Rizzo v. State (In re Rizzo)

• Decision Date: 04 February 2014
• Docket Number: No. 13–1230.,13–1230.
• Parties: In re Gaetano T. RIZZO, Debtor. Gaetano T. Rizzo, Appellant, v. State of Michigan, Department of Treasury, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

741 F.3d 703

In re Gaetano T. RIZZO, Debtor.

Gaetano T. Rizzo, Appellant,

v.State of Michigan, Department of Treasury, Appellee.

No. 13–1230.

United States Court of Appeals,Sixth Circuit.

Argued: Jan. 23, 2014.

Decided and Filed: Feb. 4, 2014.

ARGUED:Leon N. Mayer, Schafer & Weiner PLLC, Bloomfield Hills, Michigan, for Appellant. Allison M. Dietz, Office of the Michigan Attorney General, Detroit, Michigan, for Appellee. ON BRIEF:Leon N. Mayer, Schafer & Weiner, Bloomfield Hills, Michigan, for Appellant. Allison Michele Dietz, Office of the Michigan Attorney General, Detroit, Michigan, for Appellee.

Before: SUHRHEINRICH, GRIFFIN, and KETHLEDGE, Circuit Judges.

OPINION

GRIFFIN, Circuit Judge.

Despite the fact that Gaetano Rizzo filed for bankruptcy protection and received a general discharge, the Michigan Department of Treasury (“Treasury”) persisted in its claim that Rizzo owed Treasury more than $70,000 in unpaid Michigan Single Business Tax (“SBT”). According to Treasury, Rizzo was personally liable for the unpaid tax because a company for which he had been the responsible corporate officer had failed to pay it, thereby triggering Rizzo's obligation to pay under applicable state statutes. Treasury argues that Rizzo's personal liability for the tax deficiency is nondischargeable in bankruptcy because it is a debt for an “excise tax,” as defined in 11 U.S.C. § 507(a)(8)(E).

Rizzo concedes that the unpaid SBT is an “excise tax” deficiency as to the now-defunct company of which he was formerly an officer, and he also does not dispute that he was personally liable for the company's unpaid tax under the relevant state statutes. Nevertheless, Rizzo argues that, because he had only derivative—rather than primary—liability for the unpaid SBT, his obligation to pay it is not a debt for an “excise tax” and is consequently not excepted from discharge under § 507(a)(8)(E). Both the bankruptcy court and the district court disagreed with Rizzo and dismissed his adversary action. Because Michigan's tax statutes simply confer derivative liability upon Rizzo for precisely the same excise tax deficiency that was assessed against the company, we affirm.

I.

Rizzo filed a voluntary petition for personal Chapter 7 bankruptcy in 2011 and received a general discharge later that year. Despite his discharge, Treasury sent Rizzo several collection letters demanding that he pay $72,286.39 in delinquent SBT that had been assessed against Jefferson Beach Properties, LLC (the “Company”), of which Rizzo had been an officer.

In response to Treasury's collection efforts, Rizzo filed an adversary action in the bankruptcy court, contending that his personal liability for the Company's unpaid SBT had been discharged in bankruptcy. Treasury moved to dismiss Rizzo's adversary action, claiming that his liability for the SBT deficiency is a nondischargeable “excise tax” debt under 11 U.S.C. § 507(a)(8)(E). The bankruptcy court agreed with Treasury and dismissed the case, ruling that Rizzo's personal liability for the unpaid SBT was nondischargeable in bankruptcy.

Rizzo appealed to the district court, but it affirmed, reaching the same conclusion as the bankruptcy court and specifically concluding that Rizzo's liability for the SBT deficiency was a debt for an “excise tax,” despite the fact that he was only derivatively liable for it. Rizzo now appeals.

II.

In appeals that originate in bankruptcy courts, we “directly review the bankruptcy court's decision rather than the district court's review of the bankruptcy decision.” In re Alfes, 709 F.3d 631, 636 (6th Cir.2013) (citation omitted). The bankruptcy court's factual findings are reviewed for clear error and its conclusions of law are reviewed de novo. Id. Rizzo's appeal presents a pure question of law: whether Rizzo's personal liability for the Company's unpaid SBT is a debt for an “excise tax,” where his liability for the tax deficiency is derivative under state taxation statutes. We conclude that it is.

A.

On the underlying issues, the parties agree. A bankruptcy discharge “does not discharge an individual debtor from any debt ... for a tax or a customs duty ... of the kind and for the periods specified in section 507(a)(3) or 507(a)(8) of this title.” 11 U.S.C. § 523(a)(1)(A). Section 507(a)(8)(E), in turn, defines one such type of nondischargeable tax debt: “unsecured claims of governmental units,” including “an excise tax on ... a transaction” occurring within a three-year limitations period. 11 U.S.C. § 507(a)(8)(E).

Whether a given state exaction is a nondischargeable “excise tax” under the Bankruptcy Code is a matter of federal law. In re Suburban Motor Freight, Inc. (Suburban II), 36 F.3d 484, 487 (6th Cir.1994); see also City of N.Y. v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 85 L.Ed. 1333 (1941). The court makes this determination by engaging in a “functional examination” of the applicable statutory scheme to determine whether it falls within the federal statutory definition. United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996). In doing so, the statutory labels of the exaction are not dispositive; the court must instead evaluate the statute's “actual effects to determine whether it functions as either a tax or else as some different kind of obligation.” Boston Reg'l Med. Ctr., Inc. v. Mass. Div. of Health Care Fin. & Policy, 365 F.3d 51, 58 (1st Cir.2004) (internal quotation marks omitted); see Suburban II, 36 F.3d at 487–89.

Rizzo concedes that Michigan's SBT is an “excise tax” as to the Company. Cf. Quiroz v. Mich. Dep't of Treasury, 472 B.R. 434, 437 (E.D.Mich.2012) (citing Trinova Corp. v. Mich. Dep't of Treasury, 498 U.S. 358, 362, 111 S.Ct. 818, 112 L.Ed.2d 884 (1991) (describing the “value added” concept of the SBT)).

Nor does Rizzo dispute that he was personally liable for the Company's unpaid SBT as a responsible corporate officer, as provided for in Mich. Comp. Laws § 205.27a(5). Section 205 of the Michigan Compiled Laws is headed, “Revenue Collection by Department of Treasury,” and § 205.27a(5) provides that certain corporate officers are personally liable for the unpaid tax debts of their business organizations:

(5) If a corporation, limited liability company, limited liability partnership, partnership, or limited partnership liable for taxes administered under this act fails for any reason to file the required returns or to pay the tax due, any of its officers, members, managers, or partners who the department determines ... have control or supervision of, or responsibility for, making the returns or payments is personally liable for the failure.... The dissolution of a corporation, limited liability company, limited liability partnership, partnership, or limited partnership does not discharge an officer's, member's, manager's, or partner's liability for a prior failure of the corporation, limited liability company, limited liability partnership, partnership, or limited partnership to make a return or remit the tax due. The sum due for a liability may be assessed and collected under the related sections of this act.

Mich. Comp. Laws § 205.27a(5).

B.

Although Rizzo admits that the unpaid SBT is a nondischargeable “excise tax” debt for purposes of § 507(a)(8)(E) as to the Company, he contends that his personal liability for the Company's SBT tax deficiency is not a debt for an “excise tax.” Because the term “excise tax” is not defined in the Bankruptcy Code, courts determining its meaning have typically resorted to dictionary definitions. See, e.g., In re Lorber Indus. of Calif., 564 F.3d 1098, 1101 (9th Cir.2009); Boston Reg'l Med. Ctr., 365 F.3d at 57 (noting that “the legislative history [is not] informative on what the term means”). The consensus is that “excise tax” as used in § 507(a)(8)(E) generally refers to “[a] tax imposed on the manufacture, sale, or use of goods (such as a cigarette tax), or on an occupation or activity (such as a license tax or an attorney occupation fee).” Black's Law Dictionary 646 (9th ed.2009). See Boston Reg'l Med. Ctr., 365 F.3d at 65;In re George, 361 F.3d 1157, 1163 (9th Cir.2004); In re DeRoche, 287 F.3d 751, 755 (9th Cir.2002); In re Groetken, 843 F.2d 1007, 1013 (7th Cir.1988). Typically, an excise tax is imposed upon “a discrete act by the person or entity being taxed,” DeRoche, 287 F.3d at 755, in contrast with, for example, a tax on income. George, 361 F.3d at 1163. Still, an “excise” has a “broad definition,” Boston Reg'l Med. Ctr., 365 F.3d at 65, essentially encompassing any tax that is “indirectly assessed,” In re Suburban Motor Freight, Inc. (Suburban I), 998 F.2d 338, 340 n. 3 (6th Cir.1993); that is, any tax “that is not directly imposed upon people or property” but is instead “imposed upon a particular use of property” or upon the exercise of a “right or privilege.” In re Nat'l Steel Corp., 321 B.R. 901, 909 (Bankr.N.D.Ill.2005) (quotation marks and citations omitted); see also New Neighborhoods, Inc. v. W. Va. Workers' Comp. Fund, 886 F.2d 714, 719 (4th Cir.1989).

Rizzo contends that his personal debt to Treasury is not an “excise tax” debt because it did not arise from his own participation in any sort of taxable transaction. Instead, he argues, Treasury's claim against Rizzo arose solely from his status as a responsible corporate officer and therefore does not function as an excise.

In support of this position, Rizzo claims that the term “excise tax” as used in § 507(a)(8)(E) is ambiguous. He is incorrect. “Excise tax” is susceptible to a definitive meaning, albeit a broad one. See Suburban I, 998 F.2d at 340 n. 3. And under the authorities that Rizzo himself points to, the identity of the ultimate obligor does not inhere in the definition of an “excise.” See Black's Law Dictionary 646 (9th ed.2009). Because whether a tax is an “excise” or not does not depend upon who is required to pay it, section 507(a)(8)(E)'s reference to “excise...