Consumer Bankruptcy Journal Summer 2016 - Page 18

KING’S KORNER SALES TAX DISCHARGE ISSUES IN BANKRUPTCY By Morgan D. King, of Morgan King Company & Morgan King Law Offices SALES TAXES Assuming the reader is at least somewhat familiar with the “five rules for income tax discharge,” this essay addresses several related topics. 1 One of these is discharging state sales or excise taxes. Most states have some form of sales or excise tax.2 It depends, as a threshold question, on the definition of a “sales” tax or other term more or less meaning the same thing.3 This is a question of respective state law. In a nutshell, a tax imposed on the customer, which typically is required to be collected by the retailer and turned over to the state, is a sales tax4 that is equivalent to a trust-fund tax under § 507(a)(8)(C), and hence is nondischargeable.5 1 The author thanks attorneys Reba Wingfield (AR), Larry Heinkel (FLA), Steven Benda (CA), Lavar Taylor (CA), Nicolas Corry (AR), Daniel Press (VA), Mark Sharf (CA), and Mark Segal (NV) for their helpful comments on certain issues in the topic. 2 The five that do not are Alaska, Delaware, Montana, New Hampshire, and Oregon. 3 For example, terms associated with this issue include sales tax, excise tax, and use tax. 4 Fugitt v. Mississippi Department of Revenue, 539 B.R. 289, 304 (Bankr.S.D. Miss. 2014). 5 Rosenow v. Illinois Dept. of 18 CONSUMER BANKRUPTCY JOURNAL In contrast, a tax imposed on the retailer only is an excise tax for the privilege of doing business in the state, and is ordinarily dischargeable if the sales event occurred or a return due date was over three years before the bankruptcy is filed, pursuant to § 507(a) (8)(E).6 In order to determine whether the tax is dischargeable the attorney will have to identify the category the tax falls into based on the respective state law. In doing that exercise, it is probably prudent to not place too much significance on the name given to the tax by the state statute, whether excise, sales, or other term, because the title the state statute gives to the tax is not the controlling factor, but rather the entity upon whom the tax assessed, i.e., the retai ȁȁѡѽȸ)Mхѕ́ͽѥ́ՑѡՔ)ݡЁѕѡх́Ѽ)᥹ѡѥѱ̸%ɕЁ͔)ѡхєхєɕեɕѡɕхȁѼ)Ёѡхɽѡѽ̰ٕ)ѡ՝ЁЁ፥͔х)!ѡɕхȁѕѡх)ЁЁɸЁٕȁѼѡхє)͍݅́ɝѡ)ѕѕѼɕ̰ЁЁљձ)ݡѡȁѡɕхˊéɔѼ)IٕՔԁɐ܀̤%ɔ-(܁H䀡 ȹQ%ɔ)Mȁɐ䀠Ѡ ȸؤ($)%ɔɽѭ́ɐ(Ѡ ȸसāTL ܡड(($՝аЀ)MյȀ$$$()ѡхɕ)QՕѥ䁉ͭѼ)͍ɝ́፥͔хٔ)Ѽͅѥ͙ѡԁձ͕́ѡ)͍ɝ䁽ɑ䁥)х)ЁЁ͔́ѡЁѡ+pԁձϊt ́ ܤɑɥ)Ѽͽ)х̰ͼѼхє፥͔х)ձѡЁѡ ɹ፥͔х)́ՉЁѼ ܡड͍ɥ)хqȁɕ䁥)ɽ́ɕ́ȁхᅉ啅ȁ)ȁɔѡєѡѡ)ѥѥȁݡɕɸɕեɕ)́ЁՔtэѕɄ)Q́Յ͍ɥ́ͽ)х̸QЁձѡЁѡ) ɹх́ѼѡЁѕ䁅)ݕ́ѡЁ፥͔хఁ)ѡԁɕեɕ́ ) ܁ȁͽх)ͼѼѡ̽ͅ፥͔х̸)QаɸɅ͔ѡ)ՕѥѡЁ̰́ѡյ)ѡɕхȁ͕́ѼݥѠѡ)хєѼɕЁ́ͅȁ፥͔х́+qɕɸtȃqեمЁɕЁȁѥt)ɕեɕѼ ̡Ĥ)Q Ʌ́ѥѥЁ)́Ѽ፥͔х̰ፕ́ɽ)͍ɝх́ȁݡ ܡडɅͅѥ)ɥɔѡє(($%ɔIȁH̀Ѡ() ȸ @Ф()9ѥͽѥ յȁ эѽɹ((0