The opinion of the court was delivered by: PRATT
The New York State Tax Commission (Tax Commission) appeals from a decision of Bankruptcy Judge Rudin dated June 20, 1978, and an order dated June 30, 1978, which disallowed the Tax Commission's claim against Seafarer Fiber Glass Yachts, Inc. (Seafarer). For reasons set forth below, Judge Rudin's decision and order are affirmed in part and reversed in part.
Seafarer is a New York corporation which makes and sells customized fiberglass yachts. To avoid New York sales tax, Seafarer and its out-of-state customers frequently arranged delivery by one of two means: (1) "sailaway" delivery, in which a Seafarer employee and the buyer sail the boat from Huntington Harbor to Long Island Sound and into Connecticut waters, where delivery is officially accomplished; or (2) "pick-up" delivery, in which the buyer hires a trucker to pick up the boat in Huntington and deliver it to the buyer out of state.
On November 14, 1974, Seafarer filed a petition for arrangement under Chapter XI of the Bankruptcy Act, 11 USC § 701 et seq. and on November 19, 1974, Bankruptcy Judge Rudin authorized Seafarer to continue operations as debtor-in-possession. In April, 1975, the Tax Commission filed a proof of claim for $398,535.40 for taxes due from December 1, 1969 through August 31, 1974. After reaudit, the Tax Commission reduced its claim to $151,524.90 plus interest. The claim was for unpaid sales and use tax on yachts delivered to out of state residents by either "sailaway" deliveries or "pick-up" by non-ICC truckers (the Tax Commission concedes that pickups by ICC truckers are not subject to sales or use tax.)
Seafarer moved to expunge and disallow the claim. A hearing was held on January 17, 1977, and a decision issued on May 17, 1977, in which Judge Rudin sustained Seafarer's objections to the Tax Commission's claim. On appeal, this court reversed and remanded. The Second Circuit affirmed this court's decision. On remand, Judge Rudin held a second hearing, April 19, 1978, and issued a second decision, June 20, 1978, sustaining Seafarer's objections once again, but on different grounds.After Judge Rudin's order of June 30, 1978, the Tax Commission brought the instant appeal.
The parties agree that this appeal presents four questions: (1) the placement of the burden of proof; (2) the taxability of the "sailaway" deliveries; (3) the taxability of the non-ICC pick-ups; and (4) the applicability of the three year discharge provision. On each of these issues, the decision of the bankruptcy judge must be affirmed unless clearly erroneous. Bankruptcy Rule 810.
The proper placement of the burden of proof for tax claims in bankruptcy proceedings is explained by the court in In re Avien, 390 F Supp 1335 (EDNY 1975), aff'd 532 F2d 273 (CA2 1976):
While the burden of proof with respect to deductions claimed is normally on the taxpayer [citations omitted] that is not the case in bankruptcy proceedings where the burden of establishing its claim rests on the government [citation omitted]. The government is aided, however, by a strong presumption which arises in its favor by the filing of a sworn proof of claim; a prima facie case is established and the burden of going forward with rebutting evidence is on the debtor. [citations omitted]. The ultimate burden of persuasion remains on the government.390 F Supp at 1341-42.
Without disputing the above statement on placement of the burden of proof, the parties disagree about whether additional burden of proof advantages should be accorded to the claimant in this proceeding. Because the existence or absence of these additional advantages would not affect the outcome of this appeal, the court declines to consider the issue, and accepts as sufficient the explanation of the burden of proof set forth in Avien above.
THE TAXABILITY OF "SAILAWAY" DELIVERIES
Judge Rudin held that the "sailaway" deliveries were non-taxable, based on his finding of fact #8:
The sailaway deliveries of boats to some nonresidents of the State of New York was made by sailing the vessel from Huntington Harbor to a point in Long Island Sound beyond the geographical limits of the State of New York and within that of the State ...