In re Supergrate Open Steel Flooring Co.
| Decision Date | 17 December 1979 |
| Docket Number | Bankruptcy No. 78-00812-JD. |
| Citation | 1 BR 660 |
| Parties | In re SUPERGRATE OPEN STEEL FLOORING CO., a California corporation, Bankrupt. |
| Court | U.S. Bankruptcy Court — Central District of California |
Robert D. Bass, Stutman, Treister & Glatt, Los Angeles, Cal., for plaintiff, Norman E. Stolba, Trustee.
George Deukmejian, Atty. Gen., Patti S. Kitching, Deputy Atty. Gen., Los Angeles, Cal., for defendant, California Franchise Tax Bd.
Two basic questions are here presented:
1. Does the trustee in this case have a duty to file returns and pay franchise taxes pursuant to Section 23151 et seq. of the California Revenue and Taxation Code?
2. Does this court have jurisdiction to determine the foregoing question?
On January 27, 1978 a Creditor's Petition In Involuntary Bankruptcy was filed against Supergrate Open Steel Flooring Co., a California corporation ("Supergrate"); and on March 29, 1978 Supergrate was adjudicated bankrupt. Also on March 29, 1978 attorney Norman E. Stolba was appointed receiver, and on May 15, 1978 attorney Stolba was appointed trustee.1
Prior to the initiation of this bankruptcy proceeding Supergrate had been engaged in the business of the manufacture and sale of steel grating. The trustee did not operate the business of Supergrate after his appointment, nor was he authorized by the court to do so. Instead, the trustee promptly caused the assets of Supergrate to be inventoried, appraised and sold at public auction. In general, these assets consisted of office fixtures and equipment; shop fixtures and equipment; stock, consisting of raw materials, work in process, and finished goods; and vehicles.2
The auction sale was held on June 30, 1978, after notice to creditors and other parties in interest. The gross proceeds from the sale amounted to $72,885.05, from which the auctioneer was entitled to commissions of $3,644.25 and total expenses of $4,814.61. The sale was confirmed on July 25, 1978.
The auction sale disposed of substantially all of the assets of the bankrupt. The trustee also collected certain accounts receivable; however most of these were turned over to the Bank of America pursuant to a court-approved stipulation between said bank and the trustee relating to the bank's claimed security interests.3
In addition to the activities described above, the trustee deposited funds in certificates of deposit and earned interest thereon, initiated adversary proceedings, entered into stipulations, prosecuted objections to claims filed against the estate, and performed other tasks normally required of a trustee in the administration of a bankruptcy estate.
On March 3, 1978 the Franchise Tax Board of the State of California ("Board") directed a letter to the Honorable Richard Mednick, Bankruptcy Judge, a copy of which is attached to this opinion as Appendix A.4 Attached to said letter was a copy of Franchise Tax Board Legal Ruling 407, a copy of which is attached to this opinion as Appendix B. In substance, the Board took the position that a trustee or receiver in bankruptcy who is liquidating the assets of a non-operating corporation, is required to file annual franchise tax returns and to pay the franchise tax when the returns are filed, that the franchise tax will be no less than the minimum tax of $200.00 per year, and that failure to comply may subject the trustee or receiver to personal liability.
On March 21, 1979 the trustee filed a "Motion By Trustee In Bankruptcy For Order Determining That No California Franchise Taxes Are Owing By Estate Or Trustee In Bankruptcy And That Trustee In Bankruptcy Is Not Required To Make And File Franchise Tax Returns." This motion, which was opposed by the Board, came on for hearing on May 2, 1979, at which time certain evidence was received and the court took judicial notice of all of the records, files, and pleadings in this cause. The parties also orally agreed that neither party had any further evidence to offer and that the court could proceed to a decision without affording the parties an opportunity to present any further evidence.
The Board seems to contend that this court has no jurisdiction to determine the issues raised by the trustee in his motion, relying upon In Re Statmaster Corporation, 332 F.Supp. 1248, 1249 (S.D.Fla. 1971), affirmed 465 F.2d 978 (5th Cir. 1972). However, Section 2a(2A) of the Bankruptcy Act, 11 U.S.C. § 11(a)(2A) expressly confers jurisdiction upon courts of bankruptcy to:
"Hear and determine, or cause to be heard and determined, any question arising as to the amount or legality of any unpaid tax, whether or not previously assessed, which has not prior to bankruptcy been contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction . . . "
The Court of Appeals for the Ninth Circuit has interpreted the above-quoted provision as conferring jurisdiction on the bankruptcy court, whether the tax arose prior to or after bankruptcy, and whether or not a proof of claim has been filed for the tax. See Gwilliam v. United States, 519 F.2d 407, 408-411 (9th Cir. 1975); In Re Dolard, 519 F.2d 282, 286 (9th Cir. 1975). In Gwilliam the Ninth Circuit noted that the Fifth Circuit in Statmaster had interpreted the legislative history of § 11(a)(2A) differently, but cited other authorities supporting its view such as In the Matter of Century Vault Co., 416 F.2d 1035, 1041 (3rd Cir. 1969); In Re Durensky, 377 F.Supp. 798 (N.D.Texas 1974); and 3A Collier On Bankruptcy, 14th Edition Rev. 1972, ¶ 64.4073 (pages 2334-35). Other courts have since adopted the Ninth Circuit's interpretation of § 11(a)(2A). See McKenzie v. United States, 536 F.2d 726, 728-729 (7th Cir. 1976); Bostwick v. United States, 521 F.2d 741 (8th Cir. 1975).
The controversy presented by the trustee's motion is real and actual. The trustee has been warned that he may be subject to personal liability if he does not comply with the franchise tax laws which the Board deems applicable; and a resolution of the issues presented is necessary before this bankruptcy proceeding may be closed.5 This court concludes that it has jurisdiction to determine the issues.
Section 23151 of the California Revenue and Taxation Code provides as follows:
And Section 25403 of the California Revenue and Taxation Code provides in part:6
"In cases where receivers, trustees in bankruptcy, or assignees are operating the property or business of a bank or corporation such receivers, trustees, or assignees shall make returns for such bank or corporation in the same manner and form as such a bank or corporation is required to make a return.
Also, 28 U.S.C. § 960 provides that "Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, State, and local taxes applicable to such business to the same extent as if it were conducted by an individual or corporation."
It is clear that if the trustee in this case had conducted the business of Supergrate within the meaning of 28 U.S.C. § 960, he would have incurred obligations for franchise taxes imposed by Section 23151 et seq. of the California Revenue and Taxation Code. Cf. Nicholas v. United States, 384 U.S. 678, 86 S.Ct. 1674, 16 L.Ed.2d 853 (1966); Boteler v. Ingels, 308 U.S. 57, 60 S.Ct. 29, 84 L.Ed. 78 (1939); Fifth Street Building v. McColgan (1941), 19 Cal.2d 143, 119 P.2d 729, appeal dismissed and certiorari denied, 316 U.S. 648, 62 S.Ct. 1298, 86 L.Ed. 1731 (1942).
However, this court is of the view that the trustee in this case was neither "operating the property or business" of Supergrate within the meaning of Section 25403 of the California Revenue and Taxation Code nor "conducting any business" within the meaning of 28 U.S.C. § 960. Cf. California State Board of Equalization v. Goggin, 191 F.2d 726 (9th Cir. 1951), cert. denied, 342 U.S. 909, 72 S.Ct. 302, 96 L.Ed. 680 (1952); State Board of Equalization v. Boteler, 131 F.2d 386 (9th Cir. 1942).
In State Board of Equalization v. Boteler, supra, the bankrupt was a wholesale and retail bakery. The trustee sought to sell the assets of the bankrupt corporation which consisted of furniture, fixtures, and equipment and other miscellaneous items of the business. The California State Board of Equalization contended that the sales by the trustee constituted carrying on business under 28 U.S.C. § 124a, the predecessor of 28 U.S.C. § 960, and that the trustee was required to take out a retail tax permit and collect and remit sales taxes. In rejecting the Board's contention the court said (page 388):
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