ENTRY AFFIRMING BANKRUPTCY COURT’S DENIAL OF MOTION FOR ORDER DIRECTING PAYMENT OF ADMINISTRATIVE EXPENSE
Appellant Marion County Treasurer (the “Treasurer”) appeals the Bankruptcy Court’s
I. BACKGROUND
On March 1, 1994, the Treasurer assessed personal property taxes against Appellee Blue Lustre Products, Inc. (“Blue Lustre”). Under Indiana law, these taxes were due and payable in two equal semi-annual installments, May 10, 1995 and November 10,1995. On November 6, 1995, four days prior to the due date of the second installment, Blue Lustre filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code and did not pay the second installment of the property taxes. On May 8, 1996, the Treasurer filed a motion seeking an order directing Blue Lustre to pay the second installment in the amount of $14,173.04, characterizing it as an administrative expense. Blue Lustre filed its objections to this motion on June 4, 1996.
The Bankruptcy Court held a hearing on this issue on July 10, 1996, and denied the Treasurer’s motion on September 12, 1996. In so ruling, the court held that, under Indiana law, because the property taxes were not incurred postpetition by the estate, the Treasurer’s claim was entitled only to priority unsecured status, rather than to treatment as an administrative expense.
II. DISCUSSION
STANDARDS OF REVIEW
We review the bankruptcy court’s findings of fact under a clearly erroneous standard.
See
Fed.R.Bankr.P. 8013;
In re A-1 Paving and Contracting, Inc.,
APPLICATION
The Court must determine in this case whether the second installment of the personal property taxes constitutes an administrative expense under 11 U.S.C. § 503(b) and is therefore entitled to first priority treatment under 11 U.S.C. § 507(a)(1). Section 503(b)(1)(B)® provides that any tax which is incurred by the estate, and which is not of a kind specified in section 507(a)(8), is allowed as an administrative expense. To make this determination, we must first resolve two subissues: (1) whether the property taxes were incurred by the estate, and (2) whether the taxes are of a kind specified in section 507(a)(8). Because we hold that the property taxes were not incurred by the estate and are within those specified in section 507(a)(8), we find that the Bankruptcy Court properly denied the Treasurer’s motion.
The property taxes were not incurred by the estate:
When a tax is incurred is a determination to be made pursuant to state law.
See Butner v. United States,
Before examining Indiana law to determine the specific date the taxes were incurred, we must first determine what the Bankruptcy Code means by the term “incurred.” ‘Whether a particular tax has been ‘incurred by the estate’ is not always easy to determine. The time of assessment or payment may not necessarily be equivalent to the time the tax is ‘incurred’ for the purpose of establishing priority under section 503(b)(1)(B).” 4 Collier on Bankruptcy ¶ 503.07[1] (15th ed.1997). While the Bankruptcy Code does not define the term “incurred,” and the courts in this circuit have
Thus, we examine Indiana law to answer the question, when does the tax accrue and become a fixed liability. Ind.Code § 6-1.1-1-2 provides that property taxes shall be assessed on March 1. While the assessment date and the date the tax is incurred are not necessarily the same date,
see, e.g., In re Garfinckels,
In the case at bar, it is clear that the property taxes were incurred by Blue Lustre on the assessment date of March 1, 1994, a full twenty months
prior
to the date the bankruptcy petition was filed. Because the estate does not exist until after the bankruptcy petition is filed,
see United States v. Friendship College,
The Treasurer has cited several cases holding that property taxes which became due postpetition were entitled to administrative expense treatment. However, the Treasurer fails to note that, in each of these cases, administrative expense treatment was allowed because the taxes were incurred by the estate rather than merely being payable postpetition.
See, e.g., In re Holly’s,
Further, the Treasurer has failed to discuss the issue of when taxes are incurred under Indiana law. As we have noted, courts addressing this issue have held that it is the date that property taxes are incurred, rather than the date that taxes are due, that determines whether taxes qualify as administrative expenses. For example, in
Columbia Gas, supra,
where the debtor filed its property tax return prior to the date it filed its bankruptcy petition, but the taxes were assessed and due after the filing of the petition, the court held that the property taxes were incurred by the debtor on the date that state law imposed tax liability on the owner of the property, rather than on the date the taxes were assessed or due.
The property taxes are of a kind specified in section 507(a)(8):
Even if the Court were to hold that the taxes were incurred by the estate, the taxes would be entitled to treatment as an administrative expense only if they are
not
of a kind specified in section 507(a)(8).
See
11 U.S.C. § 503(b)(l)(B)(i). Property taxes covered by section 507(a)(8) include only those which are incurred prepetition.
See Martin,
As with the term “incurred” under section 503(b), the term “assessed” under section 507(a)(8)(B) is “interpreted in terms of the date a taxpayer’s liability for the taxes on the property becomes fixed, not whatever date the property’s value is assessed.”
Garfinckels,
However, as the Treasurer points out, a strict application of the “last payable” requirement of 507(a)(8)(B) reveals that the tax installment at issue here was last payable without penalty on November 10, 1995, a date which was four days after the filing of the petition rather than within one year before the date the petition was filed. As a result, the Treasurer argues, the taxes are not entitled to priority treatment under section 507(a)(8) and therefore are entitled to treatment as an administrative expense.
What the Treasurer’s argument fails to consider is that, even if the taxes do not fall within the strict wording of 507(a)(8), they are not necessarily to be considered an administrative expense. In order for the taxes to qualify as an administrative expense, they must also be incurred by the estate. 11 U.S.C. § 503(b)(l)(B)(i). As previously discussed, this requirement is not met here.
Furthermore, the Treasurer’s argument discounts the effect of 11 U.S.C. § 502(i), which provides:
A claim that does not arise until after the commencement of the ease for a tax entitled to priority under section 507(a)(8) of this title shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.
While this section is admittedly somewhat ambiguous,
[pjroperly interpreted, section 502(i) only makes clear that taxes incurred by the debtor prepetition but not becoming due and payable until after the petition is filed are allowed under section 502 just as any other prepetition claim. The allocation of such status as a prepetition claim denies administrative status. To that extent, therefore, the tax claim is not given a first priority as an administrative claim under section 507(a)(1) but retains its priority status under section 507(a)(8). It bears repeating that except for administrative expenses under section 503, all allowable claims asserted against the assets of a debtor for purposes of distribution are deemed to be claims existing at the time of the filing of the petition.
4 Collier on Bankruptcy ¶ 502.10[2] (15th ed.1997). Application of section 502(i) to the instant ease therefore, makes it clear that the second tax installment is entitled to priority status under section '507(a)(8), rather than administrative expense status .under section 503(b), because the effect of section 502(i) is to treat the taxes as if they had arisen before the filing of the petition and therefore enable the taxes to satisfy the “last payable” requirement of section 507(a)(8).
In
In re New England Carpet Co.,
III. CONCLUSION
Appellant Treasurer has appealed the Bankruptcy Court’s Denial of its Motion for Order Directing Payment of Administrative Expense, believing that property taxes that are due postpetition are not entitled to eighth priority status under 507(a)(8) but are entitled to administrative expense treatment under 503(b). Appellee Blue Lustre contends that the property taxes were not incurred by the estate and were therefore not entitled to treatment as an administrative expense. The Court, being duly advised, finds that, (1) the taxes were not incurred by the estate because, under Indiana law, property taxes are incurred as of the date of assessment, and (2) under 507(a)(8), as modified by 502(i), the taxes were a prepetition claim entitled to eighth priority as an unsecured claim. Accordingly, the Court affirms the Bankruptcy Court’s denial of the Appellant Treasurer’s Motion.