Opinion ID: 3064662
Heading Depth: 3
Heading Rank: 1

Heading: Excise Tax Criteria

Text: [1] The Bankruptcy Code does not define “excise tax,” and federal courts do not rely on state law labels to determine which obligations qualify. Instead, courts engage in a funcIN RE LORBER INDUSTRIES OF CALIFORNIA 5163 tional examination to determine if a government exaction is an excise tax. See Indus. Comm’n of Ariz. v. Camilli (In re Camilli), 94 F.3d 1330, 1331 (9th Cir. 1996); see additionally City of New York v. Feiring, 313 U.S. 283, 285 (1941). [2] In County Sanitation District Number 2 v. Lorber Industries (In re Lorber Industries of California) 675 F.2d 1062, 1066 (9th Cir. 1982), the Ninth Circuit examined which government exactions are considered taxes under the Bankruptcy Code.2 The court held that sewer district fees for the discharge of industrial waste did not qualify. Id. at 1067. The court expressed concern that a growing number of governmental obligations and accelerating rates of taxation were absorbing an increasingly large portion of a bankrupt’s estate, undermining the Code’s goal of equitable distribution among creditors. Id. at 1068. In order to effectuate the purposes of the Bankruptcy Code and limit the number of governmental obligations entitled to priority, the court established a fourpart test to determine if a claim qualified as an excise tax. Id. at 1066. The court held that an excise tax is: (a) an involuntary pecuniary burden, regardless of name, laid upon individual or property; (b) imposed by or under the authority of the legislature; (c) for public purposes, including the purposes of defraying expenses of government or undertakings authorized by it; and (d) under the police or taxing power of the state. Id. The Sixth Circuit considered which claims are entitled to priority as excise taxes in the context of a state workers’ compensation system in Yoder v. Ohio Bureau of Workers’ Comp. (In re Suburban Motor Freight, Inc.), 998 F.2d 338 (6th Cir. 1993) (Suburban I), and Ohio Bureau of Workers’ Comp. v. Yoder (In re Suburban Motor Freight, Inc.), 36 F.3d 484 (6th Cir. 1994) (Suburban II). It concluded that Lorber’s public purpose criterion was overly broad and “would result in too many priorities of debts to the government over like claims of private creditors.” In re Camilli, 94 F.3d at 1333 (analyzing 2 The debtor in this case is a predecessor in interest to the current debtor. 5164 IN RE LORBER INDUSTRIES OF CALIFORNIA Suburban I and Suburban II). Therefore, the court refined the Lorber test to require (1) that the pecuniary obligation be universally applicable to similarly situated entities; and (2) that according priority treatment to a government claim not disadvantage private creditors with like claims. Suburban II, 36 F.3d at 488. Using this refined test, the Sixth Circuit held that the state’s claim for reimbursement for payments made to claimants are not entitled to priority as excise taxes when the debtor is selfinsured. Suburban II, 36 F.3d at 489. The court found that other private creditors, including those who acted as sureties for the debtor so that it could self-insure, had similar reimbursement claims against the debtor. Id. Therefore, the court held, the claim was not an excise tax for bankruptcy purposes because granting priority treatment to the government would disadvantage private creditors with like claims. Id. [3] In re Camilli favorably cited the Sixth Circuit’s analysis in Suburban I and II. 94 F.3d at 1334. A subsequent Ninth Circuit case drew on the Sixth Circuit’s reasoning, and added a fifth element to the Lorber test. George v. Uninsured Employers Fund (In re George), 361 F.3d 1157, 1162-63 (9th Cir. 2004). In re George held that if a private creditor similarly situated to the government can be hypothesized under the relevant statute, the claim cannot be considered an excise tax. Id. at 1162. In In re George, the court found that the reimbursement claim of the California Uninsured Employers’ Fund (“Uninsured Fund”) was not an excise tax. 361 F.3d at 116263. The court noted that under the statutes governing the Uninsured Fund, if a worker suffers a cumulative injury, both the subsequent employer and the Uninsured Fund potentially have a claim against the uninsured employer for a portion of the injury. Id. (citing Cal. Labor Code § 5500.5). Because a private creditor, the subsequent employer, can assert a claim against the debtor similar to that of the Uninsured Fund, the IN RE LORBER INDUSTRIES OF CALIFORNIA 5165 court held that the Fund’s claim did not qualify as an excise tax. Id.