Opinion ID: 5666
Heading Depth: 2
Heading Rank: 1

Heading: The Interest Actually Earned

Text: The State asserts that the interest accrued on its tax revenues does not constitute property belonging to Copeland's estate, and that both 11 U.S.C. § 541(d) and the relevant cases under the Bankruptcy Code fully support the entitlement of a trust beneficiary to recover interest on its trust funds pursuant to applicable non-bankruptcy law. In support of this proposition, the State relies upon In re MCZ, Inc., 82 B.R. 40, 42-43 (Bankr.S.D.Tex.1987), and In re Goldblatt, 61 B.R. at 46364. In MCZ, the bankruptcy court held that the question as to whether Debtor is entitled to interest accruing on such funds is a question of state agency or trust law. 82 B.R. at 43. Similarly, in Goldblatt, the court held that, [s]ince the trust funds are not property of they estate, questions as to whether [the plaintiff] is entitled to interest on those funds, and if so at what rate, are issues to be determined by trust law. 61 B.R. at 463-64. Texas trust law provides that, in collecting and holding the State's sales tax revenues, Copeland acted merely as a trustee for the State; it never held any equitable rights to the State's sales tax revenues. TEX.TAX CODE ANN. § 111.016 (Vernon 1992) (providing that the person who collects sales tax revenues holds them in trust for the benefit of the state);7 see also Begier, 496 U.S. at 59, 110 S.Ct. at 2263 (Because the debtor does not own an equitable interest in property he holds in trust for another, that interest is not property of the estate.' ). Moreover, as is discussed infra at Part II.B, the payment of penalties and interest on delinquent trust funds is prescribed by Texas law. See TEX.TAX CODE ANN. §§ 111.016, 111.060 (Vernon 1992). As recognized by the bankruptcy court, [i]t would be antithetical to the concept of trust 7 A very limited exception to section 111.016 is provided under section 151.423 of the Texas Tax Code, which states that [a] taxpayer may deduct and withhold one-half of one percent of the amount of taxes due from the taxpayer on a timely return.... TEX.TAX CODE ANN. § 151.423 (Vernon 1992). funds' to allow the Debtor's estate to profit by keeping the interest which has been earned on money the estate does not own.... Copeland, 133 B.R. at 842, citing Goldblatt Bros., Inc, 61 B.R. at 464 (Even if a trustee has not committed a breach of trust, he is generally liable for any interest which he received from the trust funds.). We agree with the bankruptcy court that, just as Copeland held no equitable interest in the State's sales tax revenues, it now holds no equitable claim to the interest actually accrued on those revenues during the time they were overdue. The State holds an equitable claim to this interest, and we conclude, therefore, that the interest actually earned on the State's sales tax revenues during the period they were overdue belongs to the State. See 11 U.S.C. § 541(d) (excluding property from the debtor's estate where equitable interest in that property belongs to another).