In thе Matter of CUSATO BROTHERS INTERNATIONAL, INC., Bankrupt.
GREAT AMERICAN BANK OF BROWARD COUNTY, Plaintiff-Appellant,
v.
James B. McCRACKEN, Trustee and State of Florida,
Defendants-Appellees.
No. 84-5191.
United States Court of Appeals,
Eleventh Circuit.
Jan. 15, 1985.
Reggie David Sanger, Mary Ellen Shooemaker, Fort Lauderdale, Fla., for plaintiff-appellant.
Harold F.X. Purnell, Tallahassee, Fla., for defendants-appellees.
Appeal from the United States District Court for the Southern District of Florida.
Before GODBOLD, Chief Judge, HILL, Circuit Judge, and PECK*, Senior Circuit Judge.
JOHN W. PECK, Senior Circuit Judge:
This is an appeal from the judgment of the district court reversing the bankruptcy court. Cusato Brothers, a corporation licensed by the State of Florida as a beer and wine wholesale distributor, filed a voluntary bankruptcy petition in June 1982; the case was subsequently converted to a Chapter 7 proceeding. The trustee, James B. McCracken, liquidated the debtor's beer and wine inventory pursuant to court order. After liquidation, Great American Bank of Broward County, a secured creditor, filed a complaint for declaratory and injunctive relief wherein it asked the bankruptcy court to rule оn whether the proceeds of the liquidation sale of the debtor's inventory were subject to Florida excise taxes. Florida statute Sec. 563.05 levies an excise tax on manufacturers, distributors and vendors of malt beverages and Sec. 564.06 imposes an excise tax upon manufacturеrs and distributors of wine. Under Fla.Stat. Sec. 561.50(1), all excise taxes are collected at the distributor level rather than at the retail level. The bankruptcy court found that the trustee for the debtor was not liable for excise taxes levied pursuant to Fla.Stat. Secs. 563.05 and 564.06. The district court reversed. We reverse the judgment of the district court and affirm the judgment of the bankruptcy court.
The issue before this court is whether the sales conducted by the trustee in liquidating the debtor's inventory are subject to Florida excise taxes. A threshold question, not directly addressed by the district court, is whether thе sales in question are subject at all to the Florida excise tax. As noted supra, Fla.Stat. Secs. 563.05 and 564.06 impose excise taxes upon manufacturers, distributors, and vendors of beer and wine. The statutes do not specifically include bankruptcy trustees. Because Florida law forbids the sаle of any alcoholic beverages within the state without a license, the district court apparently considered the trustee to be operating under the authority granted to Cusato Brothers by the State of Florida to operate as an alcoholic beverage distributor. We have not been persuaded that Secs. 563.05 and 564.04 do not apply to the transactions in question; therefore, we do not dispute the assumption of the district court that the trustee acted as a distributor subject to Florida law in conducting the liquidation sales.
Title 28 U.S.C. Sec. 959(b) requires a trusteе to manage and operate the property in his possession in accordance with the applicable state law.1 Title 28 U.S.C. Sec. 960 states:
Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, State and local taxes applicable to such businesses to the same extent as if it were conducted by an individual or corporation.
Since we agree that the trustee acted as a distributor for purposes of Fla.Stat. Secs. 563.05 and 564.06, the question presented becomes whether the trustee was "conducting аny business" within the purview of 28 U.S.C. Sec. 960 in liquidating the debtor's inventory.
The bankruptcy court held that the trustee in bankruptcy who liquidated the assets of the bankruptcy estate was not "conducting any business" and thus the estate was not subject to tax liability. The district court, however, adopted the view that the trusteе in the instant case took possession of the debtor's alcoholic beverage inventory subject to conditions and restrictions imposed by Florida law. The district court stated:
The unique nature of the business and the trustee's actions indicate that in liquidating the beverage assets, the trusteе was actually conducting the function of the bankrupt, to wit, distributing alcoholic beverages to licensed vendors or wholesalers for future sales.
The district court took note of the highly regulated nature of alcoholic beverage transactions in concluding that, under 28 U.S.C. Sec. 959(b), the sаle of the debtor's inventory was subject to the excise tax as provided in Fla.Stat. Secs. 563.05 and 564.06. The district court relied on In re Hatfield Construction Company,
A tax on a sale made by a trustee under an order of court for purposes of liquidation if payable directly and primarily by him would doubtless be a burden on a governmental instrumentality, for a judicial sale in liquidation of a bankrupt estate would in a peculiar sense involve the еxercise of a federal function. Indeed, without the exercise of such a function and the power thus to dispose of assets, administration in bankruptcy would hardly be practicable. A tax on the vendee in connection with a sale in liquidation of a bankrupt's estate is, at least in a formal sense, quite different from a tax for which the vendor is made primarily liable. (Leavy, supra, at 27.)The bankruptcy court distinguished Hatfield on the basis that the tax liability imposed in that case was to be paid by the purchaser and thus would not burden the bankruptcy estate, whereas in the present action the State of Florida seeks to collect excise taxes imposed at the distributor rather than consumer level. The district court, however, rejected the reasoning of the bankruptcy court, stating that the ultimate tax on the alcoholic beverage inventory is paid by the consumer, but is collected and remitted by the distributor. Thus, the district court concluded, to not impose the excise tax would result in the debtor's inventory entering the marketplace without the alcoholic beverage tax having been paid. However, in light of the rationale of Leavy, we find the position of the bankruptcy court persuasive and agree that Hatfield is distinguishable from the present situation in which primary liability for the tax is on the distributor.
There is a split of judicial authority on the issue of whether a trustee in bankruptcy is responsible for the payment of state taxes during liquidation. In California State Board of Equalization v. Goggin,
The appellees urge that the above cases are distinguishable from the present situation because those cases involved the liquidation of assets other than stock-in-trade. Appellees assert the argument that, although liquidating an estate does not in and of itself constitute "conducting business," a trustee who sells the debtor's inventory is actually conducting the business of the debtor and therefore should be liable for taxes just as though the debtor had sold the inventory. However, a review of the above cases reveals that characterization of the property sold was not a relevant factor in the decisions; in fact, the nature of the assets was not even reported in several of the сases. See, e.g., Goggin, supra; Rhea, supra.
On the other hand, several courts have held that the trustee in bankruptcy was "conducting business" and thus have imposed tax liability. Hatfield, supra; United States v. Sampsell,
Basеd upon the above analysis, this court tends toward the reasoning of Goggin, supra, and therefore holds that the trustee was not "conducting any business" within the contemplation of 28 U.S.C. Sec. 960 in liquidating the debtor's inventory. Thus, we conclude that the bankruptcy court properly held that the estate is nоt subject to tax liability pursuant to Fla.Stat. Secs. 563.05 and 564.06.
Accordingly, the judgment of the district court is REVERSED.
JAMES C. HILL, Circuit Judge, dissenting:
I respectfully dissent. The correct resolution of the issue presented in this case is not at all clear. While we are not given sufficient navigational aids by Congress, the waters on which we venture arе not uncharted. In 28 U.S.C. Sec. 960, Congress provided that:
Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, State, and local taxes applicable to such business to the same extent as if it were conducted by an individual or corporation.
We find no other expression by Congress on the general subject presented on this appeal, and our task is thus to interpret section 960 and apply it to the present case.
Property in bankruptcy is subject to applicable state and local taxes absent a clear expression by Congress of an intent to create an exemption. Swarts v. Hammer,
Accordingly, I conclude that, although not entirely clear, section 960 should be interpreted as providing for the eventuality of liquidation by the trustee, just as it provides for transactions by the trustee in operating the business as a going concern. Selling to customers from a going-concern and selling to customers in order to liquidate inventory both appear to me, without more specific congressional action, to constitute "conducting any business" so as to subject the sales to state tаxation under section 960.
I am persuaded that the rationale of State of Missouri v. Gleick,
This issue will not infrequently occur, and its resolutiоn appears to be in conflict in the federal courts. It should be resolved.
Notes
Honorable John W. Peck, U.S. Circuit Judge for the Sixth Circuit, sitting by designation
28 U.S.C. Sec. 959(b) provides:
A trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof.