In Re: Michael Calabrese, Jr. v.

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 11-3793
___________
IN Re: MICHAEL CALABRESE, JR.,
Appellant
__________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 10-cv-06583)
District Judge: Honorable Noel L. Hillman
___________
Argued April 11, 2012
Before: McKEE, Chief Judge, HARDIMAN, Circuit Judge,
and JONES, II, * District Judge.
(Filed: July 20, 2012)
*
The Honorable C. Darnell Jones, II, District Judge for
the United States District Court for the Eastern District of
Pennsylvania, sitting by designation.
Nicholas S. Herron [Argued]
Law Office of Seymour Wasserstrum
205 West Landis Avenue
Vineland, NJ 08360
Attorneys for Debtor-Appellant
Ramanjit K. Chawla [Argued]
Marlene G. Brown
Marikae G. Toye
Office of Attorney General of New Jersey
P.O. Box 106
25 Market Street
Richard J. Hughes Justice Complex
Trenton, NJ 08625-0000
Attorneys for Defendant-Appellee
Isabel C. Balboa
Office of United States Trustee
535 Route 38 East
Suite 580
Cherry Hill, NJ 08002
Attorney for Trustee
____________
OPINION OF THE COURT
____________
HARDIMAN, Circuit Judge.
We consider for the first time whether retail sales taxes
are “excise” taxes or “trust fund” taxes under the Bankruptcy
Code. The distinction is significant because trust fund taxes
are never dischargeable in bankruptcy. See 11 U.S.C. §§
507(a)(8)(C), (E), 523(a)(1)(A).
2
I
Appellant Michael Calabrese operated “Don’s What a
Bagel, Inc.,” which filed for reorganization under Chapter 11
of the Bankruptcy Code. As proprietor of a restaurant,
Calabrese was required by New Jersey law to collect sales tax
from his customers. N.J. Stat. Ann. §§ 54:32B-3(c)(1),
54:32B-12(a), 54:32B-14(a). After failing to confirm a
reorganization plan, the bankruptcy was converted to Chapter
7. Calabrese also filed a bankruptcy petition under Chapter
13.
The State of New Jersey Department of Taxation (New
Jersey) filed several secured proofs of claim in Calabrese’s
individual bankruptcy. Calabrese moved to have the claims
reclassified as unsecured, and the Bankruptcy Court granted
his motion. New Jersey thereafter filed amended proofs of
claim alleging that Calabrese owes $63,437.19 in taxes
collected while operating his business from 2003 to 2009. 1
Calabrese moved to expunge the claims, and after briefing
and a hearing, the Bankruptcy Court held the taxes at issue
are trust fund taxes under 11 U.S.C. § 507(a)(8)(C) rather
than excise taxes under § 507(a)(8)(E). Calabrese appealed
that decision to the District Court, which affirmed.
II
The District Court had jurisdiction over the bankruptcy
pursuant to 28 U.S.C. § 1334 and to hear the appeal under 28
1
Of this amount, $56,679.78 is subject to a
dischargeability determination in this appeal.
3
U.S.C. § 158(a), and the Bankruptcy Court adjudicated the
underlying proceedings under a referral order pursuant to 28
U.S.C. § 157. We have jurisdiction pursuant to 28 U.S.C. §§
158(d) and 1291.
This appeal presents a question of law, which we
review de novo. In re Marcal Paper Mills, Inc., 650 F.3d
311, 314 (3d Cir. 2011) (citing Schlumberger Res. Mgmt.
Servs., Inc. v. CellNet Data Sys., Inc., 327 F.3d 242, 244 (3d
Cir. 2003)).
III
We must decide whether the sales taxes held by
Calabrese are “trust fund” or “excise” taxes under 11 U.S.C. §
507(a)(8). Excise taxes receive priority, and are non-
dischargeable, if they are less than three years old, as
measured from the date of the bankruptcy petition. See 11
U.S.C. § 507(a)(8)(E) (priority); 11 U.S.C. § 523(a)(1)(A)
(“A discharge under section 727, 1141, 1228(a), 1228(b), or
1328(b) of this title 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, whether or not a claim for such tax was filed or
allowed . . . .”). Trust fund taxes are always prioritized and
are never dischargeable irrespective of the age of the debt.
See 11 U.S.C. §§ 507(a)(8)(C), 523(a)(1)(A).
Three of our sister courts of appeals have considered
the question presented here. In each case, the court
determined that the statutory text of § 507(a)(8) does not
resolve the dispute. See Shank v. Wash. State Dep’t of
Revenue, Excise Tax Div. (In re Shank), 792 F.2d 829, 832
(9th Cir. 1986); DeChiaro v. N.Y. State Tax Comm’n, 760
4
F.2d 432, 435 (2d Cir. 1985); Rosenow v. State of Ill., Dep’t
of Revenue (In re Rosenow), 715 F.2d 277, 279 (7th Cir.
1983). Proceeding to analyze the legislative history, all three
concluded that a sales tax paid by a third party is a trust fund
tax within the meaning of subsection (C), and not an excise
tax under subsection (E). These decisions are discussed in
greater detail below.
We begin with the text of the statute. The Bankruptcy
Code provides in pertinent part:
The following expenses and claims have
priority in the following order:
....
(8) Eighth, allowed unsecured claims of
governmental units, only to the extent
that such claims are for—
...
(C) a tax required to be collected
or withheld and for which the
debtor is liable in whatever
capacity;
...
(E) an excise tax on—
(i) a transaction occurring
before the date of the filing
of the petition for which a
return, if required, is last
due, under applicable law
or under any extension,
5
after three years before the
date of the filing of the
petition; or
(ii) if a return is not
required, a transaction
occurring during the three
years immediately
preceding the date of the
filing of the petition . . . .
11 U.S.C. § 507(a).
If Congress has conveyed its intent through the use of
unambiguous statutory language, we go no further than the
text of the statute to discern its meaning. In re Phila.
Newspapers, LLC, 599 F.3d 298, 304 (3d Cir. 2010).
Ambiguity is evaluated after “read[ing] the statute in its
ordinary and natural sense.” Id. (internal quotation marks
omitted). We read the statutory language in context but resort
to legislative history and inquire into the purpose behind the
statute only if the textual approach yields no solution to the
interpretive problem. Alli v. Decker, 650 F.3d 1007, 1011–12
(3d Cir. 2011).
Read in its proper context, § 507(a)(8) is susceptible to
two applications to a sales tax owed by a third party and held
by a debtor. Although neither subsection (C) nor subsection
(E) is unclear, both may be read to apply to this kind of tax.
Under New Jersey law, the tax is “required to be collected or
withheld” and Calabrese “is liable [for the tax] in whatever
capacity.” The tax at issue is also an “excise tax,” which is
“[a] tax imposed on the manufacture, sale, or use of goods,”
Black’s Law Dictionary 646 (9th ed. 2009), or even more
6
broadly, “[a]ny toll or tax,” Excise Definition, Oxford English
Dictionary, http://www.oed.com (last visited July 3, 2012).
In short, subsection (a)(8) is ambiguous because it contains
two clear but contradictory instructions. Consequently, we
agree with the Courts of Appeals for the Second, Seventh,
and Ninth Circuits that extra-textual analysis is required to
adjudicate this dispute. 2
IV
A
Congress enacted the first version of what is now §
507(a)(8) as part of the Bankruptcy Reform Act of 1978, Pub.
L. No. 95-598, 92 Stat. 2549. At the time, the list of
unsecured governmental claims entitled to priority that is now
found in subsection (8) was located in subsection (6). That
subsection was the topic of debate. The House bill, H.R.
8200, proposed a subsection (C) covering “taxes required to
be withheld from wages, salaries, commissions, dividends,
interest, or other payments that were paid by the debtor,”
2
Calabrese argues that the Supreme Court’s
precedents require us to resolve any statutory ambiguity in
favor of the “equal distribution objective underlying the
Bankruptcy Code.” Howard Delivery Serv., Inc. v. Zurich
Am. Ins. Co., 547 U.S. 651, 667 (2006). But the ambiguity
here—unlike the one at issue in Howard Delivery—concerns
not whether a priority covers a certain type of claim. Instead,
the claim at issue here fits within two priorities, and our task
is to discern which of the two Congress intended bankruptcy
courts to use. Therefore, we do not believe the Supreme
Court’s rule of “tightly constru[ing]” priorities assists us here,
id., for either priority could be narrowly or broadly construed.
7
which would be dischargeable after two years, along with a
subsection (E) allowing for the discharge of excise taxes after
one year. H.R. 8200, 95th Cong. §§ 507(6), 523(a)(1)(A) (1st
Sess. 1977); see H.R. Rep. No. 95-595 (1977), reprinted in
1978 U.S.C.C.A.N. 5963. In contrast, the Senate version, S.
2266, prohibited the discharge of “tax[es] required to be
collected or withheld” regardless of age, and provided no
priority for excise taxes. S. 2266, 95th Cong. §§ 507(a)(6),
523(a)(1)(A) (2d Sess. 1978); see S. Rep. No. 95-989 (1978),
reprinted in 1978 U.S.C.C.A.N. 5787.
In lieu of a formal conference, the two chambers
informally negotiated an agreement to pass the House bill
with significant amendments by the Senate. The Act included
a version of § 507(a)(6) that represented “a compromise
between similar provisions contained in H.R. 8200 as passed
by the House and the Senate amendment.” 124 Cong. Rec.
32,398 (1978), reprinted in 1978 U.S.C.C.A.N. at 6451; id. at
33,997, reprinted in 1978 U.S.C.C.A.N. at 6520.
In the process, Congress drafted several pieces of
legislative history that suggest different views on how taxes
like the one at issue in this appeal should be prioritized. For
example, one Report from the Senate Judiciary Committee,
which accompanied S. 2266, provides:
In general, the bill retains two important
priority rules of present law: first that priority
and nondischarge are recognized for tax claims,
for which the tax return was due not more than
three years before the title 11 petition was filed,
and for withheld income taxes and the
employees’ shares of social security taxes (the
“trust fund” taxes) rceive [sic] priority and are
8
nondischargeable regardless of the due date of
the return.
S. Rep. No. 95-989 at 14, reprinted in 1978 U.S.C.C.A.N. at
5800. That same Senate Report later states:
Taxes (not covered by the third priority)
which the debtor was required by law to
withhold or collect from others and for which
he is liable in any capacity, regardless of the age
of the tax claims (§ 507(a)(6)(D)) are included.
This category covers the so-called “trust fund”
taxes, that is, income taxes which an employer
is required to withhold from the pay of his
employees, the employees’ shares of social
security and railroad retirement taxes, and also
Federal unemployment insurance. This category
also includes excise taxes which a seller of
goods or services is required to collect from a
buyer and pay over to a taxing authority.
Id. at 71 (emphasis added), reprinted in 1978 U.S.C.C.A.N. at
5857. The Senate Finance Committee also issued a Report
that is comparable in substance to the Judiciary Committee’s
Report. See S. Rep. No. 95-1106, at 15–16 (1978). The
House Report accompanying H.R. 8200 discusses subsection
(6) briefly, but not in a manner that sheds light on the
question we address today. H.R. Rep. No. 95-595 at 357–58,
reprinted in 1978 U.S.C.C.A.N. at 6313–14.
After reconciling the Senate and House versions of the
bill, the floor managers—Representative Don Edwards and
Senator Dennis DeConcini—delivered a Joint Statement to
their respective chambers explaining various provisions of the
9
Act. See 124 Cong. Rec. 32,392–418, reprinted in 1978
U.S.C.C.A.N. at 6436–504 (House floor statement by
Representative Edwards); id. at 33,992–4,018, reprinted in
1978 U.S.C.C.A.N. at 6505–73 (Senate floor statement by
Senator DeConcini); see also D Collier on Bankruptcy App.
Pt. 4(f)(i), at 4-2219 (Alan N. Resnick & Henry J. Sommer
eds., 16th ed.) (explaining that the two chambers agreed on a
compromise bill and issued a joint explanatory statement,
whose “effect should be the same” as the product of a
conference committee). The Joint Statement includes the
following passage in the discussion of the subsection under
review:
Fifth. Taxes which the debtor was
required by law to withhold or collect from
others and for which he is liable in any capacity,
regardless of the age of the tax claims. This
category covers the so-called “trust fund” taxes,
that is, income taxes which an employer is
required to withhold from the pay of his
employees, and the employees’ share of social
security taxes.
....
Seventh. Excise taxes on transactions
for which a return, if required, is last due, under
otherwise applicable law or under any extension
of time to file the return, within 3 years before
the petition was filed, or thereafter. If a return
is not required with regard to a particular excise
tax, priority is given if the transaction or event
itself occurred within 3 years before the date on
which the title 11 petition was filed. All
Federal, State or local taxes generally
10
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. 32,415–16, reprinted in 1978 U.S.C.C.A.N.
at 6497–98 (Edwards); id. at 34,015–16, reprinted in 1978
U.S.C.C.A.N. at 6566–67 (DeConcini). As quoted above, the
Joint Statement indicates subsection (6) was a compromise
between the chambers. Id. at 32,398, reprinted in 1978
U.S.C.C.A.N. at 6451 (Edwards); id. at 33,997, reprinted in
1978 U.S.C.C.A.N. at 6520 (DeConcini).
The only explicit reference to the treatment of sales
taxes collected from third parties is found in the passage of
the Senate Report quoted above, which states that “[t]his
category also includes excise taxes which a seller of goods or
services is required to collect from a buyer and pay over to a
taxing authority.”
B
As we have noted, three other courts of appeals have
answered the question presented here. In Rosenow, after
discussing the statement by Representative Edwards on the
floor of the House and focusing on the two Reports by the
Senate Finance and Judiciary Committees, the Seventh
Circuit distinguished the “two types of sales tax liabilities at
issue”—those owed by the debtor, and those held by the
debtor for another—en route to its conclusion that the Illinois
Use Tax was a trust fund tax. 715 F.2d at 279–80; see Ill.
Dep’t of Revenue v. Hayslett/Judy Oil, Inc., 426 F.3d 899,
904–05 (7th Cir. 2005) (holding that under Rosenow the
Illinois Motor Fuel Tax falls under § 507(a)(8)(C)). After
11
mentioning the legislative history, the Rosenow Court
“rel[ied] on the plain language of Section C to conclude that
excise taxes which a retailer has collected from purchasers are
nondischargeable despite their age.” 715 F.2d at 280.
Rosenow acknowledged that the debtors’ “strongest
contention[] [was] that the floor manager of H.R. 8200, which
ultimately became the new bankruptcy code, referred only to .
. . traditional ‘trust fund taxes’ when discussing Section C;
and, when he described the excise taxes covered by Section
E, he specifically listed sales taxes.” Id. at 279 (footnote
omitted). But the Court dismissed this argument because
“Representative Edwards did not state that sales taxes or
excise taxes were intended to be excluded from Section C nor
did he say that sales taxes collected by a retailer must be
treated under Section E.” Id. at 280.
The Second Circuit in DeChiaro followed the Seventh
Circuit’s decision in Rosenow. Before doing so, it briefly
summarized the legislative history, including the history of
the Bankruptcy Act of 1898 and amendments thereto. 760
F.2d at 434–35. The Court found “nothing to indicate that
Congress intended to change the policy reflected in prior law
concerning sales taxes collected from others.” Id. at 435.
DeChiaro emphasized the Senate Judiciary Committee
Report and characterized the Joint Statement as “floor
debate” to justify its result. Id. at 435–36.
In Shank, a divided Ninth Circuit panel found in the
legislative history “no indication that Congress intended to
treat retailers differently than employers, who clearly cannot
discharge their liability for withheld income taxes.” 792 F.2d
at 832 (citing Rosenow, 715 F.2d at 280). The Shank Court
based its decision in part on the legislative history of the
Bankruptcy Act of 1898. Id. at 831–32. The majority
12
bolstered its conclusion with a mention of “public policy
considerations,” namely its view that “[i]f the obligation to
the taxing authority can be discharged by a bankruptcy filing
three years after the transaction giving rise to the tax, such an
incentive to default will exist.” Id. at 832.
Judge Reinhardt dissented. Although he “agree[d]
with the majority that the words of section 507(a)(6) are
unclear,” id. at 833, the legislative history led him to the
opposite ultimate conclusion. Focusing on the contrast
between the Senate Reports and the Joint Statement of the
floor managers following the compromise, Judge Reinhardt
noted three aspects of that statement: first, it describes “excise
taxes” as encompassing “sales taxes”; second, the definition
of trust fund taxes mentions only income and social security
withholdings; and third, the Senate Report’s explicit
treatment of the third-party sales tax as a trust fund tax does
not appear in the final Joint Statement. For these reasons, he
inferred that such a tax should be treated under subsection
(E). Id. at 834–35. He criticized the majority for reaching
back to the prior Bankruptcy Act, arguing that it would be
“too great a burden” to require Congress to justify each
revision to an overhaul of a legislative scheme. Id. at 835.
He also noted that the cases interpreting that Act on which the
majority relied were decided after the implementation of the
current Bankruptcy Code and therefore Congress did not have
the benefit of their interpretation in rewriting the statute. Id.
at 835–36. Judge Reinhardt also believed that the Rosenow
and DeChiaro courts misread the legislative history by
underestimating the importance of the Joint Statement. Id. at
836 (“Rosenow incorrectly believed that the Joint Statement
reflected the view of the House of Representatives only . . . .
In DeChiaro, the court also appeared to have misunderstood
13
the nature of the Joint Statement and the compromise it
represented, referring to it as mere ‘floor debate.’”). Finally,
the dissent noted competing policy considerations, observing
that Congress is vested with the responsibility of weighing
policy interests. 3 Id.
C
Reluctant as we are to wade into the murky waters of
legislative history, the ambiguity inherent in the text of the
statute requires us to do so. However, we can be reasonably
confident in looking to the Joint Statement of Representative
Edwards and Senator DeConcini as a manifestation of the
legislature’s purpose, because the Supreme Court has “treated
their floor statements on the Bankruptcy Reform Act of 1978
as persuasive evidence of congressional intent.” Begier v.
IRS, 496 U.S. 53, 64 n.5 (1990) (citing Commodity Futures
Trading Comm’n v. Weintraub, 471 U.S. 343, 351 (1985));
accord Phila. Newspapers, 599 F.3d at 335 n.21. And
although the question is close, we believe our three sister
courts have reached the correct conclusion, even as we do not
adopt their logic in toto.
The legislative history reveals that the two chambers
had different views on the dischargeability of various tax
obligations. The House passed a debtor-friendly bill with a
3
Two bankruptcy court decisions cited by the parties
reflect Judge Reinhardt’s view that third-party sales taxes are
dischargeable. See In re Boyd, 25 B.R. 1003, 1004 (Bankr.
S.D. Ohio 1982) (reasoning that the adoption of subsection
(E) evidenced congressional intent to treat all excise taxes
separately); Tapp v. Fairbanks N. Star Borough (In re Tapp),
16 B.R. 315, 322–23 (Bankr. D. Alaska 1981) (same).
14
narrowly defined trust-fund-tax priority and an excise-tax
priority, and short windows during which such tax claims
could not be discharged. No accompanying report discussed
the third-party sales taxes at issue in this appeal. But the
trust-fund-tax priority clearly did not cover the third-party
sales tax, so the state’s only protection from discharge—if it
enjoyed any at all—fell under the excise-tax category. By
contrast, the Senate bill favored the state (at least with respect
to this issue), with a broad trust-fund-tax priority and no
excise-tax categorization. The Senate Report states
unambiguously that the third-party sales tax is covered as a
trust fund tax.
Having expressed divergent views, the House and the
Senate compromised to produce a bill that became law. The
House received its excise-tax prioritization, while the Senate
received a broad trust-fund-tax priority, along with somewhat
longer non-dischargeability periods. Looking only to how the
text of the bills impacted the statute, we cannot determine
where our third-party tax should fall, because each chamber
inserted the provision that it had believed at one time would
cover such a tax. We also hesitate to base our decision on the
Senate and House Reports that predated the compromise. As
the Joint Statement itself indicates, and as the Supreme Court
and commentators alike have recognized, the Joint Statement
is superior to the other evidence of intent that may be found
in the legislative record. See Begier, 496 U.S. at 64 n.5; D
Collier on Bankruptcy App. Pt. 4(f)(i), at 4-2219; Kenneth N.
Klee, Legislative History of the New Bankruptcy Law, 28
DePaul L. Rev. 941, 957–60 (1979).
Similarly, we decline to hearken back to the nineteenth
century bankruptcy law. The Shank and DeChiaro courts
opined that § 17(a)(1)(e) of the Bankruptcy Act of 1898, ch.
15
541, 30 Stat. 544, 550, amended by Pub. L. No. 89-496, § 2,
80 Stat. 270 (1966), combined with Congress’s near silence in
the history and text of the 1978 Act, indicated congressional
intent for trust fund taxes to include third-party sales taxes,
and for such taxes to be nondischargeable. See Shank, 792
F.2d at 831–32; DeChiaro, 760 F.2d at 434–35. It is
undoubtedly true that the legislative landscape at the time
Congress passes a law sometimes provides evidence of its
intent in taking that action. For example, “Congress is
presumed to be aware of an administrative or judicial
interpretation of a statute and to adopt that interpretation
when it re-enacts a statute without change.” Lorillard v.
Pons, 434 U.S. 575, 580 (1978).
But where, as here, Congress overhauls an area of
federal law, we do not think the former legislative scheme is
necessarily instructive. See, e.g., N. Pipeline Constr. Co. v.
Marathon Pipe Line Co., 458 U.S. 50, 52–53 (1982) (“In
1978, after almost 10 years of study and investigation,
Congress enacted a comprehensive revision of the bankruptcy
laws. The Bankruptcy Act of 1978 (Act) made significant
changes in both the substantive and procedural law of
bankruptcy.” (footnote omitted)); Shank, 792 F.2d at 835(Reinhardt, J., dissenting); S. Rep. No. 95-989 at 1, reprinted
in 1978 U.S.C.C.A.N. at 5787 (“The purpose of the bill is to
modernize the bankruptcy law by codifying a new title 11 that
will embody the substantive law of bankruptcy . . . .”).
Whether the former legislative scheme is instructive depends
on the similarity of the text of the new law to that of the old,
and whether there is any evidence that Congress intended to
retain a particular feature of the old law.
In this case, there is some evidence that the Senate
sought to retain the old definition and treatment of trust fund
16
taxes, see S. Rep. No. 95-989 at 14, reprinted in 1978
U.S.C.C.A.N. at 5800, but the Senate and the House each
made concessions to obtain a passable bill. As a result, the
Senate Report alone is of little use in revealing ultimate
congressional intent with respect to the enacted law. As
Judge Reinhardt noted, the old law “was vastly different in
both form and substance from” the new one. Shank, 792 F.2d
at 835. Without any further indication that Congress intended
to leave untouched the old bankruptcy scheme as a baseline
against which its new law should be judged, and with a fair
amount of evidence that the 1978 Act constituted a brand new
framework, the 1898 Act should not factor into our analysis.
See id. at 836 (“[G]iven the degree of uncertainty that exists, .
. . section 17(a)(1) can[not] provide much guidance either
way.”). We are convinced the Joint Statement of
Representative Edwards and Senator DeConcini remains the
superior evidence of congressional intent.
Unfortunately, even though the Joint Statement is the
best evidence before us, it does not help to decide the
question presented. We agree with Judge Reinhardt that the
Shank majority and the DeChiaro and Rosenow courts
overlooked its importance. See id. And yet we cannot agree
with his conclusion that Congress intended third-party sales
taxes to be treated under subsection (E). Judge Reinhardt
suggests three reasons to favor Calabrese’s position. He
observes that the words “sales taxes” appear in the Joint
Statement’s description of “excise taxes.” Id. at 834.
Second, the Joint Statement defines trust fund taxes as
“‘income taxes which an employer is required to withhold
from the pay of his employees, and the employees’ share of
social security taxes,’” a definition that omits the type of tax
at issue here. Id. (quoting the Joint Statement). And finally,
17
the Joint Statement omits the single sentence from the Senate
Report that treats third-party sales taxes as trust fund taxes.
Id. at 835.
Considering first the definition of “sales taxes” in the
Joint Statement, we think this passing mention is of little
importance because, when used alone, those words typically
refer to taxes owed by a purchaser to the government, and not
the third-party variety at issue in this appeal. The second and
third rationales offered by Judge Reinhardt are equally shaky,
as they rely on omissions in legislative materials. We do not
believe that legislative history can be treated with the same
rigorous rules that we routinely apply to questions of statutory
construction. We will never know why Congress chose not to
tell us how to handle third-party sales taxes; it may have been
part of an intentional omission on the path to compromise, or
it may have been an oversight. In any case, we decline to
base our decision on such omissions.
V
Faced with an ambiguous statute and an indefinite
legislative history, we turn to public policy. As noted by
Judge Reinhardt, these considerations cut both ways. See id.
at 836. On the one hand, two broad purposes of the
bankruptcy scheme enacted by Congress are to give the
debtor a new financial start and to keep creditors on an equal
playing field. 4 See BFP v. Resolution Trust Corp., 511 U.S.
4These general policies are frequently overridden by
statute. See, e.g., Grogan v. Garner, 498 U.S. 279, 286–87
(1991) (“The statutory provisions governing
nondischargeability reflect a congressional decision to
exclude from the general policy of discharge certain
18
531, 563 (1994) (Souter, J., dissenting) (“[A] maximum and
equitable distribution for creditors and ensuring a ‘fresh start’
for individual debtors[] [are] often said [to be] at the core of
federal bankruptcy law.”). On the other hand, the incentives
for a potential debtor like Calabrese would be quite perverse
if, when he sees his business take a turn for the worse, he
knows he might obtain a discharge of his debt if he refuses to
turn over to the state sales taxes collected from third parties.
See Shank, 792 F.2d at 832. On balance, we think the second
consideration weighs more heavily.
We also find significant the fact that third-party sales
taxes resemble trust fund taxes more than other sales taxes
even though the source of taxation is a sales transaction.
After all, such taxes are owed not by the debtor, but are
merely held by the debtor on behalf of the party that owes the
tax to be transferred to the taxing authority at a later time.
Using similar reasoning, the Supreme Court in Begier,
considering the interactions of various statutes from the
Bankruptcy and Internal Revenue Codes, concluded that taxes
required to be withheld by an employer under the Federal
Insurance Contributions Act, 26 U.S.C. § 3102(a), are held in
trust for the IRS even when those taxes are improperly
comingled with the employer’s general operating funds. 496
categories of debts—such as child support, alimony, and
certain unpaid educational loans and taxes, as well as
liabilities for fraud.”); United States v. Sotelo, 436 U.S. 268,
279–82 (1978) (“[W]hile it is true that a finding of
nondischargeability prevents a bankrupt from getting an
entirely ‘fresh start,’ this observation provides little assistance
in construing a section expressly designed to make some
debts nondischargeable.”).
19
U.S. at 55–67. “Because the debtor does not own an
equitable interest in property he holds in trust for another, that
interest is not ‘property of the estate[,]’ [n]or is [it] ‘property
of the debtor’ . . . .” Id. at 59 (quoting 11 U.S.C. §§ 541,
547). The analogy to Begier is not a perfect one, but the
underlying principle—that the debtor is responsible for
money in which he never had an equitable interest—is just as
applicable here.
Finally, our decision is consistent with New Jersey’s
own treatment of its sales tax. Under New Jersey law, “the
vendor collects the tax from its customers, and holds it in
trust until it is reported and turned over to the State. This is
not a tax imposed on the vendor but on the vendor’s
customer, and as such is what is commonly called a ‘trust
fund’ tax.” Yilmaz, Inc. v. Dir., Div. of Taxation, 22 N.J. Tax
204, 231 (2005) (citation omitted) (citing Cooperstein v. State
of N.J., Div. of Taxation, 13 N.J. Tax 68, 78 n.4 (1993)),
aff’d, 915 A.2d 1069, 1072 & n.3 (N.J. Super. Ct. App. Div.
2007); accord N.J. Stat. Ann. § 54:32B-12(a) (“The [sales]
tax shall be paid to the person required to collect it as trustee
for and on account of the State.”). That the Tax Court of New
Jersey has recognized its sales tax is a trust fund tax when
held by a business owner for the customer validates our
common-sense construction of § 507(a)(8).
In sum, we believe public policy concerns weigh
against Calabrese, primarily because sales taxes collected by
a retailer never become the property of the retailer; ab initio,
it retains those funds in trust for the state. Accordingly, we
hold that Calabrese’s sales-tax obligation is subject to
§ 507(a)(8)(C) and is not dischargeable. We will affirm the
order of the District Court.
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