Opinion
CASE NO. 12-24246 jpk
08-06-2013
In re: BEN EDWARD BERRY, JR., Debtor.
Chapter 13
MEMORANDUM OF DECISION CONCERNING
ENTITLEMENT TO PRIORITY OF CLAIM NO. 1-1
On November 15, 2012, the creditor designated as Lake County Clerk C/O filed Claim No. 1-1 [the "Claim"]. The Claim was filed on behalf of the creditor by Eagle Accounts Group of Indianapolis, Indiana. The Claim is in the amount of $273.00; the basis for the Claim is stated to be "government docket fees"; and priority for the Claim is asserted based upon "Taxes or penalties owed to governmental units - 11 U.S.C. § 507(a)(8)". By Record Entry No. 22, the court entered an order for hearing on the Claim: The order asserted the court's authority under 11 U.S.C. § 105(a) to sua sponte address matters necessary or appropriate to carry out the provisions of Title 11 of the United States Code. As stated in that order, the court questioned the Claim's assertion of a claim entitled to priority pursuant to 11 U.S.C. § 507(a)(8), primarily with respect to the designation of the amount of the debt stated in the Claim as a "tax". A hearing pursuant to the foregoing order was held on March 4, 2013, at which attorney Derek Johnson appeared on behalf of Eagle Accounts Group. At the hearing, Attorney Johnson submitted a memorandum of law in open court in support of the Claim's assertion of priority. By Docket Record No. 32, the court ordered that any responsive legal memoranda by either the debtor or the Chapter 13 Trustee was to be filed by May 6, 2013. No responsive legal memorandum has been filed.
The debt to which the Claim relates is provided for by I.C. 33-37-5-6, which - in the form of the statute applicable to this proceeding - states in full:
33-37-5-6 Support and maintenance payments; fees11 U.S.C. § 507(a)(8)(E) provides as follows:
Sec. 6. (a) This section applies to an action in which a final court order requires a person to pay support or maintenance payments through the clerk or the state central collection unit.
(b) The clerk or the state central collection unit shall collect a fee in addition to support and maintenance payments. The fee is fifty-five dollars ($55) for each calendar year.
(c) The fee required under subsection (b) is due at the time that the first support or maintenance payment for the calendar year in which the fee must be paid is due.
(d) The clerk may not deduct the fee from a support or maintenance payment.
(e) Except as provided under IC 33-32-4-6 and IC 33-37-7-2(f), if a fee is collected under this section by the clerk, the clerk shall forward the fee to the county auditor in accordance with IC 33-37-7-12(a). If a fee is collected under this section by the central collection unit, the fee shall be deposited in the state general fund.
(f) Income payors required to withhold income under IC 31-16-15 shall pay the annual fee required by subsection (b) through the income withholding procedures described in IC 31-16-15.
§ 507. PrioritiesThe issue before the court is whether the obligation of the debtor imposed pursuant to I.C. 33-37-5-6 constitutes an excise tax as provided for by 11 U.S.C. § 507(a)(8)(E)(ii). For the reasons stated below, the court determines that an obligation imposed pursuant to I.C. 33-37-5-6 is not a debt entitled to priority under 11 U.S.C. § 507(a)(8)(E)(ii).
(a) 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 - ...
(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, 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)(8)(E)(i) is not applicable to the issue before the court, in that the transation is not subject to the filing of return.
The principal contentions of the claimant are stated as follows in the last paragraph of the legal memorandum filed on March 4, 2012:
A support and maintenance fee operates as an excise tax because it is a fee charged by a public entity for the enjoyment of a privilege. As an excise tax, such docket fees should be given priority status under 11 U.S.C. §507(a)(8)(E). The fee is also a penalty for failure to pay support and maintenance obligations ordered by a court.The focus of the argument is that the statutory imposition relates to the enjoyment of a privilege, which the memorandum considers to be "the use of the Court's services" in connection with making payments for court-ordered child support or maintenance. The second full paragraph in the Arguments section of the memorandum likens the subject obligation to excise taxes imposed with respect to "the privilege of using the roads provided and maintained by the State with respect to the operation of a motor vehicle, and excise taxes imposed on the privilege of transacting business as a financial institution in the State of Indiana". The memorandum notes that an undesignated "Federal Court for the Southern District of Indiana allows priority claims to be made for these 'docket fees' and holds that the fees are not dischargeable in bankruptcy". The memorandum also likens the subject obligation to the statutory imposition provided for with respect to the individual mandate in the Patient Protection and Affordable Care Act, which the United States Supreme Court in National Federation of Independent Business vs. Sebelius, 132 S.Ct. 2566 (2012) determined was a tax, as contrasted to a penalty.
It must first be noted that the memorandum is somewhat confusing, in the last full paragraph prior to the "Conclusion," in its characterization of the subject obligation as a "penalty" under 11 U.S.C. § 507(a)(8)(E). That section does not in any manner implicate the concept of a "penalty" in relation to a "tax," but rather requires exclusively that an obligation be determined to be a "tax" in order to be entitled to priority. Tax penalties are the subject of 11 U.S.C. § 523(a)(7), which relates to exception from discharge of certain penalties "payable to and for the benefit of governmental unit... not compensation for actual pecuniary loss, other than a tax penalty... relating to a tax of a kind not specified in paragraph 1 of [Section 523(a)]." 11 U.S.C. § 523(a)(1)(A) states that a tax "of the kind and for the periods specified in section... 507(a)(8)..." is not discharged by a discharge granted to a debtor in a bankruptcy case. It is not possible for an obligation within the provisions of Section 507(a)(8)(E) to be both a tax and a penalty: If any penalty were imposed with respect to the subject obligation as a "tax," that penalty imposition would be in addition to the base obligation itself. The subject obligation can therefore not be sustained as a "penalty" and at the same time be entitled to priority under Section 507(a)(8)(E).
The issue of the extent of exception to discharge of the subject obligation is not before court, and this Memorandum of Decision makes no determination with respect to that issue.
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It is first necessary to note the nature and extent of other impositions established by Chapter 5 of Article 37 of Title 33 of the Indiana Code. Subject to several amendments which are not pertinent to the point being made by this citation, Chapter 5 is comprised of the following provisions:
Chapter 5. Collection of Additional FeesIt is first instructive to note that the imposition of the subject obligation is included in Title 33 of the Indiana Code, the collection of laws in the State of Indiana which relates to the structure and operation of courts. This is to be contrasted to the State of Indiana's laws relating to taxes, which are set out in Title 6 of the Indiana Code. Second, the Indiana legislature has included I.C. 33-37-5-6 in a Chapter relating to court administration which denominates its subject matter as "Collection of Additional Fees." Third, I.C. 33-37-5-6(b) itself designates the subject obligation as "a fee." Case law establishes that the designation given to a particular imposition by a state legislature is not controlling for the purpose of determining whether or not that imposition may be determined to be a tax for the purposes of analysis under federal legislation. As stated in In re Marcucci, 256 B.R. 685, 693 (D.N.J. 2000):
33-37-5-1 Preparing transcript or copy of record; fee
33-37-5-2 Clerk's record perpetuation fund
33-37-5-3 Document fee; certificate under seal
33-37-5-4 Document fee; transcript of judgment to become real estate lien
33-37-5-5 Forwarding document fees
33-37-5-6 Support and maintenance payments; fees
33-37-5-7 Marijuana eradication program fee
33-37-5-8 Alcohol and drug services program fee; law
enforcement continuing education program fee
33-37-5-9 Drug abuse, prosecution, interdiction, and correction fee
33-37-5-10 Countermeasures fee; collection
33-37-5-11 Alcohol abuse deterrent fee; medical fee; collection
33-37-5-12 Child abuse prevention fee
33-37-5-13 Domestic violence prevention and treatment fee
33-37-5-14 Highway work zone fee; application of section
33-37-5-15 Service of process fee
33-37-5-16 Judgments; collection, transfer, and deposit of funds
33-37-5-17 Deferred prosecution fees
33-37-5-18 Safe schools fee
33-37-5-19 Criminal conviction, jury fees
33-37-5-20 Document storage fee
33-37-5-21 Automated record keeping fee
33-37-5-21.2 Public defense administration fee
33-37-5-22 Late payment fees
33-37-5-23 Sexual assault victims assistance fee
33-37-5-24 Drug court fee
33-37-5-25 Application of section
In cases where the Supreme Court has considered whether a particular exaction was a tax for bankruptcy purposes, the Court looked beyond the titular label given to the exaction and examined its actual operation. See United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 220, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996) (hereinafter CF & I). The analysis in such cases turned on the effects of the subject exaction instead of the label placed upon the exaction by the state legislature. Id., 518 U.S. at 220, 116 S.Ct. 2106. See also United States v. Sotelo, 436 U.S. 268, 275, 98 S.Ct. 1795, 56 L.Ed.2d 275 (1978).However, the consistent treatment of the subject obligation by the Indiana legislature in provisions of law which relate solely to fees - and not to taxes - is certainly relevant to the intent of the Indiana legislature with respect to imposing a tax.
Some issues as to whether or not a state-imposed charge can be considered to be an excise tax within provisions of federal statutes can become extremely involved. Case law essentially revolves around issues as to whether a particular imposition is a tax, a penalty, or a fee. With respect to differentiation between a tax and a penalty, the United States Supreme Court stated the following in United States v. Reorganized CF & I Fabricators of Utah, Inc., 116 S.Ct. 2106, 2113 (1996):
Anderson and New York applied the same test in determining whether an exaction was a tax under § 64(a), or a penalty or debt: "a tax is a pecuniary burden laid upon individuals or property for the purpose of supporting the Government." Anderson, 203 U.S., at 492, 27 S.Ct., at 140; New York, 315 U.S., at 515, 62 S.Ct., at 714-715; accord, Feiring, 313 U.S., at 285, 61 S.Ct., at 1029 ("§ 64 extends to those pecuniary burdens laid upon individuals or their property ... for the purpose of defraying the expenses of government or of undertakings authorized by it"). Or, as the Court noted in a somewhat different context, "[a] tax is an enforced contribution to provide for the support of government; a penalty, as the word is here used, is an exaction imposed by statute as punishment for an unlawful act." United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278, 280, 75 L.Ed. 551 (1931).In National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566, 2594-5 (2012), the United States Supreme Court described what a tax "looks like" as follows:
The exaction the Affordable Care Act imposes on those without health insurance looks like a tax in many respects. The "[s]hared responsibility payment," as the statute entitles it, is paid into the Treasury by "taxpayer[s]" when they file their tax returns. 26 U.S.C. § 5000A(b). It does not apply to individuals who do not pay federal income taxes because their household income is less than the filing threshold in the Internal Revenue Code. § 5000A(e)(2). For taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status. §§ 5000A(b)(3), (c)(2), (c)(4). The requirement to pay is found in the Internal Revenue Code and enforced by the IRS, which—as we previously explained—must assess and collect it "in the same manner as taxes." Supra, at 2583 - 2584. This process yields the essential feature of any tax: it produces at least some revenue for the Government. United States v. Kahriger, 345 U.S. 22, 28, n. 4, 73 S.Ct. 510, 97 L.Ed. 754 (1953). Indeed, the payment is expected to raise about $4 billion per year by 2017. Congressional Budget Office, Payments of Penalties for Being Uninsured Under the Patient Protection and Affordable Care Act (Apr. 30, 2010), in Selected CBO Publications Related to Health Care Legislation, 2009-2010, p. 71 (rev. 2010).In determining issues relating to defining an imposition as an excise tax, many courts have looked to the definition of "excise tax" in Black's Law Dictionary. For example, in Templar vs. Shamokin Area School District, 170 B.R. 562, 563 (Bkrtcy.N.D.PA, 1994), the following was stated:
Black's Law Dictionary defines excise tax as "[a] tax imposed on the performance of an act, the engaging in an occupation, or the enjoyment of a privilege. [Citation omitted.] 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 the income tax (e.g., federal alcohol and tobacco excise taxes, IRC § 5001 et seq.). Black's Law Dictionary, Sixth Edition at page 563.In In re Appugliese, 210 B.R. 890, 897(Bkrtcy. MASS.,1997), the following was stated:
The Black's Law Dictionary definition of excise tax has been cited with approval in the following opinions:
In re Groetken, 843 F.2d 1007, 1013 (7th Cir.1988);
In re Rosenow, 715 F.2d 277, 279 (7th Cir.1983);
In re Chateaugay Corp., 153 B.R. 632, 638 (Bkrtcy.S.D.N.Y.1993);
In re Tri-Manufacturing and Sales Co., 82 B.R. 58, 60 (Bkrtcy.S.D.Ohio 1988);
In re Tapp, 16 B.R. 315, 322 (Bkrtcy.D.Alaska 1981).
The Supreme Court of the United States citing Webster's International Dictionary identified an excise tax as "... an inland duty or impost operating as an indirect tax on the consumer, levied upon certain specified articles, as tobacco, ale, spirits, etc., grown and manufactured in the country. It is also levied on licenses to pursue certain trades and deal in certain commodities." Patton v. Brady, 184 U.S. 608, 618, 22 S.Ct. 493, 496, 46 L.Ed. 713 (1902).
With respect to the substance of the Debtor's arguments, the Court is unpersuaded that M.G.L. c. 60A, § 1 either is a penalty or imposes a property tax. The Debtor's argument is conclusory, particularly when juxtaposed against the cogent arguments made by the Commonwealth with which the Court is compelled to agree. The Court concludes that M.G.L. c. 60A, § 1 is a tax and not a penalty, as it is a pecuniary burden laid upon individuals or their property for the purpose of defraying the expenses of government. Moreover, the Court concludes that M.G.L. c. 60A, § 1 is an excise tax and not a property tax. Not only does M.G.L. c. 60A, § 1 indicate that it is an excise tax on the privilege of registration, the tax imposed falls within the uniformly adopted definition of whatFinally, in addressing the distinction between a regulatory fee and a tax, the following was stated in Boston Regional Medical Center, Inc. v. Massachusetts Division of Healthcare Finance and Policy, 365 F.3d 51, 63 (1st Cir. 2004):
constitutes an excise tax set forth in Black's Law Dictionary. In other words, it operates as a tax on the privilege of operating an automobile.
Moreover, in O'Brien v. State Tax Commission, 339 Mass. 56, 62, 158 N.E.2d 146 (1959), the Massachusetts Supreme Judicial Court indicated that M.G.L. c. 60A, § 1 was undoubtedly an excise tax. In discussing M.G.L. c. 60A, § 1 and M.G.L. c. 90, §§ 2, 33, which sections impose an excise tax in the form of a registration fee for motor vehicles, the court stated that these taxes
are imposed with respect to 'commodities' very like one another. A closely related excise is the gasoline tax imposed by G.L.c. 64A, § 4 ... This tax was construed in Commonwealth v. Wallace, 294 Mass. 31, 34, 200 N.E. 406, 408 , as an 'excise' upon the sale or use of gasoline for propelling motor vehicles ... upon ... the highways of the commonwealth.'
339 Mass. at 62, 158 N.E.2d 146 (citations omitted) FN9 (emphasis supplied).
Regulatory fees have been defined as "monies paid to the government incident to a voluntary act that bestows a benefit on the applicant, not shared by other members of society." N. Dakota Workers Comp. Bureau v. Voightman (In re Voightman), 239 B.R. 380, 383 (8th Cir.BAP 1999); see also Nat'l Cable Television Ass'n, Inc. v. United States, 415 U.S. 336, 340-41, 94 S.Ct. 1146, 39 L.Ed.2d 370 (1974) (defining regulatory fees same way in non-bankruptcy context). Similarly, in San Juan Cellular, we approved of the approach utilized by other courts, which—in distinguishing a tax from a regulatory fee—focused on the "revenue's ultimate use, asking whether it provides a general benefit to the public, of a sort often financed by a general tax, or whether it provides a more narrow benefit[ ] to regulated companies or defray [s] the agency's cost of regulation." 967 F.2d at 685. The ultimate design and use of the exaction here are to help finance the provision of hospital care to people unable to pay for it themselves. While specialized and somewhat intricate, it finances a general benefit to the public of a kind that could properly have been financed from more ordinary tax revenues. Per contra, the Pool scheme is not aimed at bestowing a narrow benefit upon the payer hospital, nor defraying the cost of regulation. We conclude the exaction is a tax.
The obligation imposed by I.C. 33-37-5-6 has the following characteristics:
1. The statute only applies "to an action in which a final court order requires a person to pay support or maintenance payments through the clerk or the state central collection unit" (emphasis supplied). The imposition is therefore not made by a voluntary election by an individual required to make child support or maintenance payments, but rather is a court-mandated arrangement. This differentiates the denominated "fee" from state-exacted charges for the privilege of driving a motor vehicle on highways, or for the privilege of conducting businesses of financial institution. A privilege has the connotation of being a voluntary exercise of some form of action authorized by law. Because the "fee" arises only after a court has ordered payments through the clerk, there is nothing voluntary about the "fee" and it cannot in any manner be considered to be a "privilege" for payment through the clerk or the state central collection unit.
2. There is no provision in the subject law which allows an individual to voluntarily make payments through the clerk without those payments having been required by an order of the court. This fact again persuasively argues against the subject obligation being an opportunity cost for the exercise of a privilege.
3. Pursuant to subparagraph(b) the fee is a flat amount, without regard whatsoever to an ability to pay, or an incremental increase depending upon an individual's income. This clearly indicates that the fee is not a revenue raising measure, but rather is more like regulatory fee which defrays the cost of the clerk's or the state agency's administration of the record of payments made by one required to make payments through the clerk. It thus doesn't "look like" a tax.
4. While labels established by state legislatures are not conclusive as to whether a specific imposition is a tax, a penalty, or a fee, that does not mean that the state legislature's denomination is not relevant or can be ignored. It is absolutely clear that the State of Indiana considers the subject obligation to be a "fee" and not a "tax." Determining that the subject obligation is an excise tax necessarily implies that all other impositions under Chapter 5 of Article 37 of Title 33 of the Indiana Code are also excise taxes, which they clearly are not.
5. While subparagraph(e) of the statute provides for forwarding the fee to the county auditor if the fee is collected by a county clerk, and depositing the fee in the state general fund if it is collected by the central collection unit, that provision is neutral as to whether or not the subject obligation is a revenue generating device. In Indiana, agencies are not customarily authorized to retain collections which they make subject to statutory provisions - their funding is determined by legislative appropriation from a central fund. The deposit of the fee in general revenue accounts is as equally consistent with the imposition of a regulatory fee defraying the cost of regulation as it is with the imposition of a tax.
6. In the context of whether the subject obligation is a "penalty" or is a "regulatory fee," as indicated by the cited authorities above, a penalty can be considered to be the imposition of a monetary obligation due to illegal conduct. The claimant's memorandum in part argues that I.C. 33-37-5-6(a) becomes operative when a court has determined that an obligated party has not complied with his/her obligation to pay child support or maintenance. There is no evidence at all in the record to support this assertion. More importantly, there is nothing in the statute itself which suggests this trigger. It would be perfectly possible, and indeed is possible, that parties to a dissolution of marriage action agree to payment of child support or maintenance through the Clerk's office in order to avoid disputes as to whether or not certain payments have been made, regardless of whether the obligated party has ever failed to make a required child support or maintenance payment; and place this provision in the final decree of dissolution to be ordered by the court presiding over the dissolution of marriage action. This factor certainly tends to indicate that the subject obligation is a regulatory fee rather than a penalty.
Applying the above authorities and analysis to the issue at hand, the court determines that the debt asserted in Claim No. 1-1 filed by Lake County Clerk C/O is not an excise tax within the provisions of 11 U.S.C. § 507(a)(8)(E)(ii), and is not a tax within any other provision of 11 U.S.C. § 507(a). The court makes no specific determination as to whether the subject obligation is a penalty or a regulatory fee.
IT IS ORDERED, ADJUDGED and DECREED that the $273.00 amount asserted in Claim No. 1-1 is not entitled to priority, and that said amount constitutes a general unsecured claim for all purposes in Case Number 12-24246. Dated at Hammond, Indiana on August 6, 2013.
____________________________
J. Philip Klingeberger, Judge
United States Bankruptcy Court
Distribution:
Debtor, Attorney for Debtor
Trustee, US Trustee
Lake County Clerk C/O Eagle Accounts Group PO Box 17400, Indianapolis, IN 46217
Attorney Derek F Johnson 1393 West Oak Street, Zionsville, IN 46077