In re Smith Jones, Inc., Bankruptcy No. 4-81-568
| Decision Date | 23 January 1984 |
| Docket Number | 4-81-1871 and 4-81-1872.,Bankruptcy No. 4-81-568 |
| Citation | 36 BR 408 |
| Parties | In re SMITH JONES, INC., SJC Corporation, and Frigiking, Inc., Debtors. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
Rosanne H. Wirth, Wagner, Johnston & Falconer, Minneapolis, Minn., for debtor.
David E. Stocker, Asst. Atty. Gen., for the State of Ohio, Columbus, Ohio, for claimant.
This matter is before the court on the debtor's objection to Proof of Claim # 742 filed by the Ohio Bureau of Workers' Compensation (claimant) in the amount of $58,394.14. A hearing was held on November 3, 1983 at which time the parties agreed to submit the matter on briefs.
Rosanne H. Wirth of Wagner, Johnston & Falconer, Ltd. represented the debtor and David E. Stocker, Assistant Attorney General for the State of Ohio, represented the claimant.
The issue to be resolved is whether the mandatory workers' compensation insurance premium payments due the claimant are a "tax" for purposes of 11 U.S.C. Section 507 and are entitled to priority under that section, or whether they are merely insurance premium payments and therefore not entitled to priority. Based upon the briefs and arguments of counsel, the court finds the following:
FACTS
The facts are not in dispute. The debtor conducted business in the State of Ohio, which state has instituted, by statute, a mandatory workers' compensation scheme. O.R.C. Chapter 4123 et seq. Under Chapter 4123, the state has established an insurance fund in order to pay the workers' compensation claims of covered employees injured in Ohio. The monies for the fund are collected, in the form of semi-annual premiums, from all employers doing business in Ohio, save those employers of sufficient financial weight as to be self-insured. The fund is moneyed entirely by the collection of premiums from employers, such premiums being based on a formula which takes into account the degree of hazard of the occupation, total payroll of the employer, and other factors. O.R.C. Chapter 4123.29. Where the individual employer cannot be fitted into the formula under normal circumstances, the Industrial Commission is to determine the premium rates on other bases "consistent with insurance principles." O.R.C. Chapter 4123.29.
The state insurance fund is in lieu of private workers' compensation insurance carriers operating in the state. Participation in the fund is mandatory for employers in Ohio. Failure to remit the required premium may result in the filing of liens and judgments by the state, and such judgments have the "same effect as other judgments and be given the same preference . . . (as) judgments rendered for claims for taxes." O.R.C. Chapter 4123.37. Other sections of Chapter 4123 deny noncomplying employers common-law defenses to suits brought by injured employees and allow for injunctions to be brought against the operations of a non-complying employer by a complying employer.
The debtor, which was subject to Chapter 4123, filed for Chapter 11 relief on March 24, 1981. The claimant filed its proof of claim (# 742) for unpaid workers' compensation premiums on November 30, 1981 detailing its claim thusly:
Rate revision for period
7/1/80-12/31/80 (assessed 7/2/81) 28,272.86
Safety violation assessed 8/21/81 134.40
Premium for period 1/1/81-3/23/81 30,971.88
Advance deposit adjustment 1,000.00
Penalty for late report 15.00
__________
Total amount assessed as claim 58,394.14
DISCUSSION
Determination of whether a debt owed a governmental entity is a "tax" under the Bankruptcy Code is a question of federal law to be determined by this court. Inferences may be drawn from the relevant state law, and state law is a starting point for the analysis, but ultimately federal bankruptcy law governs this issue.
The State of Ohio has undertaken, for whatever reasons, the job of workers' compensation insurer for employers within the state. In doing so, the state has established an insurance fund funded by insurance premiums paid by employers. Whether these premiums are also taxes is the issue to be determined.
In reviewing O.R.C. Chapter 4123, it becomes apparent that the Ohio Legislature established an insurance funding mechanism replenished by the premiums, not a revenue fund replenished by taxes. The payments into the fund are referred to as "premiums" throughout Chapter 4123 and are referred to by no other name. The rate of premium is determined by factors "consistent with insurance principles," O.R.C. 4123.29, and the fund is audited "by recognized insurance actuaries." O.R.C. 4123.47. Shortages in the fund itself are not reimbursed from general revenues but solely from alterations in the premium rates.
The claimant makes much of the remedies available to the state upon a failure to comply with Chapter 4123 by an employer. Various lien mechanisms and tax-like preferences are afforded claims for unpaid premiums. The argument goes that such...
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