MEMORANDUM OPINION & ORDER SUSTAINING DEBTORS’ AND COMMITTEE OF UNSECURED CREDITORS’ OBJECTIONS TO PROOF OF CLAIM NOS. 675, 676 AND 677
In July 2008, thе debtors and debtors-in-possession (collectively, the “Debtors”)
The Objectors seek to disallow the claims as untimely pursuant to the Court’s February 11, 2009 Order establishing a bar date for administrative claims (“Administrative Bar Date Order”). (ECF # 334.) The Objection was filed on May 28,2010. (ECF #751.) The Tax Authorities responded to the Objection on June 22, 2010. (ECF #761.) On June 28, 2010, the Objectors filed a reply to the Tax Authorities’ response. (ECF # 767.) The Court held a hearing on the Objection on June 29, 2010 (“Hearing”), and took the matter under submission.
For the reasons explained below, the Court sustains the Objections, and disallows the Tax Claims as untimely.
I BACKGROUND
A. Proofs of Claim
Proofs of Claim Nos. 675, 676 and 677, filed by Tarrant County, Dallas County and Irving ISD, are for $59,676.89, $12,656.88 and $469.62, respectively, plus penalties and interest accruing pursuant to tex. tax Code ANN. §§ 33.01 and 33.07 (2010). Each Tax Claim is dated September 23, 2009. The Debtors’ claims and noticing agent, Kurtzman Carlson Consultants LLC (“KCC”), received them on October 5, 2009. Each Tax Claim indicates that the respective debt was incurrеd on “January 1 of each tax year, pursuant to Sections 32.01 and 32.07 of the Texas Property Tax Code,” and “Penalty and Interest continues to accrue.”
Claim No. 675 is supported by three “Account Information” printouts for three store locations, dated September 23, 2009, listing 2008 taxes due from “Steve & Bar-rys Texas LLC.” Each printout contains a partially handwritten note providing that year 2009 estimated taxes are (a) “$32,-885.63[,] [including] County $7,903.59, ISD $17,693.05 [and] City $7,288.99” (0003316 Denton Hwy #400); (b) $8,015.70 (0003000 Grapevine Mills # 125); and (c) “$18,775.56[,] [including] City $9,521.06 [and] County $9,254.50” (0003811 S Cooper St # 6004), totaling the amount of Claim No. 675, $59,676.89. The three notes also provide that “[a]ctual tax amounts will be determined at a later date pursuant to Texas law.”
Similarly, Claim No. 676 is supported by two “2008 Tax Statements” for two store locations dated September 18, 2009, addressed to “Steve & Barrys” and “Steve & Barrys University Spor,” with partially
Claim No. 677, however, is supported by a “Delinquent Tax Statement Summary” for a store located at 2416 Irving Mall, 2 dated September 18, 2009, addressed to “Steve & Barrys.” The amount due on the “Delinquent Tax Statement Summary” is $469.62, the total amount of Claim No. 677, and appears to be for the year 2009. However, the “Delinquent Tax Statement Summary,” like the documents attached to Claim Nos. 675 and 676, also contains a partially handwritten note providing that “[e]stimated taxes for year 2009 are $469.62,” and “[a]etual tax amounts will be determined at a later date pursuant to Texas law.”
As the Debtors filed their chapter 11 petitions on November 19, 2008, the Tax Claims are indisputably for postpetition taxes for the year 2009.
B. Abandonment and Going Out of Business Orders
On December 16, 2008, the Court entered аn order authorizing the Debtors to abandon certain assets, including all personal property remaining at “any Store or any of the Debtors’ other leased premises” subsequent to “the conclusion of a Store Closing Sale or other store or facility closing at any time since the Petition Date” under section 554 of the Bankruptcy Code. (ECF #193, as amended ECF #197) (“Abandonment Order”).
On January 8, 2009, the Court ordered that “the Debtors shall cease their ‘going-out-of-business sales’ no later than January 11, 2009, and shall exit any of their remaining stores no later than January 16, 2009.” Accordingly, the Debtors closed the 0003316 Denton Hwy # 400, 0003000 Grapevine Mills # 125, 0003811 S Cooper St # 6004, 2416 Irving Mall, 40 and 3161 Broadway, CG stores that are referenced in the Tax Claims (“Stores”) no later than January 11, 2009, and exited the stores no later than January 16, 2009. (See Agreed Order Authorizing Debtors to Utilize Cash Collateral and Granting Other Agreed-Upon Relief (“Going Out of Business Order”) (ECF # 251 at 3).)
The parties agree that the requests for payment were for ad valorem taxes assessed on personal property located at the Debtors’ stores. However, the Objectors argue that all property on which the taxes are assessed was abandoned under the Abandonment Order. (Objectors’ Reply in Further Supp. of Objectors’ Joint Fourth Omnibus Obj. to Administrative Claims (Administrative Claims Not Timely Filed) As It Relates to Administrative Claims 675, 676 and 677 (“Objectors’ Reply”) at ¶ 18.) The Tax Authorities contend that the Debtors did not “abandon all property” under the Abandonment Order, since the Debtors were administering estate property by continuing to sell inventory for the first half of January 2009, and thus the taxes were assessed on more than property abandoned by the Abandonment Order. (Tr. June 29, 2010 Hearing (hereinafter, “Hr’g Tr.”) 12:15-21 (ECF # 788).)
C. Administrative Bar Date Order
On February 11, 2009, the Court entered an Order establishing a bar date
As noted above, each of the Tax Authorities’ claims indicates that its respective debt was incurred on “January 1 of each tax year [2009], pursuant to Sections 32.01 and 32.07 of the Texas Property Tax Code,” and “Penalty and Interest continues to accrue.” (See also Resp. of Tax Authorities to Obj. at ¶ 1(ECF # 761) (“These claims accrued on January 1, 2009, pursuant to Texas Property Tax Code §§ 32.01 and 32.07.”); Hr’g Tr. 11:6-7 (“[On January 1] the lien attached and the personal liability.”).) The Tax Authorities cоntend, however, that the Debtors did not file their 2009 tax returns, which were due on April 15, 2009. (Hr’g Tr. at 7:11-13.)
The Tax Authorities also allege that “[w]hile the Debtor [sic] incurred these taxes on January 1, 2009, the Tax Authorities did not set the tax rate and determine the amount of the taxes until on or about October 1, 2009[,]” and “[u]ntil the amounts were on the tax rolls, any claim filed would have only been an estimated amount.” (Resp. of Tax Authorities to Obj. at ¶ 2 (ECF # 761).) Counsel for the Tax Authorities “attempted to call the stores in January,” and with respect to closed stores, “chose not to file administrative expenses claims because [they] believe[d] [the Stores] might’ve been closed before January 1, and [they] were waiting to get the information for sure from the tax role [sic ] from the appraisal district.”
5
(Hr’g Tr. at 9:1-4.) Counsel also timely filed several claims on behalf of other local Texas tax authorities for
ad valorem
taxes
If the Tax Claims are subject to the Administrative Bar Date Order, which, as explained further below, the Court finds they are, the Tax Authorities needed to file proofs of claim either before March 30, 2009, or 30 days after the “occurrence of the event giving rise” to the liability, which the Court determines occurred on January 1, 2009. Thus, for the reasons explained below, the Court disallows the Tax Claims in their entirety as untimely filed.
II DISCUSSION
A. The Tax Claims Are Subject to the Administrative Bar Date Order
1. The Tax Claims are Administrative Claims
Section 503(b)(1)(B) of the Bankruptcy Code provides, in relevant part, that “there shall be allowed, administrative expenses ... including ... (B) any tax — (i) incurred by the estate, whether secured or unsecured, including property taxes for which liability is in rem, in personam, or both, except a tax of a kind specified in section 507(a)(8) of this title.” The ad valorem taxes here are not any of the kind listed in section 507(a)(8) of thе Bankruptcy Code. 6 Accordingly, the ad valorem taxes for 2009 are administrative expenses.
2. The Tax Authorities Are Not Excused From Filing Requests for Payment of the Administrative Expenses Under 11 U.S.C. § 503(b)(1)(D)
Section 503(a) of the Bankruptcy Code permits an entity to “timely file a request for payment of an administrative expense” or “tardily file such request if permitted by the court for cause.” Section
Section 554(a) of the Bankruptcy Code provides that “[a]fter notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.” This “[abandonment divests the bankruptcy estate of its interest in the property and revests ownership in any party ... with a possessory interest in it.” 15 CollieR on BankRuptcy TX4.03[5] (15th ed. rev.2010). 8
Although current law generally requires trustees and receivers to pay taxes in the ordinary course of the debtor’s business, the payment of administrative expenses must first be authorized by the court. Section 712(a) of the [2005] Act amends section 960 of title 28 of the United States Code to clarify that post-petition taxes in the ordinary cоurse of business must be paid on or before whensuch tax is due under applicable non-bankruptcy law, with certain exceptions. This requirement does not apply if the obligation is a property tax secured by a lien against property that is abandoned under section 554 within a reasonable time after the lien attaches.
H.R. Rep. No. 109-31, pt. 1, at 102-03 (2005), U.S. Code Cong. & Admin.News 2005, pp. 88,166-67. Here, some, if not all of the personal property subject to the ad valorem taxes was abandoned under section 554 within fifteen days of the tax liens attaching, which the Court finds is reasonable. Therefore, the Tax Authorities needed to file requests for payments in order to obtain payment of the ad valorem taxes asserted in the Tax Claims to the extent the taxes were on property abandoned pursuant to the Abandonment Order.
With respect to any
ad valo-rem
taxes due on any inventory that was sold and^ot abandoned, the Tax Authorities cоnclusorily argue that inventory was not abandoned, but sold; they have not provided a breakdown to the Court of amounts of the taxes attributable to inventory, nor any evidence to demonstrate that the section 503(b)(1)(D) exception would apply to any portion of the Tax Claims assessed on inventory existing on January 1 that was allegedly later sold. “[I]n the absence of modification expressed in the Bankruptcy Code the burden of proof on a tax claim in bankruptcy remains where the substantive tax law puts it.”
Raleigh v. Ill. Dept. of Revenue,
Thus, the Court finds that the Tax Claimants have the burden to demonstrate why the Administrative Bar Date Order should not apply to their claims and, if they cannot demonstrate that the Administrative Bar Datе Order should not apply, why the date on which the events took place giving rise to the tax claims under the Administrative Bar Date Order should be pushed beyond the January 1, 2009 date on which they admit the claims were “incurred” in the Tax Claims. The Court agrees that the Tax Authorities have established a prima facie case of delinquent taxes. However, the Debtors contend, citing to the Abandonment Order, that all property was abandoned under the plain language of the Abandonment Order. The Tax Authorities have not made any showing that any property was instead sold as inventory and have not provided any
3. The Tax Authorities Needed to Comply With the Administrative Bar Date Order in Filing Their Requests for Payment
Under Fed. R. BaNKR. P. 3003(c)(3), the Court is required to “fix” a date by which chapter 11 proofs of claim must be filed. “Although there is no provision relating to a bar date for requesting an administrative expense payment, courts may set such a date pursuant to Bankruptcy Code § 105.”
PT-1,
Because the Tax Claimants have not demonstrated that all or even a portion of the Tax Claims exempted them from filing a request for payment under section 503(b)(1)(D), the Administrative Bar Date Order properly applies to the Tax Claims. Other courts have implied that Administrative Bar Date Orders can bind tax claimants to file administrative claims for postpetition personal property and other taxes despite the exception in 503(b)(1)(D) that governmental units are not otherwise required to file requests for payment of administrative expenses.
See PT-1,
B. The Requests for Payment Should Have Been Filed the Later of within 30 days of January 1, 2009, or March 30, 2009, Even If They Were For Estimated or Unliqui-dated Amounts
The Administrative Bar Date Order required that claims be filed on the later of (i) March 30, 2009, at 5:00 PM (Prevailing Eastern Time); and (ii) the date that is 30 days after the occurrencе of the event giving rise to a claim under section 503 of the Bankruptcy Code. 10 (ECF # 334 at 3.) The Court finds that the event giving rise to liability to the Tax Claims took place on January 1, 2009.
1. The Liens Attached on January 1, 2009
First, the Tax Authorities themselves point to Tex. Tax Code Ann. §§ 32.01 and 32.07 in the Tax Claims. Tex. Tax Code Ann. § 32.01 (2010) provides that “[o]n January 1 of each year, a tax lien attaches to property to secure the payment of all taxes, penalties, and interest ultimately imposed for the year on the property, whether or not the taxes are imposed in the year the lien attaches. The lien exists in favor of each taxing unit having power to tax the property.” Tex. Tax Code Ann. § 32.07 (2010) provides, in relevant part, that “[e]xcept as provided by Subsections (b) and (c) of this section, property taxes are the personal obligation of the person who owns or acquires the property on January 1 of the year for which the tax is imposed or would have been imposed had property not been omitted as described under Section 25.21. A person is not relieved of the obligation because he no longer owns the property.” Thus, as the Tax Authorities admit, the lien attached and became a personal obligation of the Debtors on January 1, 2009.
2. The Events Giving Rise to Liability Did Not Occur In September 2009, when the Tax Authorities Received the Tax Rolls
While the Tax Authorities argue that they needed to wait for the tax rolls to determine whether the Stores closed prior to January 1, 2009 and thus whether any 2009 taxes would be due, this does not excuse their failure to file an “estimated” claim in January 2009 in the event taxes were due, since they do not dispute that the lien attached and the Debtors became personally liable on January 1, 2009.
Under the Texas Tax Code, the Tax Authorities could not hаve finally determined the amount of the Tax Claims in January 2009, or even in September 2009 when they filed the Tax Claims. The partially handwritten notes on all three Tax Claims indicate that the amounts due and owing are estimates. Tex. Tax Code Ann. § 26.01 (2010) requires the chief appraiser to “prepare and certify to the assessor for each taxing unit” the appraisal roll by July 25 of the given tax year. By August 1 of the given year, or “as soon thereafter as practical,” Tex. Tax Code Ann. § 26.04
Tax claimants regularly file estimated claims in bankruptcy cases to comply with bar date orders. For example, in
Matter of O.P.M. Leasing Serv., Inc.,
In
PT-1,
Here, the Objectors represent that other local Texas taxing authorities, represented by the Tax Authorities’ counsel, filed estimated claims in January 2009 following the abandonment of the Debtors’ personal
S. The Failure of the Debtors to File Tax Returns Does Change the Date of When The Event Giving Rise to the Liability Occurred
The Court also rejects the argument that the Tax Authorities could not file their requests for payment because the Debtors did not timely file their tax returns. Other courts hold that a debtor’s failure to timely file a tax return will not affect when the claim occurred and thus whether the request for payment was timely. Instead, the appropriate solution is for the tax authority to move to extend the time to file a request for payment.
See In re Larry Merritt Co.,
Courts make decisions whether an untimely return justifies the failure to file a claim based on equitable considerations. In
In re Larry Merritt Co.,
The Tax Authorities violated the Administrative Bar Date Order by failing to file their requests for payment by the later of 30 days from January 1, 2009 or March 30, 2009.
C. The Tax Authorities Have Not Met Their Burden to Demonstrate Excusable Neglect for the Late Filing of the Tax Claims
fed R. banKR. p. 3003(c)(3) permits proofs of claim for prepetition amounts to be filed after the expiration of the period set by a court under the conditions in Fed.
In interpreting “cause” under Fed R. BaNkr. P. 3003(c)(3), the Supreme Court has held that Fed. R. Bankr. P. 9006(b)(1) gives a bankruptcy court the authority to “permit a late filing if the movant’s failure to comply with an earlier deadline ‘was the result of excusable neglect.’ ”
Pioneer Inv. Serv. Co. v. Brunswick Assoc. Ltd. P’ship,
“The creditor seeking allowance of a late claim bears the burden of proving excusable neglect.”
PT-1,
The
PT-1
court applied the
Pioneer
analysis to the IRS’ request to file an administrative claim after the bar date expired, even though Fed. R. Baniír. P. 3003 applies only to prepetition claims.
PT-1,
Here, none of the Tax Authorities has presented evidence such that the Pioneer factors weigh in its favor; and none has demonstrated “excusable neglect.” The Tax Authorities have not provided any reason for the delay other than the fact that they did not believe they were required to file a proof of claim under the rules, and they were waiting for the tax rolls to determine whether the Debtors had personal property at the Stores. The lack of tax rolls did not prevent seven other local Texas tax authority claimants from filing estimated tax claims, all of whom were represented by counsel for the Tax Authorities. The Tax Authorities called the Stores in January, but chose to wait to file proofs of claim until they knew the Stores had not been closed prior to January 1, 2009. The delay was within reasonable control of the Tax Authorities; they chose to take a risk, and the Court will not permit them to correct their mistakes now. The Court finds that the Tax Authorities have not demonstrated “excusable neglect” sufficient to permit late filing of their claims.
CONCLUSION
Accordingly, the Court SUSTAINS the Debtors’ and the Committee’s Objections to Proofs of Claim Nos. 675, 676, and 677, and DISALLOWS the Tax Claims in their entirety.
IT IS SO ORDERED.
Notes
. The Objectors objected to the Tax Claims as part of their Fourth Omnibus Objection to Administrative Claims. (ECF #751.) The Objection with respect to the remainder of the claims listed in the Fourth Omnibus Objection to Administrative Claims was sustained by a separate order dated July 7, 2010. (ECF # 782.)
. The Tax Authorities do not explain why property from the store located at 2416 Irving Mall is taxed both by Dallas County and Irving ISD, but the Debtors do not appear to contest Claim Nos. 676 and 677 on that basis.
. The Administrative Bar Date Order also set May 18, 2009 as the deadline for "governmental units (as defined in Bankruptcy Code § 101(27)) to file Proofs of Claim based on pre-petition claims (as defined in Bankruptcy Code § 101(5)) against the Debtors.” It is undisputed, however, that the Tax Claims are postpetition claims. In any event, the Tax Claimants filed the Tax Claims long after May 18, 2009.
. The Administrative Bar Date Order exempted "any person or entity whose claim is listed on the Schedules and (i) whose claim is not described as 'disputed,' 'contingent,' or 'un-liquidated,' and (ii) that does not dispute the amount or nature of the claim set forth in the Schedules.” The Debtors' filed their Schedules on January 30, 2009, after the Tax Authorities’ claims accrued. Only Schedule E for BHS & B Retail LLC lists unsecured nonpriority claims. Many of the claims listed on Schedule E appear to be for state and local taxes; however, at least on the face of Schedule E, there is no reference to taxes owеd to Dallas County, Tarrant County, or Irving ISD. (ECF #309.) Fed. R. Bankr. P. 1007 and 11 U.S.C. § 521 require that a debtor file "schedules of assets and liabilities” within fourteen days of the Petition Date. However, a Debtor is only required to schedule prepetition debt.
E.g., In re Estes,
. The Tax Authorities admit that even at this juncture, "there may be questions on amount" due on the Tax Claims. Counsel stated on the record at the Hearing that the actual amounts due on the Tarrant and Dallas County claims are different ($24,378.06 and $14,586.02, respectively) than the amounts
. Section 507(a)(8) applies to "(A) a tax on or measured by income or gross receipts for a taxable year ending on or before the date of the filing of the petition [with certain limitations not applicable here]; (B) a property tax incurred before the commencement of the case and last payable without penalty after one year before the date of the filing of the petition; (C) a tax required to be collected or withheld and for which the debtor is liable in whatever capacity; (D) an employment tax on a wage, salary, or commission ... earned from the Debtor before the date of the filing of the petition, whether or not actually paid before such date, for which a return is last due, under applicable law or any extension, after three years before the date of the filing of the petition; (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; (F) a customs duty ...; (G) a penalty related to a claim of a kind specified in this paragraph and in compensation for actual pecuniary loss.”
. Even if debtors do not have to pay taxes on property abandoned under section 554 on or before they come due, the filing of a bankruptcy petition does not automatically stay the efforts of local taxing authorities to create or perfect “a statutory lien for an ad valorem property tax ... if such tаx or assessment comes due after the date of the filing of the petition.” See 11 U.S.C. § 362(b)(18). Still, section 362 does not permit the taxing authority to "take action to enforce the lien, which would deprive the estate of use and possession of the property.” 3 Collier on Bankruptcy ¶ 362.05[17] (15th ed. rev.2010).
. Abandonment can be advantageous to the estate from a tax standpoint because “any tax liability incurred by the bankruptcy estate as a result of [disposition of property of the estate and not abandonment, such as by foreclosure] is an administrative expense of the estate [and not the party to which the property is abandoned] if the property is abandoned to the debtor who then disposes of it, the debtor bears the burden of the tax liability without the ability to discharge it in bankruptcy.”
Id.
But under Texas state law, "property taxes are the personal obligation of the person who owns or acquires the property on January 1 of the year for which the tax is imposed .... A person is not relieved of the obligation because he no longer owns the property.” Tex. Tax Code Ann. § 32.07 (2010). Section 502(b)(3) of the Bankruptcy Code provides that property tax claims will not be allowed “to the extent the claim exceeds the value of the interest of the estate in such property.” Still, at least with respect to pre-petition tax claims, courts will not reduce the initial amount of a tax assessed on property where some of that property was sold prior to or early in the bankruptcy; instead, the remaining personal property is encumbered by the amount of the original tax lien, up to the full value of the remaining property.
In re Universal Seismic Assocs., Inc.,
In the Objectors' motion papers, they merely argued that 28 U.S.C. § 960 required the Tax Claimants to file any claims for taxes on abandoned property in compliance with the Administrative Bar Date Order. (Objectors’ Reply at ¶ 16.) At the Hearing, the Debtors took a more aggressive stance and alleged that no taxes were due on the abandoned property under section 960 of title 28. (Hr’g Tr. at 6:11-14.) The Court finds that to the extent the Debtors’ personal property at the Stores was not abandoned on January 1, when the lien attached, the Tax Authorities would be entitled to a tax lien on the personal property up to the value of the non-abandoned personal property remaining in the bankruptcy estate, but the amount of the tax claim on January 1, 2009 was not later reduced by property abandoned by virtue of the Abandonment Order. However, the court does not need to engage in any valuation or bifurcation of any secured and unsecured portion of the Tax Authorities' claims. Modifications to the еxtent of the Tax Authorities' liens do not change that the event giving rise to the tax liability, regard less of whether the property was later abandoned, occurred on January 1, 2009; nor do they change that even if the Debtors had inventory on which the personal property taxes properly were assessed, as explained further infra, the section 503(d)(1)(B) exception which would otherwise not require a governmental unit to file a request for payment does not apply where an Administrative Bar Date Order is in effect.
. Other courts have required claimants seeking payment for claims incurred on property abandoned to timely file requests for payments of taxes even prior to the amendments to section 960 of title 28. In
In re Mailman Steam Carpet Cleaning, Inc.,
. As noted supra, n. 3, the Administrative Bar Date Order also set May 18, 2009 as the deadline for governmental units (as defined in Bankruptcy Code § 101(27)) to file Proofs of Claim based on pre-petition claims (as defined in Bankruptcy Code § 101(5)) against the Debtors; it is undisputed, however, that the Tax Claims are postpetition claims.