698 F.2d 1177 (11th Cir.1983). The court determined that a Chapter 7 debtor in the Southern District of Georgia in 1981 could not discharge his obligation to a bonding company which had paid his 1976-77 liquor sales tax obligation to the State of Tennessee.
The Eleventh Circuit refused to allow discharge of the debt to the surety because it found that the bonding firm was subrogated to all of the rights of the State of...
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