In re West Coast Cabinet Works

• Decision Date: 04 August 1950
• Docket Number: No. 44249-W,44249-W
• Citation: 92 F. Supp. 636
• Parties: In re WEST COAST CABINET WORKS, Inc.
• Court: U.S. District Court — Southern District of California

92 F. Supp. 636

In re WEST COAST CABINET WORKS, Inc.

No. 44249-W, Bkcy.

United States District Court S. D. California, Central Division.

August 4, 1950.

Leslie S. Bowden, Los Angeles, Cal., for trustee.

Fred N. Howser, Attorney General, James E. Sabine, Daniel N. Stevens, Deputy Attorneys General, for State of California.

Craig, Weller & Laugharn, Los Angeles, Cal., Hubert F. Laugharn, Thomas Tobin, Los Angeles, Cal., amici curiÊ.

WEINBERGER, District Judge.

The Board of Equalization of the State of California has petitioned to review an order of the Referee in Bankruptcy permanently enjoining the said Board from enforcing as against the trustee or the bankrupt estate herein any of the provisions of the California Sales and Use Tax Law¹ in connection with certain sales made by said trustee in bankruptcy.

This review has been the subject of several hearings before this court and its submission for decision has been twice vacated and the same reopened at the insistence of counsel for the filing of further briefs; thereafter an amended certificate was filed by the Referee; additional briefs were requested by the court; an amicus curiae brief has been presented; the final hearing in this matter was had the latter part of 1949.

The bankrupt herein, West Coast Cabinet Works, Inc., a corporation, was engaged in the business of manufacturing and selling cabinets and filed sales tax returns and paid sales tax under the California Sales and Use Tax Law. On February 5, 1946, the corporation filed a petition under Chapter XI of the Bankruptcy Act, 11 U.S.C.A. ß 701 et seq., and George T. Goggin as receiver of the debtor, was authorized to conduct the business and sell the same as a going concern; he applied to said Board for, and was granted a seller's permit to engage in the business of selling tangible personal property, and during a period of a little over a month completed certain orders which the debtor had on hand, sold the completed articles and paid sales tax on his retail sales as provided in said Sales and Use Tax Law.

On March 12, 1946, the West Coast Cabinet Works, Inc., was adjudicated bankrupt, and George T. Goggin as the appointed trustee was authorized to conduct the business of the bankrupt. As trustee in bankruptcy, Goggin applied for and was granted a permit to engage in the business of selling tangible personal property.

The evidence shows that between March 12, 1946, and March 22, 1946, in conduct of said business, the trustee made sales at retail and also sales for resale, and paid sales taxes. No tax is claimed by the Board to be due for such period.

On March 22, 1946, he was directed by order of the Referee to sell the assets of the estate either at public auction or private sale.

Subsequent to the order to sell in liquidation, the trustee, in addition to various sales for resale, made at least twenty sales which were listed on his books as sales at retail; on ten of the twenty sales the trustee "collected sales tax reimbursement",² sales tax was reported and paid on all sales except certain sales made on March 29, 1946, as hereinafter set forth.

On said date last mentioned, the trustee sold, at public auction, in open court, and subject to confirmation of court, five trucks which had been used by the bankrupt in the conduct of his business for deliveries; each of said five trucks was sold to a different person; no "sales tax reimbursement" was collected; the sales were confirmed by the court; the amounts received from such sales were not included in any sales tax return.

The Board made an additional determination of taxes due basing said assessment upon the gross receipts from the sales of the five trucks; notice of such assessment was mailed to the trustee, no petition for redetermination was filed within 30 days thereafter, whereupon a penalty of 10% was added by the Board to the amount of the tax.

The trustee petitioned for an injunction, and after a hearing before the Referee the order here sought to be reviewed was made. In said order, the Referee found that the sales of the five trucks were not made by the trustee in the course of conducting the bankrupt estate, but were made under court order in the normal administration of the estate in liquidating the assets for the benefit of creditors, subject to the confirmation of court and that the trustee was not liable to the Board for sales tax based upon said sales, and that the Board was attempting to enforce payment of the tax claimed.

There has not been raised a question as to the jurisdiction of this court to pass upon the question before us; it is of course elementary that the district courts have jurisdiction to review the orders of the referees in bankruptcy. It is the duty of a district court, however, to examine into its own jurisdiction, whether or not the question is raised. See Associated Press v. Emmett, D.C.Cal., 45 F.Supp. 907, a decision rendered by Judge Leon R. Yankwich of this court, and cases therein cited. We believe it is also our duty to examine into the jurisdiction of the referee in bankruptcy, especially where an order restraining the enforcement of a state taxing statute is reviewed.

We have considered the question of the Referee's jurisdiction and, because we feel that the same depended upon matters which it is necessary to discuss with reference to other phases of this case, we shall set forth our views on such subject later in this opinion.

On behalf of the trustee it is contended that in making the judicial sales by reason of which the tax is sought to be imposed, he was not a "retailer"³ within said Law; that he was not engaged in the business of making sales at retail; that it was not the intent of the Legislature that a trustee in bankruptcy making sales of the assets of a bankrupt estate, after adjudication, under order of court, in liquidation, should be considered a "retailer"; that if, under the law, such a trustee, making such sales can be held liable under the law as a "retailer", the same would constitute an interference with the administration of the Bankruptcy Act; that to require the trustee herein to obtain a permit from the State Board of California as a condition to the performance of his duties under the Bankruptcy Act is beyond the authority of the State; that the tax is levied directly upon the seller, thus constituting a burden upon the trustee in the performance of his duties under the Bankruptcy Act.

The Board maintains the trustee was a retailer under two theories, the first of which is:

The trustee in bankruptcy in conducting the business of the bankrupt was a retailer within the meaning of the said Law, and the gross receipts from his sales of equipment used in the business of a retailer including the five trucks sold on March 29, 1946, must be included within the measure of the tax.

Counsel for the Board base their first contention on this theory: Congress has expressly provided by the Act of June 18, 1934, 28 U.S.C.A. ß 124a,⁴ now Section 960 in revised Title 28 U.S.C.A., that a trustee in bankruptcy who conducts any business shall be subject to all State taxes applicable to such business the same as if such business were conducted by an individual or corporation; that the trustee once having conducted the business and sold at retail, when he disposes of assets, under an order of court to liquidate, still retains his role of retailer in making the liquidation sales.

In support of this first contention, counsel cite Bigsby v. Johnson, 1941, 18 Cal.2d 860, 118 P.2d 289, 291, a decision of the California Supreme Court en banc. Bigsby was a printer, and as observed by the Court, already classified generally as a retailer under the California Sales and Use Tax Law when he sold one piece of used printing equipment. It was held he sold the said personal property at retail as a part of his business operations, and regardless of the fact that the property sold was not of the type usually sold by him in retail sales, he must include the gross receipts from said sale in the measure of the tax. Northwestern Pacific Railroad Co. v. State Board of Equalization, 1943, 21 Cal.2d 524, 133 P.2d 400, is also cited. In that case a railroad holding a retailer's license for its "Stores Department" sold, pursuant to a long established practice, $100,000 worth of surplus rolling stock over a period of three years. The Supreme Court stated that the case was not distinguishable from Bigsby v. Johnson, supra, holding that specific sales of a retailer could not be segregated from the bulk of its business and treated separately as isolated or occasional sales. The court also stated that even if it were to assume that the business of the railroad could be separated into two separate businesses, the sales, if considered made in the transportation business, were sufficient in number, scope and character to bring them within the purview of the taxing act.

We are referred to the legislative history of section 124a in the cases of Boteler v. Ingels, 1939, 308 U.S. 57, 60, 521, 60 S.Ct. 29, 84 L.Ed. 78, 442 and Palmer v. Webster & Atlas Bank, 1941, 312 U.S. 156, 163, 61 S.Ct. 542, 85 L.Ed. 642.

The Congressional Record, 73rd Congress, 2d session, p. 6656, shows us that the bill, prior to its amendment on the floor of the House, contained the word "receiver" only, and a statement was made at that time that it was directed toward receivers of corporations "appointed to run the business." The amendment containing the words "liquidator, referee, trustee or other officer or agent" was offered and agreed to without discussion. Section 124a as passed on June 18, 1934, read as follows: "Any receiver, liquidator, referee, trustee, or other officers or agents appointed by any United States court who is authorized by said court to conduct any business, or who does conduct any business, shall, from and after June 18, 1934, be subject to all State and local taxes applicable to such business the same as if...