In Re Park
OPINION
Dаvid Hamblen Park and Karen Anne Park (the “Debtors”) object to the claim of the Workers’ Compensation Trust Fund (the “WCTF”) to the extent it asserts status as a claim for excise taxes owed a governmental unit. At issue is whether a claim for reimbursement of workers’ compensation benefits paid to an injured employee of an uninsured employer under Massachusetts law constitutes an excise tax сlaim entitled to priority under
The Debtors operate a masonry contracting business under the name David Park Masonry. In early 1995, they were hired by a homeowner to lay bricks. They employed an individual named Scott Lester to work on the project. On April 20, 1995, Lester was injured in the course of this employment. He applied to the WCTF for compensation for his injuries, as the Debtors, in violation of Mass. Gen. Laws ch. 152, § 25A, did not carry workers’ compensation insurance. The WCTF paid Lester benefits in the amount of $19,269.12. The Debtors subsequently filed a voluntary Chapter 7 petition. The WCTF filed a proof of claim asserting an unsecured
I. MASSACHUSETTS WORKMEN’S COMPENSATION LAW
In Massachusetts, every employer must carry workmen’s compensation insurance “[i]n order to promote the health safety and welfare of employees.” Mass. Gen. Laws ch. 152, § 25A. Unlike many states, Massachusetts does not offer state — administered workmen’s compensation insurance. A Massachusetts employer may obtain insurance through a private insurer, through membership in a workmen’s comрensation self-insurance group, or become licensed as a self-insurer. Id.
Although the required workmen’s compensation insurance is not available through the state, the Massachusetts legislature has created the WCTF to provide benefits and/or reimbursements for seven types of claims. Mass. Gen. Laws eh. 152, § 65(2). The eligible claims listed in the statute include:
(e) payment of benefits resulting from approved claims against employers subject to the personal jurisdiction of the Commonwealth who are uninsured in violation of the chapter____
The WCTF is administrated by the Massachusetts Department of Industrial Accidents. It is funded by assessments levied on employers. Sélf-insureds and self-insured groups pay the assessments directly to the state treasurer. Privately insured employers are billed for the assessments by their insurers, who in turn transmit the funds to the treasurer quarterly. An employer may choose to opt out of the coverage provided by the WCTF by filing a statement of nonparticipation. By doing so, the employer is relieved of the obligation to pay assessments to the fund. However, “[n]o private еmployer or group shall be relieved of the requirement to pay assessments levied to fund disbursements under clause (d) or (e).”
Id.
Assessments are calculated yearly and are based, in part, on the amount paid out for workmen’s compensation claims during the previous twelve months. Employers may not report assessments as premiums for any tax or regulatory purposes. Mass. Gen. Laws сh. 152
If the WCTF pays benefits to a claimant under clause (e), “it may seek recovery from the uninsured employer for an amount equal to the amount paid ... plus any necessary and reasonable attоrney fees. Any action by the trust fund to seek recovery from the uninsured employer shall be commenced within twenty years of the claimant’s filing a claim ...” Mass. Gen. Laws ch. 152
II. CHARACTERISTICS OF A TAX UNDER BANKRUPTCY CODE
(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 thé 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 ...
The Code does not define “tax” or “excise tax.” Whether an obligation is a tax entitled to priority under the Code is a question of federal law.
City of New York v. Feiring,
The Supreme Court has held that taxes are “those pecuniary burdens lаid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or of undertakings authorized by it.”
Feiring,
Since the Anderson and Feiring decisions, courts have continued to refine and restate the definition of a tax. The Ninth Circuit has defined a tax for bankruptcy purposes as:
(a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property;
(b) imposed by, or under authority of the legislature;
(c) for public purposes, including the purposes of defraying expenses of government or undertaking authorized by it;
(d) under the police or taxing power of the state.
In re Lorber,
Courts have expressed concern that the
Lorber
test is inadequate to distinguish a wide range of governmental fees and charges from true taxes.
2
See, e.g., In re Suburban Motor Freight, Inc. (“Suburban I”),
Still other courts favor a totality test.
See. e.g. Bell v. Brown, (In re Payne),
III. NATURE OF EXCISE TAXES
In determining whether an obligation constitutes an
excise
tax, courts have first applied, as a threshold, one of the tests for a “tax” generally. In addressing the “excisе” part of the phrase, courts use a range of definitions, some broader than others.
E.g. Patton v. Brady,
Excise taxes have been traditionally imposed upon alcohol, tobacco, fuel, and luxuries.
See Patton,
Many courts do not engage in any substantive analysis of the “excise” portion of the phrase once an exaction has been determined to be a tax generally under the
Lorber
or other tests. This is apparently because the
Anderson, Feiring
line of cases evolved under the Bankruptcy Act. The Act granted priority status to “all taxes legally due and owing by the bankrupt to the United States, State, county, district or municipality” without specifying excise or other types of taxes. Bankruptcy Act of 1898, § 64. For those courts employing the
Lorber
and
Suburban
tests, whether or not an obligation is a tax often turns on the “involuntary” nature of the obligation. Some of these decisions involve reimbursement сlaims under workers’ compensation statutes.
Compare, e.g. Industrial Commission of Arizona v. Camilli
IV. WORKMEN’S COMPENSATION CLAIMS AS EXCISE TAXES
State claims for monies owed under workers’ compensation statutes can be divided into two categories: those for unpaid premiums; and those for reimbursement of monies paid to injured employees of uninsured employers. A determination of whether a claim is one for an excise tax depends largely on the makeup of the particular state workers’ compensation scheme. Claims for unpaid premiums are generally found to be priority tax claims when a state requires all employers to purchase workers’ compensation insurance from the state, with no private insurance option.
See e.g., Suburban II,
The ease law on whether reimbursement claims are excise taxes is unsettled. The First Circuit has not addressed this issue. In
Pan American,
a workers’ compensation claim case under the prior Act, the court held that unpaid workers’ compensation premiums were taxes, and therefore the government held a priority claim.
In re Pan American,
Courts that have ruled reimbursement claims to be excise tax claims consider the
Lorber
test, public policy, and the existence of a statutory lien securing the claim.
See In re Camilli,
The
Lorber
test alone is easily satisfied in the context of reimbursement claims, but application of the two additional
Suburban
elements yields differing results. The requirement that priority status must not prejudice private creditors with like claims is met in states where separate, state-administered funds are the sole source of benefits paid on behalf of uninsured employers.
See Camilli,
The
Suburban
test also requires that a tax be universally applied to all similarly situated entities. Courts draw similarly situated classes narrowly or broadly, depending upon their willingness to grant section 507(a)(8)(E) priority status.
Compare Camilli,
The interplay between the specific characteristics of a state’s workmen’s compensation scheme and policy considerations, both local and federal, plays a role. The Sixth Circuit, in
Suburban II
noted that premiums collected under Ohio’s monopolistic workers’ compensation System were the source of payments made to employees of uninsured employers.
The Ninth Circuit, in
Camilli,
distinguished Arizona’s workers’ compensation system from the
Suburban II
system, pointing out that Arizona’s scheme is not a state monopoly, so that claims for unpaid premiums would not receive excise tax priority.
Lastly, in denying priority status to reimbursement claims, courts have noted the similarity between these and subrogation claims.
See Suburban II,
Y. APPLICATION OF THESE PRINCIPLES TO THE PRESENT CASE
I conclude that the WCTF claim for reimbursement of benefits paid under section 65(2) does not qualify for priority status аs an excise tax. All Massachusetts employers are required to purchase workmen’s compensation insurance (or to become self-insured), but this insurance cannot be purchased from the Commonwealth. All private Massachusetts employers are also required to pay “assessments” made by the WCTF to cover claims which arise under section 65(2), including claims of injured employees whose employers are uninsured. In contrast, only uninsured employers are subject to reimbursement liability. True, this reimbursemént debt is a pecuniary burden imposed by Massachusetts to defray a cost of government. And granting priority for the WCTF’s claim would not prejudice private creditors with like claims, because the WCTF has a monopoly on section 65(2) insurance. The reimbursement burden is not, howevеr, universally applied to all similarly situated constituents. All Massachusetts employers pay WCTF assessments, but only some pay reimbursement claims. They are uninsured employers with an employee who has been injured in the course of employment, whose injured employee files a claim with and is paid by the WCTF. To craft such a narrow “similarly situated” class renders the “universally applied” requiremеnt meaningless.
Moreover, reimbursements to the WCTF are not revenues applied to the general welfare, nor does the WCTF’s continued existence rely on their collection. The state workmen’s compensation system was enacted “[in] order to promote the health, safety
For these reasons, and in keeping with central bankruptcy policies, I sustain the Debtor’s objection and hold the WCTF claim is a general unsecured claim.
Notes
. If the claim merits priority under section 507(a)(8)(E), it will be nondischargeable pursuant to section 523(a)(1)(A).
. Isolating unique tax characteristics has proved difficult. The Supreme Court has noted that "[c]riminal fines, civil penaltiеs, civil forfeitures, and taxes all share certain features: they generate government revenues, impose fiscal burdens on individuals, and deter certain behavior.”
Department of Revenue of Montana v. Kurth Ranch,
. While the test for taxes has taken on an "involuntary” requirement, the original
Anderson/Feiring
definitions referred to pecuniary burdens imposed regardless of the obligor’s consent.
See Feiring,