Trism Trustees v. IRS ( 2004 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
No. 04-6010 WM
In re: *
*
Trism, Inc., et al., *
*
Debtors. *
*
Trustees of the Trism Liquidating Trust, * Appeal from the United States
* Bankruptcy Court for the
Appellants, * Western District of Missouri
*
v. *
*
Internal Revenue Service, *
*
Appellee. *
Submitted: May 26, 2004
Filed: July 12, 2004
Before KRESSEL, Chief Judge, SCHERMER and MAHONEY, Bankruptcy
Judges
SCHERMER, Bankruptcy Judge
The Trustees of the Trism Liquidating Trust (“Trustees”) appeal the bankruptcy
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court order which classified the claim of the Internal Revenue Service (“IRS”)
arising out of an obligation imposed under 26 U.S.C. § 44812 as an excise tax entitled
to priority treatment under 11 U.S.C. § 507(a)(8)(E).3 We have jurisdiction over this
appeal from the final order of the bankruptcy court. See 28 U.S.C. § 158(b). For the
reasons set forth below, we affirm.
ISSUE
The issue on appeal is whether the bankruptcy court erred in concluding that
the monetary obligation imposed by Section 4481 of the Internal Revenue Code in
connection with the operation of certain heavy motor vehicles on the highways is an
excise tax entitled to priority within the ambit of Section 507(a)(8)(E) of the
Bankruptcy Code. We conclude that the bankruptcy court did not err in determining
that the obligation imposed by Section 4481 of the Internal Revenue Code is an
excise tax entitled to priority under Section 507(a)(8)(E) of the Bankruptcy Code.
BACKGROUND
Trism, Inc. and its subsidiaries (“Trism”) filed petitions for relief under
Chapter 11 of the Bankruptcy Code on December 18, 2001. The IRS filed timely
proofs of claim asserting, inter alia, a priority excise tax claim in the amount of
$305,872.64 (the “Claim”) for liabilities due under Section 4481 of the Internal
1
The Honorable Jerry W. Venters, United States Bankruptcy Judge for the
Western District of Missouri.
2
Title 26 of the United States Code is referred to herein as the Internal
Revenue Code.
3
Title 11 of the United States Code is referred to herein as the Bankruptcy
Code.
2
Revenue Code. Trism objected to the priority classification of the Claim. After the
objection was filed but before the hearing on the objection was conducted, Trism
confirmed a liquidating plan pursuant to which the authority to liquidate claim
objections was assigned to the Trustees.
The bankruptcy court conducted a hearing on the objection to the Claim and
entered its order allowing the Claim as a priority claim. The Trustees appeal the
allowance of priority status for the Claim.
STANDARD OF REVIEW
The facts are not in dispute. The bankruptcy court’s determination that the
obligation in question is an excise tax within the ambit of Section 507(a)(8)(E) of the
Bankruptcy Code is a conclusion of law which we review de novo. North Dakota
Workers Compensation Bureau v. Voightman (In reVoightman), 239 B.R. 380, 382
(B.A.P. 8th Cir. 1999); see also United States v. Juvenile Shoe Corp. of Am. (In re
Juvenile Shoe Corp. of Am.), 99 F.3d 898 (8th Cir. 1996).
DISCUSSION
Section 507(a)(8)(E) of the Bankruptcy Code provides priority status to an
excise tax on a transaction which either occurred within the three years immediately
preceding the bankruptcy petition or which gave rise to the obligation to file a tax
return which was due after three years prior to the petition date. In the instant case
the parties do not dispute that the obligation accrued within the applicable temporal
parameters. The Trustees dispute that the applicable obligation is an excise tax and
that it is “on a transaction.”
3
Section 4481 of the Internal Revenue Code4 imposes a yearly financial
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26 U.S.C. § 4481 provides as follows:
(a) Imposition of tax.--A tax is hereby imposed on the use of any highway motor
vehicle which (together with the semitrailers and trailers customarily used in
connection with highway motor vehicles of the same type as such highway motor
vehicle) has a taxable gross weight of at least 55,000 pounds at the rate specified
in the following table:
Taxable gross weight: Rate of tax:
At least 55,000 pounds, but not over $100 per year plus $22 for each 1,000
75,000 pounds pounds (or fraction thereof) in excess
of 55,000 pounds.
Over 75,000 pounds $550.
(b) By whom paid.--The tax imposed by this section shall be paid by the person in
whose name the highway motor vehicle is, or is required to be, registered under
the law of the State or contiguous foreign country in which such vehicle is, or is
required to be, registered, or, in case the highway motor vehicle is owned by the
United States, by the agency or instrumentality of the United States operating such
vehicle.
(c) Proration of tax.--
(1) Where first use occurs after first month.--If in any taxable period the first use
of the highway motor vehicle is after the first month in such period, the tax shall
be reckoned proportionately from the first day of the month in which such use
occurs to and including the last day in such taxable period.
(2) Where vehicle destroyed or stolen.--
(A) In general.--If in any taxable period a highway motor vehicle is destroyed or
stolen before the first day of the last month in such period and not subsequently
used during such taxable period, the tax shall be reckoned proportionately from
the first day of the month in such period in which the first use of such highway
motor vehicle occurs to and including the last day of the month in which such
highway motor vehicle was destroyed or stolen.
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obligation on the use of large trucks on highways within this country. The amount
of the obligation is determined by the weight of the vehicle and is payable by the
registered owner of the vehicle. The owner is exempt from paying the obligation if
the vehicle is driven on highways less than 5,000 miles during the taxable year.
26 U.S.C. § 4483(d); 26 C.F.R. § 41.4483-3(a).
The Trustees argue that the obligation imposed by Section 4481 of the Internal
Revenue Code is a fee and not a tax. The Trustees also argue that even if the
obligation is an excise tax it is not imposed on a transaction as required by
Section 507(a)(8) of the Bankruptcy Code.
A. Tax Versus Fee
The obligation imposed on large trucks is codified in the Internal Revenue
Code within a chapter entitled Certain Other Excise Taxes.5 However, neither the
label affixed to the large vehicle obligation nor its characterization within the Internal
Revue Code is dispositive for purposes of its classification under the Bankruptcy
Code. U.S. v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213, 224, 116
S. Ct. 2106, 2114 (1996); Juvenile Shoe, 99 F.3d at 900-01; Voightman, 239 B.R. at
(B) Destroyed.--For purposes of subparagraph (A), a highway motor vehicle is
destroyed if such vehicle is damaged by reason of an accident or other casualty to
such an extent that it is not economic to rebuild.
(d) One tax liability per period.--
(1) In general.--To the extent that the tax imposed by this section is paid with
respect to any highway motor vehicle for any taxable period, no further tax shall
be imposed by this section for such taxable period with respect to such vehicle.
(2) Cross reference.--For privilege of paying tax imposed by this section in
installments, see section 6156.
5
Chapter 36 of Title 26 of the United States Code.
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383. Instead, we must examine the function Section 4481 of the Internal Revenue
Code is designed to serve to determine if the obligation qualifies as an excise tax
under the Bankruptcy Code. Id.The term “tax” is not defined in the Bankruptcy Code. Therefore, we must
look to the normal meaning of the term for guidance. The Supreme Court has defined
a tax as “a pecuniary burden laid upon individuals or property for the purpose of
supporting the Government.” Reorganized CF&I Fabricators, 518 U.S. at 224, 116
S. Ct. at 2113 (citing New Jersey v. Anderson, 203 U.S. 483, 492, 27 S. Ct. 137, 140
(1906); United States v. New York, 315 U.S. 510, 515, 62 S. Ct. 712, 714-15 (1942);
and City of New York v. Feiring, 313 U.S. 283, 285, 61 S. Ct. 1028, 1029 (1941)).
Alternatively, the Court has referred to a tax as “an enforced contribution to provide
for the support of government.” Reorganized CF&I Fabricators, 518 U.S. at 224,
116 S. Ct. at 2113 (citing United States v. La Franca, 282 U.S. 568, 572, 51 S. Ct.
278, 280 (1931)). Taxation is a legislative function. Congress may act arbitrarily in
the imposition of taxes, disregarding any benefit to the payor and imposing the
liability solely on the ability to pay, the ownership of property, or income. Nat’l
Cable Television Ass’n, Inc. v. United States, 415 U.S. 336, 340, 94 S. Ct. 1146, 1149
(1974). A tax is a general charge which does not correlate to any particular benefit
to the payor. Coalition for Fair and Equitable Regulation of Docks on Lake of the
Ozarks v. Fed. Regulatory Comm’n, 297 F.3d 771, 778 (8th Cir. 2002).
In contrast, a fee is a charge exacted in exchange for a benefit to the payor not
shared by other members of society. Nat’l Cable Television Ass’n, 415 U.S. at 340-
41, 94 S. Ct. at 1149. The payor voluntarily pays a fee to receive a benefit or
privilege which would not otherwise be available to it. Coalition for Fair and
Equitable Regulation of Docks, 297 F.3d at 778-79. A fee is generally based on the
cost of providing the benefit to the recipient and is designed to subsidize the cost of
the benefits supplied. Id.; Voightman, 239 B.R. at 383.
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An obligation may be classified as a tax for bankruptcy purposes if it is (1) an
involuntary pecuniary burden, regardless of name, laid upon individuals or property;
(2) imposed by or under the authority of the legislature; (3) for public purposes,
including defraying expenses of government or undertakings authorized by
government; (4) under the police or taxing power of the government; (5) universally
applicable to similarly situated entities; and (6) according priority treatment to the
claim will not disadvantage private creditors with like claims. Voightman, 239 B.R.
at 383-83 (citing County Sanitation Dist. No. 2 v. Lorber Indus. of California, Inc. (In
re Lorber Indus. of California, Inc.), 675 F.2d 1062, 1066 (9th Cir. 1982) and Ohio
Bureau of Workers’ Compensation v. Yoder (In re Suburban Motor Freight, Inc.), 36
F.3d 484, 488 n.2 (6th Cir. 1994)).
The obligation imposed by Section 4481 of the Internal Revenue Code is a
pecuniary burden laid upon property, namely large trucks. The Trustees contend that
the burden is voluntary because it is not imposed on the owner of every vehicle, only
on those who choose to own and operate heavy trucks on the highways and drive at
least 5,000 miles annually. We disagree. The obligation is involuntary. It is imposed
on every large vehicle that fits within the parameters of Section 4481 of the Internal
Revenue Code.
The obligation was imposed by legislative authority under the taxing power of
Congress. Congress authorized an annual tax on the use of trucks and buses on
highways in the Highway Revenue Act of 1956. S. REP. NO. 84-2054 (1956),
reprinted in 1956 U.S.C.C.A.N. 2851. Section 4481 of the Internal Revenue Code
was enacted as a result of the Highway Revenue Act of 1956. The purpose of the
Highway Revenue Act of 1956 was to authorize appropriations for the construction
of highways in part through user taxes. Id. The funds collected pursuant to
Section 4481 of the Internal Revenue Code are deposited into the Federal Highway
Trust Fund. 26 U.S.C. § 9503(c). Moneys in such fund are used to meet the
obligations of the United States which are incurred in the administration of numerous
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surface transportation acts. Id. Although the payor of the assessment benefits from
improved highways, that benefit is not limited to those who pay the tax. Nat’l Cable
Television Ass’n, 415 U.S. at 340-41, 94 S. Ct. at 1149. The benefit of improved
highways is enjoyed by all members of society including those who do not drive on
the highways yet benefit indirectly by the positive impact the highway system has on
interstate commerce and the economy. The purpose of the heavy vehicle obligation
is public. The assessment is applied universally to all similarly situated entities:
every owner of a heavy truck must pay the obligation unless such owner drives the
vehicle less than 5,000 miles annually. The exemption for vehicles with nominal use
does not render the obligation non-uniform; rather it recognizes a policy decision to
except from the obligation those vehicles which are rarely driven on the highways.
Will priority treatment for the claim arising under Section 4481 of the Internal
Revenue Code disadvantage private creditors with like claims? Payments to holders
of priority claims always disadvantage the holders of unsecured claims unless all
claims are paid in full. However, are there any private creditors with “like” claims?
No. Congress has singled out certain types of claims to receive priority treatment
under the Bankruptcy Code. 11 U.S.C. § 507. Taxes are one type of preferred
obligation. 11 U.S.C. § 507(a)(8). Taxes are not like other unsecured claims. Taxes
are assessed for the general benefit of society upon all individuals, entities, or
property subject to the tax. Private unsecured claims are owed to entities which
generally elected to do business with the debtor. The record in this case lacks any
evidence of unsecured claims which are “like” the heavy vehicle tax imposed on the
owners of heavy trucks which operate such trucks on the public highways.6
6
Arguments have been made in the workers’ compensation arena that
mandatory premiums imposed by certain states cannot qualify as taxes because
providing such claims priority would disadvantage private insurers who are owed
premiums for workers compensation coverage. Courts have rejected this argument
and concluded that workers compensation premiums owed in monopolistic states
are taxes entitled to priority in the bankruptcy context. Ohio Bureau of Workers’
8
The Trustees argue that the obligation imposed by Section 4481 of the Internal
Revenue Code is a fee rather than a tax because it must be paid in order to obtain a
license to operate a truck on the highways. Operating licenses are issued by the
individual states, not by the federal government. Nonetheless, the federal government
encourages states to require proof of payment of the heavy truck tax before
registering trucks. 26 C.F.R. § 41.6001-2. The federal government may withhold up
to twenty-five percent of a state’s federal highway funds if the state fails to require
proof of payment of the heavy truck tax as a prerequisite for licensing a truck.
26 U.S.C. § 141(c). According to the Trustees, the link between the payment of the
obligation and the ability to exercise the privilege of operating a heavy vehicle on the
highways renders the obligation a fee. We disagree. Under the Trustee’s argument,
personal property taxes would be fees and not taxes. Missouri requires proof of
payment of personal property taxes as a prerequisite to registration of a vehicle.
Mo. Rev. Stat. § 301.025. Accordingly, a Missouri citizen cannot legally operate a
motor vehicle on public roadways without payment of personal property taxes. While
nonpayment of personal property taxes prevents an individual from registering his or
her vehicle, this consequence does not transform the nature of the financial obligation
from a tax to a fee. A tax is no less a tax because it has an impact on behavior or a
regulatory effect. Juvenile Shoe, 99 F.3d at 902.
We conclude that the obligation imposed by Section 4481 of the Internal
Revenue Code is a tax and not a fee. However, we must still determine whether the
obligation is an excise tax on a transaction in order to qualify for priority treatment
under Section 507(a)(8)(E) of the Bankruptcy Code.
Compensation v. Yoder (In re Suburban Motor Freight, Inc.), 998 F.2d 338, 341-
42 (6th Cir. 1993); Voightman, 239 B.R. at 357. Here, no evidence has been
presented of any private entities with claims arising out of the operation of heavy
trucks on highways and we can conceive of no such “like” claim.
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B. Excise Tax on a Transaction
The Supreme Court has identified an excise tax as an inland duty or impost
operating as an indirect tax on the consumer, levied upon certain specified articles.
It is also levied on licenses to pursue certain trades and commodities. Patton v.
Brady, 184 U.S. 606, 618, 22 S. Ct. 493 (1902). Black’s Law Dictionary defines an
excise tax as
a tax imposed on the performance of an act, the engaging in an
occupation, or in the employment of a privilege. A tax on the
manufacture, sale, or use of goods or on the carrying on of an
occupation or activity, or a tax on the transfer of property. In
current usage, the term has been extended to include various
license fees and practically every internal revenue tax except
income tax.
Black’s Law Dictionary 563 (6th ed. rev. 1990)(citations omitted). This court has
defined an excise tax as “an indirect tax, one not directly imposed upon persons or
property but imposed on the performance of an act, the engaging in an occupation,
or the enjoyment of a privilege.” Voightman, 239 B.R. at 382-83. The tax at issue
here is clearly a tax on something other than income and would therefore qualify as
an excise tax under the current usage of the term as recognized by Black’s Law
Dictionary.
The fact that the tax is an excise tax is not enough for priority treatment,
however, because the statute only affords priority treatment to an excise tax on a
“transaction.” What does this mean? According to Black’s Law Dictionary, a
transaction is
An act of transacting or conducting any business; between two or
more persons; negotiation; that which is done; an affair. An act,
agreement, or several acts or agreements between or among
parties whereby a cause of action or acceleration of legal rights
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occur. It may involve selling, leasing, borrowing, mortgaging or
lending. Something which has taken place, whereby a cause of
action has arisen. It must therefore consist of an act or agreement,
or several acts or agreements having some connection with each
other, in which more than one person is concerned, and by which
the legal relations of such persons between themselves are
altered. It is a broader term than “contract.”
Black’s Law Dictionary 1496 (6th ed. Rev. 1990)(citations omitted). A transaction
in the context of an excise tax is often a discrete act, for example, the sale of a
cigarettes. DeRoche v. Arizona Indus. Comm’n, 287 F.3d 751, 755 (9th Cir. 2002).
However, the transaction can be less obvious, such as the employment of an
individual without maintaining workers’ compensation coverage. Id.The obvious meaning of transaction in Section 507(a)(8)(E) is some act by the
taxpayer. Bliemeister v. Indus. Comm’n of Arizona (In re Bliemeister), 251 B.R. 383,
394 (Bankr. D. Ariz. 2000). The transaction at issue here is the operation of a heavy
vehicle on the highways more than 5,000 miles in a calendar year. The operation of
the vehicle for 5,000 miles is an act or a series of acts whereby the right to collect
payment of the heavy vehicle tax arises. The event of operating the vehicle falls
within the broad definition of transaction. This conclusion is supported by the
legislative history of Section 507(a)(8) which provides as follows:
All federal, state or local taxes generally considered or expressly
treated as excises are covered by this category, including sales
taxes, estate and gift taxes, gasoline and special fuel taxes, and
wagering and truck taxes.
124 Cong. Rec. H. 113 (Sept. 28, 1978); S. 17430 (Oct. 6, 1978) (emphasis added).
See Dawson v. Oregon (In re Dawson), 98 B.R. 519 (Bankr. D. Or.
1989)(concluding that Oregon motor carrier tax was a non-dischargeable excise tax).
We conclude that the obligation imposed by Section 4481 of the Internal Revenue
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Code is an excise tax on the transaction of operating a heavy truck on the highways
in excess of 5,000 miles.
CONCLUSION
The financial obligation imposed on owners of heavy highway vehicles
pursuant to Section 4481 of the Internal Revenue Code is an excise tax on a
transaction which is entitled to priority treatment pursuant to Section 507(a)(8)(E) of
the Bankruptcy Code. Accordingly, the bankruptcy court's order is affirmed.
KRESSEL, Chief Judge, concurring.
I concur completely in the majority’s opinion, but write separately only to
emphasize the historical origins of the language “a transaction occurring before the
date of the filing of the petition.”
Section 64(a)(4) of the Bankruptcy Act of 1898, as amended, provided for a
priority for “taxes which became legally due and owing by the bankrupt to the United
States or to any State or any subdivision thereof which are not released by a discharge
in bankruptcy . . . .” 11 U.S.C. § 104(a)(3) (repealed). In its 1973 Report, the
Bankruptcy Commission recommended that the language be changed so that instead
of relying on the language “legally due and owing,” which had been the subject of
litigation, that more specific language be used as to each kind of tax, including excise
taxes. The proposed language for excise taxes provided a priority for “excise taxes
on transactions occurring within one year prior to the date of the petition.” Report
of the Commission on the Bankruptcy Laws of the United States, H.R. Doc. No. 93-
137, 93rd Cong., 1st Sess. (1973).
While this language evolved and changed during the legislative process and
resulted in the language in the current statute, the language “a transaction occurring
before the date of the filing of the petition” survived as a substitute for the
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Bankruptcy Act’s language “legally due and owing.” Whether the new language is
clearer than the old language is certainly open to debate, but it is clear from the
Report and subsequent history that no change in substance was intended. There is
no indication in the Commission’s Report or subsequent history that the word
“transaction” was intended to have any particular technical meaning or substance
apart from the fact that it was used to indicate that whatever triggered liability for the
tax occurred before the petition was filed. This does not mean, of course, that we
can ignore the word “transaction,” but it helps us determine what Congress had in
mind when it used that word.
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