In re Raiman, BAP No. CC-93-2309-PaHV. Bankruptcy No. LA 91-79984 GM.
| Decision Date | 30 September 1994 |
| Docket Number | BAP No. CC-93-2309-PaHV. Bankruptcy No. LA 91-79984 GM. |
| Parties | In re Karen RAIMAN, Debtor. Karen RAIMAN, Appellant, v. STATE BOARD OF EQUALIZATION OF the STATE OF CALIFORNIA, Appellee. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
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Evan L. Smith, Los Angeles, CA, for appellant.
Bonnie Holcomb, Los Angeles, CA, for appellee.
Before PAPPAS1, HAGAN and VOLINN, Bankruptcy Judges.
OVERVIEW
The Appellant Karen Raiman, a Chapter 7 Debtor, filed a motion to enforce discharge in the bankruptcy court relating to certain tax claims asserted against her by the California State Board of Equalization. In addition, Debtor requested compensatory sanctions be imposed against the creditor. The bankruptcy court found that the tax claims were not dischargeable and entered an order denying the motion and request for sanctions. We AFFIRM the bankruptcy court.
At all relevant times, the Debtor was a self-employed marketing consultant whose principal business was formulating advertising campaigns for sale to film producers. Debtor had timely filed tax returns covering income from those projects where she had taxable sales for the 1987, 1988 and 1989 tax periods. The State Board of Equalization of the State of California ("SBE") conducted an audit of the returns and assessed Debtor for substantial additional taxes pursuant to California Revenue and Taxation Code § 6051 ("R & T Code"). Debtor filed a Chapter 7 bankruptcy petition on June 18, 1991, and in November of 1991 received a discharge of her debts.
In early 1992, SBE contacted Debtor and demanded payment of its tax claim. When Debtor did not pay the additional taxes, and after conducting meetings with Debtor which did not result in a decrease in the assessment, SBE initiated collection efforts against Debtor, such as levying on her bank accounts and seizing her state income tax refunds. In July of 1993, Debtor filed a Motion to Enforce Discharge with the bankruptcy court seeking reimbursement of amounts seized by SBE and an award of sanctions alleging that SBE's collection actions violated her discharge.
The bankruptcy court conducted a hearing on Debtor's motion on September 9, 1993, at which time it made oral findings of fact and conclusions of law on the record. On November 10, 1993, the court entered its order denying motion to enforce discharge. The Debtor filed a timely appeal from the order.
The following questions are presented for resolution by this panel on appeal:
1. Whether the California tax statute upon which the assessments were based provides for a tax on or measured by gross receipts so as to except the tax debt from discharge in bankruptcy; and
2. If the tax is in fact a tax on or measured by gross receipts, whether it must be assessed on an entire taxable year to be nondischargeable.
The lower court's conclusions that the subject tax was on or measured by gross receipts and that a tax need not be for an entire taxable year to be afforded priority are interpretations of the Bankruptcy Code which are conclusions of law subject to de novo review on appeal. West v. U.S.A. (In re West), 5 F.3d 423, 425 (9th Cir.1993), cert. den., ___ U.S. ___, 114 S.Ct. 1830, 128 L.Ed.2d 459 (1994); In re King, 122 B.R. 383, 384 (9th Cir. BAP 1991).
A discharge in a bankruptcy case operates as an injunction against any action to collect, recover or offset any discharged debt as a personal liability of the debtor. 11 U.S.C. § 524(a)(2). See also In re American Hardwoods, Inc., 885 F.2d 621, 626 (9th Cir. 1989). A debt is dischargeable unless it is included within a specific exception to discharge. Ohio v. Kovacs, 469 U.S. 274, 278, 105 S.Ct. 705, 708, 83 L.Ed.2d 649, 652 (1985). Section 523(a)2 sets forth the list of the kinds of debts which are excepted from discharge. Section 523(a)(1)(A) excepts from discharge tax debts which are given priority pursuant to Section 507(a)(7). Section 507(a)(7)(A), in turn, grants priority to "a tax on or measured by income or gross receipts" for a taxable year ending on or before the date of the filing of the petition for which a return is due.3
The first contention made by Debtor in this context is that the tax here in question was not "on or measured by income or gross receipts." As a result, Debtor argues, the California tax is not afforded priority and it has been discharged in Debtor's bankruptcy case.
The taxes in this case were imposed under authority of § 6051 of the California R & T Code, which provides in relevant part:
Cal.Rev. & Tax.Code § 6051 (West 1987 & Supp.1994). The definition of "gross receipts" under the R & T Code is found at § 6012, which provides in part:
Cal.Rev. & Tax.Code § 6012 (West 1987).
The parties agree that the assessment in this case is a "tax" as required pursuant to Section 507(a)(7)(A). The parties' disagreement centers on the issue of whether the California tax is "on or measured by gross receipts." Debtor argues that according to the R & T Code provisions quoted above, the tax assessment was not on "gross receipts" since a taxpayer is allowed to make certain exclusions from her total receipts. In other words, Debtor insists that in order to be afforded priority pursuant to Section 507(a)(7)(A), and thus be nondischargeable pursuant to Section 523(a)(1)(A), the tax must be one which is measured by all receipts received by a taxpayer, without any items or transactions excluded.
Did Congress intend the term "gross receipts" found in Section 507(a)(7)(A) to have the specific meaning urged by Debtor? The legislative history to Section 507(a)(7)(A) is very limited and supplies no useful explanation of the meaning of the phrase "on or measured by income or gross receipts." In addition, neither the parties nor the panel can locate any court decisions directly on point. There are few decisions generally relating to this Code section at all. The bankruptcy court, in dialogue with the parties at the hearing, cited the case of In re Groetken, 843 F.2d 1007 (7th Cir.1988) as supporting the proposition that a tax on sales is a tax on or measured by gross receipts. However, a close review of the decision reveals that it is not convincing authority in this case.
The Court of Appeals in Groetken was confronted with a state occupation tax similar in operation to the tax involved here. However, the issue of whether the tax in the Groetken case was a tax on or measured by income or gross receipts was not raised by the parties nor addressed by the court. Rather, the court assumed it was dealing with a gross receipts tax and was instead concerned with determining whether the Section 507(a)(7)(A) priority for taxes on gross receipts was intended to be the same as that priority afforded to taxes on income. Id. at 1013. The court held that the Code granted equal priority to claims for gross receipt taxes as well as income taxes, a conclusion of no consequence in this case. Id.
In In re O.P.M. Leasing Services, Inc., 60 B.R. 679 (Bankr.S.D.N.Y.1986), the bankruptcy court was asked to determine whether a claim filed by the state under the Texas franchise tax law was entitled to priority under Section 507(a)(7)(A). The state statute fixed the amount of the tax due from a corporation based upon the value of its capital. However, where a company also did business in other states, only that portion of the capital allocated to Texas under the statutory formula was taxed. The capital was allocated between states based upon that portion of the corporation's gross receipts generated within Texas as compared to elsewhere. Id. at 681-682.
In finding that the Texas tax was not a gross receipts tax for purposes of the bankruptcy priority provisions, the Court concludes:
The mere mention of gross receipts in the § 171.106 Tex.Tax Code Ann. formula does not automatically activate § 507(a)(7)(A) and accord the State priority status. The State, however, makes precisely such an argument, ascribing an extraordinarily broad meaning to the word "measure" to encompass the word "allocate." This interpretation would emasculate the words of § 507(a)(7)(A), and would render the strict construction of the § 507(a)(7)(A) priority statute meaningless. The gross receipts ratio has no impact on the measurement of the tax as it relates to capital, and thus the tax in actuality is not on or measured by gross receipts.
While this decision is insightful, it also is not precisely on target here.
It thus appears the panel must resolve a question of first impression. As such, an analysis of Section 507(a)(7)(A) is necessary.
Resolving a dispute over the meaning of a provision of the Code begins where all such inquiries must originate, with the language of the...
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