Appeal from a judgment of the District Court for the Northern District of New York (Roger J. Miner, Judge) affirming a decision of the Bankruptcy Court that ruled debtors' liability for sales taxes not dischargeable.
Mansfield, Jon O. Newman, Kearse, Circuit Judge.
JON O. NEWMAN, Circuit Judge:
This appeal raises the narrow issue whether liability for a sales tax, which is required by state law to be collected by a seller from his customers, is governed by the "excise" tax or the "trust fund" tax provisions of the Bankruptcy Code. Peter and Susan DeChiaro, the debtors, appeal from a judgment of the District Court for the Northern District of New York (Roger J. Miner, Judge) affirming a decision of the Bankruptcy Court that ruled their sales tax liability to be governed by the "trust fund" tax provision and hence not dischargeable. We affirm.
The Code provisions in question are section 507(a)(6) (C), which covers a tax "required to be collected," commonly referred to as a "trust fund" tax, and section 507(a)(6)(E), which covers an "excise" tax.*fn1 A trust fund tax is always given a priority and is never subject to discharge in bankruptcy, see 11 U.S.C. §§ 507(a)(6)(C), 523(a)(1)(A); an excise tax, however, is given a priority and is not subject to discharge if the transaction underlying the tax occurred less than three years prior to the filing of the bankruptcy petition, see id. §§ 507(a) (6)(E), 523(a)(1)(A). Thus, "stale" claims for excise taxes are not entitled to a priority and are dischargeable.
This case involves a claim for stale sales taxes asserted by creditor-appellee New York State Tax Commission (the "Commission") in bankruptcy proceedings involving the debtors. As operators of a now-defunct restaurant, the debtors were required by state law to collect a sales tax from their customers. See N.Y. Tax Law §§ 1131(1), 1132(a), 1133 (McKinney 1975). When the debtors filed their petition for relief under Chapter 13 of the Code, 11 U.S.C. §§ 1301-1330, they owed the State $12,658.99 in sales taxes on transactions that had occurred more than three years prior to the date of filing. Viewing the taxes as stale excise taxes that were subject to discharge, the debtors listed the sales taxes as an unsecured debt, not entitled to priority, on the schedule of debts filed with their bankruptcy petition. If the Bankruptcy Court accepted this characterization of the tax debt, the debtors would pay forty-four percent of the debt under the terms of their plan governing repayment of unsecured debts. The Commission, on the other hand, contending that the sales taxes were trust fund taxes, filed a proof of claim seeking priority treatment of the debt. If the Bankruptcy Court accepted that position, the debtors would be required to repay the full amount of the debt, and it would not be discharged.
Relying on its reading of legislative history and on a decision of the Seventh Circuit, In re Rosenow, 715 F.2d 277 (7th Cir. 1983), the Bankruptcy Court held, and the District Court agreed, that the sales taxes were trust fund taxes covered by section 507(a)(6)(C) and ordered that the debtors provide for full payment of the taxes in their Chapter 13 plan. We agree with the Bankruptcy Court's interpretation of section 507.
A brief review of the treatment of tax debts under the former bankruptcy Act is helpful in illuminating the intent of Congress when it enacted the Code provisions in issue in this case. Section 17a(1) of the Bankruptcy Act of 1898, ch. 541, § 17a(1), 30 Stat. 544, 550 (formerly codified as amended at 11 U.S.C. § 35(a)(1)) (repealed 1978), provided that tax debts were not released by a bankruptcy discharge.*fn2 Though amending the Act many times, Congress did not change this treatment until 1966, when it placed a time limitation on nondischargeability: Most tax debts more than three years old became dischargeable. Act of July 5, 1966, Pub. L. No. 89-496, § 2, 80 Stat. 270. However, a proviso added by the 1966 amendment identified certain tax debts that remained nondischargeable even though the tax debt was more than three years old. One such debt was a trust fund tax.*fn3 Act, § 17a(1)(e).
Section 17a(1)(e) excepted from discharge taxes the debtor "has collected or withheld from others." Though this language did not expressly refer to sales taxes, it was broad enough to cover those sales taxes that a vendor has collected from his customers. Congress added the trust fund tax exception to the 1966 amendment in response to the Treasury Department's argument that a debtor should not be relieved of his obligation for taxes he had collected from third parties but had not paid over to the taxing authority. H.R. Rep. No. 372, 88th Cong., 1st Sess. 5 (1963); see S. Rep. No. 114, 89th Cong., 1st Sess. 6 (1965). The primary example of such a tax was a withholding tax collected by an employer from his employees, but the Treasury Department also noted its objection to discharge of "excise taxes" that the debtor had collected from others. S. Rep. No. 114, supra, at 10 (reprinting letter from Assistant Secretary of Treasury to Chairman of Senate Judiciary Committee). This history strongly suggests that Congress did not intend to limit the section 17a(1)(e) exception to withholding taxes. Rather, taxes that "employers and other persons. . . have collected . . . from third parties" were trust fund taxes for which a bankruptcy discharge was not available. H.R. Rep. No. 372, supra, at 6 (reprinting letter from Assistant Secretary of Treasury to Chairman of House Judiciary Committee) (emphasis added); see S. Rep. No. 114, supra, at 10. Courts construing section 17a(1)(e) applied it to a sales tax that sellers were obligated to collect from buyers. In re Fox, 609 F.2d 178, 181 (5th Cir.), cert. denied, 449 U.S. 821, 66 L. Ed. 2d 23, 101 S. Ct. 78 (1980).
Turning to the history of the provisions of the Code that we must construe in this case, we note that the House and Senate each drafted versions of section 507. The two versions differed significantly in their treatment of trust fund and excise taxes. Under the House bill, the trust fund tax provision covered only "taxes required to be withheld from wages, salaries, commissions, dividends, interest, or other payments that were paid by the debtor." H.R. 8200, 95th Cong., 1st Sess. § 507(6) (C) (1977), reprinted in App. 3 Collier on Bankruptcy (15th ed. 1985). The House bill also had a provision covering "excise taxes." Id. § 507(6)(E). Under the House version, a discharge was not available for withholding taxes that became due within two years preceding bankruptcy or for excise taxes on transactions occurring within one year of bankruptcy. The Senate bill, on the other hand, included a trust fund tax provision not limited to withholding taxes. Rather, the Senate bill contained a provision, similar to section 17a(1)(e), that excepted from discharge a tax "required to be collected or withheld" no matter how stale the debt. S. 2266, 95th Cong., 2d Sess. § 507 (a)(6) (C) (1978), reprinted in App. 3 Collier on Bankruptcy, supra. The Senate bill had no provision explicitly covering excise taxes.
The section ultimately enacted into law contained the Senate's version of the trust fund tax provision and the House's version of the excise tax provision (though changing the time limitation on nondischargeable excise taxes from one to three years). The statutory language does not resolve the issue before us; it simply provides both sides with a plausible argument. The debtors contend that the excise tax provision governs their debt because encyclopedias and dictionaries define a sales tax as an excise, see, e.g., 68 Am. Jur. 2d Sales and Use Taxes § 4 (1973). The Commission reponds that the language of the trust fund tax provision plainly covers the sales taxes the debtors owe to the State.
The statutory language plainly creates an overlap between the provisions for trust fund and excise taxes.*fn4 Obviously the overlap must be resolved since the two provisions lead to conflicting consequences. There are two possibilities. Congress may have intended to differentiate between two categories of excise taxes: those not collected from third parties, which are dischargeable if stale, and those collected from third parties, which are not dischargeable. Alternatively, Congress may have intended to differentiate between two categories of trust fund taxes: those that are also sales taxes and hence dischargeable if stale, and all other taxes collected from third parties, which are not dischargeable.*fn5
Our reading of the legislative history persuades us that the overlap between these provisions must be resolved by holding that Congress intended to differentiate between two categories of excise taxes and that the trust fund tax provision excepts from discharge those excise taxes required to be collected from third parties. In re Rosenow, supra; contra In re Boyd, 25 Bankr. 1003 (Bankr. S.D. Ohio 1982); In re Tapp, 16 Bankr. 315 (Bankr. D. Ala. 1981). First, we find nothing to indicate that Congress intended to change the policy reflected in prior law concerning sales taxes collected from others. We also note that, in proposing its version of the trust fund tax provision, the Senate intended to include in the trust fund category excise taxes that "a seller of goods or services is required to collect from a buyer and pay over to a taxing authority." S. Rep. No. 989, 95th Cong., 2d Sess. 71 (1978) (report of Senate Judiciary Committee), reprinted in 1978 U.S. Code Cong. & Ad. News 5787, 5857; see S. Rep. No. 1106, 95th Cong., 2d Sess. 15-16 (1978) (report of Senate Finance Committee). This history is persuasive since the compromise version rejected the House's limited trust fund tax provision in favor of the Senate's broader language. Admittedly, some remarks made in floor debate on the compromise lend support to the debtors' position: "All Federal, State or local taxes generally considered or expressly treated as excises . . ., including sales taxes . . ." are dischargeable under the excise provision. 124 Cong. Rec. 34016 (1978) (remarks of Senator DeConcini, Senate subcommittee chairman), reprinted in 1978 U.S. Code Cong. & Ad. News 6505, 6567; 124 Cong. Rec. 32416 (1978) (remarks of ...