In re Suburban Motor Freight
| Decision Date | 06 December 1991 |
| Docket Number | Bankruptcy No. 2-87-00822. |
| Citation | 134 BR 617 |
| Parties | In re SUBURBAN MOTOR FREIGHT, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
E. James Hopple, Schottenstein, Zox & Dunn, Columbus, Ohio, for debtor.
Larry Rhodebeck, Office of Ohio Atty. Gen., Columbus, Ohio, for Bureau of Workers' Compensation.
Stephen K. Yoder, Harry Wright, IV, Bricker & Eckler, Columbus, Ohio, for Chapter 7 Trustee.
Charles M. Caldwell, Office of the U.S. Trustee, Columbus, Ohio, Asst. U.S. Trustee.
Suburban Motor Freight, Inc. ("Debtor") filed a voluntary petition under Chapter 11 of the Bankruptcy Code on February 27, 1987. The Bureau of Workers' Compensation ("Bureau") filed a proof of claim on July 20, 1987, founded upon the Debtor's failure to pay workers' compensation premiums as required by Ohio Revised Code § 4123.35. The claim classifies the unpaid premiums as excise taxes entitled to a priority in distribution of the assets of the estate under 11 U.S.C. § 507. The Bureau amended its proof of claim on November 9, 1987, simply to change the amount of the claim from $291,250.21 to $533,563.62.
The Debtor's Chapter 11 case was converted to a case under Chapter 7 of the Bankruptcy Code on May 23, 1988, following which Stephen K. Yoder was appointed trustee ("Trustee"). On December 11, 1990, the Trustee filed an objection ("Objection"), stating that "claims for unpaid workers' compensation premiums are not entitled to priority status as a matter of law." The Trustee asserted therein that the Bureau's amended proof of claim (the "Claim") should be allowed as an unsecured claim without priority in distribution.
The Bureau, in its response filed on January 4, 1991, argues that the Claim is for unpaid taxes, thereby entitling the Claim to priority status under 11 U.S.C. § 507(a)(7)(E). The Bureau asserts further that this Court's ruling in State of Ohio, Bureau of Workers' Compensation v. Tri-Manufacturing and Sales Co., 82 B.R. 58 (Bankr.S.D.Ohio 1988), is stare decisis as to this issue. The Trustee argues, in his response of March 18, 1991, that the Claim is based upon unpaid fees, not taxes, and thus is not entitled to priority status under 11 U.S.C. § 507. The Trustee does not dispute the amount of the claim.
A hearing on the Objection was held on March 25, 1991. The parties, representing that there were no disputed issues of fact, requested and were granted an opportunity to file briefs. The parties also indicated they would file a joint stipulation of facts. Prior to the completion of briefing, the Bureau filed a Motion to Take Judicial Notice of certain matters. The Trustee responded to the motion, asserting that the Bureau was seeking to introduce facts which were not of record. The Court held a hearing on the Bureau's motion on October 21, 1991, by which time briefing had been completed, to determine, inter alia, whether there were genuine issues of material fact and whether the parties intended to stipulate any facts. At the hearing, the parties requested that the Court suspend its consideration of the motion while they attempted to reach such stipulations. Joint stipulations of fact were filed on October 30, 1991.
The following stipulations describe the general operation of the workers' compensation system in Ohio:
The Court is vested with jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this judicial district. This is a core proceeding which the Court may hear and determine in accordance with 28 U.S.C. § 157(b)(2)(B).
The Claim seeks priority status under 11 U.S.C. § 507(a)(7)(E), which provides:
See also New Neighborhoods v. West Virginia Workers' Compensation Fund, 886 F.2d 714, 719 (4th Cir.1989) (). Accordingly, the Claim has priority status in bankruptcy only if it can be characterized as an excise tax. It is undisputed that the Bureau is a governmental unit of the State of Ohio.
The Trustee's argument can be stated generally: The Claim should be treated as a general unsecured claim because the Debtor's unpaid premiums cannot be construed as excise taxes within the meaning of 11 U.S.C. § 507(a)(7)(E). The Bureau contends that its Claim is a claim for an excise tax under § 507(a)(7)(E). Thus, the sole issue before the Court is whether the Claim, based upon the Debtor's unpaid workers' compensation premiums, is a claim for unpaid excise taxes within the meaning of § 507(a)(7)(E).
The determination of whether a particular exaction is a tax within the purview of bankruptcy law is a federal question. United States v. Mansfield Tire & Rubber Co. (In re Mansfield Tire & Rubber Co.), 942 F.2d 1055, 1059 (6th Cir.1991)1 (citing City of New York v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 1029, 85 L.Ed. 1333 (1914)); New Neighborhoods, 886 F.2d at 718. However, inferences from relevant state law may be drawn. Feiring, 313 U.S. at 285, 61 S.Ct. at 1029. See also In re Adams, 40 B.R. 545 (D.E.D.Pa.1984); In re Smith Jones, Inc., 36 B.R. 408, 410 (Bankr. D.Minn.1984). Hence, the Court's inquiry may incorporate both federal and state law.
The Bankruptcy Code makes no effort to define "tax" or "excise tax." Although there is no definition of these terms in the Code, it has been held that an excise tax is:
... an indirect tax, one not directly imposed upon persons or property, and is one that is `imposed on the performance of an act, the engaging in any occupation, or the enjoyment or sic a privilege.\'
New Neighborhoods, 886 F.2d at 719 ). See also In re Metro Transportation Co., 117 B.R. 143, 153 (Bankr.E.D.Pa.1990). An excise tax also has been described as an impost for the right to engage in a certain business or transaction. Matter of Pennsylvania Iron & Coal Co., Inc., 40 B.R. 918, 922 (Bankr. S.D.Ohio 1984) (citing East Ohio Gas Co. v. Tax Comm'n of Ohio, 43 F.2d 170, 172 (S.D.Ohio 1930)). The label given by a statute to a particular obligation is not conclusive, however. Mansfield Tire, 942 F.2d at 1060 (citing New Jersey v. Anderson, 203 U.S. 483, 27 S.Ct. 137, 51 L.Ed. 284 (1906)); New Neighborhoods, 886 F.2d at 718 (citing Feiring, 313 U.S. at 285, 61 S.Ct. at 1029). The substance of the obligation, and not the label, is the determining factor. New Neighborhoods, 886 F.2d at 718.
Both parties have embraced the Supreme Court's definition of the term "tax" in Feiring, 313 U.S. at 285, 61 S.Ct. at 1029: "The priority commanded by § 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."2 In Feiring, the Supreme Court held that a tax laid upon receipts from sales of personal property was a tax entitled to priority in payment under the Act.
The Ninth Circuit, relying on Feiring, ruled that for the charges at issue— sewer user fees—to be classified as taxes entitled to priority under the Act, the charges must satisfy two requirements; first, they must be "taxes" as defined by federal law; and second, their classification as priority claims must be consistent...
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