Court Opinion

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Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

1-24-2005

In Re: United
Precedential or Non-Precedential: Precedential

Docket No. 03-4768

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                                                  PRECEDENTIAL

             UNITED STATES COURT OF APPEALS
                  FOR THE THIRD CIRCUIT

                             No. 03-4768

     IN RE: UNITED HEALTHCARE SYSTEM, INC., Debtor

        THE RECONSTITUTED COMMITTEE OF
  UNSECURED CREDITORS OF THE UNITED HEALTHCARE
                  SYSTEM, INC.,

                                                  Appellant

                                 v.

      STATE OF NEW JERSEY DEPARTMENT OF LABOR

          On Appeal from the United States District Court
                          for the New Jersey
                      (D.C. Civ. No. 03-01024)
         District Judge: Honorable Joseph A. Greenaway, Jr.

                      Argued October 28, 2004

           Before: SCIRICA, Chief Judge, FISHER, and
                   GREENBERG, Circuit Judges.

                      (Filed January 24, 2005)

Dennis J. O’Grady (argued)
J. Alex Kress
Riker, Danzig, Scherer, Hyland & Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, NJ 07962

   Attorneys for Appellant
Peter C. Harvey
Attorney General of New Jersey
Patrick DeAlmeida
Assistant Attorney General
Mala S. Narayanan (argued)
Deputy Attorney General
Office of Attorney General of New Jersey
Department of Law & Public Safety
Richard J. Hughes Justice Complex
Trenton, NJ 08625

   Attorneys for Appellee

                    OPINION OF THE COURT

GREENBERG, Circuit Judge.

        On this appeal, we must determine whether a non-profit
organization’s obligation to reimburse the New Jersey Department of
Labor (“NJDOL”) for unemployment compensation benefits NJDOL
paid to its former employees is an “excise tax” under the Bankruptcy
Code. United Healthcare System, Inc. (“United”) was a non-profit
healthcare services corporation that owing to its non-profit status
under New Jersey law was permitted to elect to reimburse NJDOL
retrospectively for any unemployment compensation benefits NJDOL
actually paid to its former employees. United elected to pursue this
reimbursement option instead of paying the quarterly unemployment
contribution payments New Jersey law requires of most New Jersey
employers. Following this election, United filed for bankruptcy. Both
before and after United’s bankruptcy filing, NJDOL paid
unemployment compensation benefits to former United employees.
NJDOL believes that its claim for reimbursement for the benefits it
paid is entitled to priority under 11 U.S.C. § 507(a)(8)(E) which
grants a priority to claims for excise taxes. The bankruptcy court and
the district court agreed with NJDOL. For the reasons we explain
below, we conclude that NJDOL’s reimbursement claim is not
entitled to priority under section 507(a)(8)(E) because the
reimbursement obligation is not a tax for bankruptcy purposes under

                                  2
that section. We therefore will reverse.1

       I. FACTUAL AND PROCEDURAL BACKGROUND

        There are no relevant facts in dispute on this appeal. United,
which operated as the Children’s Hospital of New Jersey, provided
healthcare services in New Jersey. It obviously had financial
difficulties as it filed a bankruptcy petition seeking reorganization
under Chapter 11 of the Bankruptcy Code on February 19, 1997, and
then on March 8, 1997, terminated the employment of most of its
employees. NJDOL processed and, where appropriate, paid the
unemployment compensation claims of United’s former employees.
Because United had elected to reimburse NJDOL for unemployment
benefits actually paid rather than to make quarterly contributions to
the state unemployment compensation fund, NJDOL sought
repayment of the benefits it paid to former United employees. United,
however, did not reimburse NJDOL for substantial benefits it paid on
United’s behalf.

        As a part of United’s reorganization plan, the appellant,
Reconstituted Committee of Unsecured Creditors of United
Healthcare System, Inc. (“the Committee”), succeeded to various
rights and duties of United. In the bankruptcy proceedings, NJDOL
submitted claims for the unemployment benefits it paid to former
United employees for which it had not been reimbursed. NJDOL
sought $941,302.30 (including interest) as reimbursement for
unemployment benefits NJDOL paid to United employees whose
employment United terminated “pre-petition” (prior to the filing of
the bankruptcy petition).2 NJDOL also sought reimbursement for
unemployment compensation benefits it paid to United employees
whose employment United terminated after the bankruptcy filing.

       1
        In two earlier cases we made determinations arising from
United’s bankruptcy but neither is related to this case. In re United
Healthcare Sys., Inc., 200 F.3d 170 (3d Cir. 1999); In re United
Healthcare Sys., Inc., 185 F.3d 863 (3d Cir. 1999) (table).
       2
         The addition of other unpaid “pre-petition” obligations brought
NJDOL’s total pre-petition based claim to $1,156,170.00, but these other
pre-petition obligations are not subject to this appeal.

                                   3
With interest, this “post-petition” claim amounted to $8,223,160.94.3
NJDOL sought priority status for both the pre-petition and post-
petition claims under section 507(a)(8)(E). The Committee objected
to the granting of priority status for these claims, arguing that they
should be classified as general unsecured claims.

        On December 30, 2002, the bankruptcy court concluded that
these pre-petition and post-petition reimbursement claims were
entitled to priority as excise taxes under section 507(a)(8)(E).4 In re
United Healthcare Sys., Inc., 282 B.R. 330 (Bankr. D.N.J. 2002). The
Committee appealed from this order to the district court which, by an
unpublished order on November 13, 2003, affirmed without opinion
the bankruptcy court’s order. On December 12, 2003, the Committee
appealed to this court.

        II. JURISDICTION AND STANDARD OF REVIEW

          The bankruptcy court had jurisdiction under 28 U.S.C. §§
157(b) and 1334. The district court had appellate jurisdiction
pursuant to 28 U.S.C. § 158(a)(1) and we have jurisdiction under 28
U.S.C. §§ 158(d) and 1291. Exercising the same standard of review
as the district court, “[w]e review the bankruptcy court's legal
determinations de novo, its factual findings for clear error and its
exercise of discretion for abuse thereof.” In re Trans World Airlines,
Inc., 145 F.3d 124, 130-31 (3d Cir. 1998) (citing In re Engel, 124 F.3d
567, 571 (3d Cir. 1997), and Fellheimer, Eichen & Braverman, P.C. v.
Charter Technologies, Inc., 57 F.3d 1215, 1223 (3d Cir. 1995)).
Inasmuch as the parties agree that there are no relevant facts in
dispute, our review encompasses only the legal determinations of the

       3
         NJDOL also claimed priority status for $79,266.90 resulting
from post-petition obligations based on the employment of a few
employees after United ceased its operations. The bankruptcy court held
that this claim deserved priority status as an administrative expense
incurred by the bankruptcy estate, a determination not challenged on this
appeal.
       4
         The bankruptcy court determined, however, that NJDOL’s claim
for reimbursement of these payments should not be classified as an
employment tax under 11 U.S.C. § 507(a)(8)(D), nor as an
administrative expense (except for the $79,266.90 described in supra
note 3). These determinations are not at issue on this appeal.

                                   4
bankruptcy court as affirmed by the district court. We will employ a
de novo review of those legal determinations.

                           III. DISCUSSION

       A. A Non-Profit Employer’s Reimbursement Obligation
       Under New Jersey Law

        New Jersey law requires most employers to make quarterly
contributions to the state’s Unemployment Compensation Fund. N.J.
Stat. Ann. § 43:21-7 (West 2004).5 This standard statutory obligation
requires an employer to make quarterly contributions to the fund,
regardless of whether the state has paid or will pay unemployment
benefits to its former employees. See id. We have classified an
employer’s obligation to make state unemployment compensation
contributions as a tax for bankruptcy purposes. In re Wm. Akers, Jr.,
Co., 121 F.2d 846, 851 (3d Cir. 1941); see also Sipe v. Amerada Hess
Corp., 689 F.2d 396, 402 (3d Cir. 1982) (stating that “it cannot be
seriously disputed that the unemployment compensation and disability
benefits contributions mandated by New Jersey law are ‘taxes’ within
the meaning of the Tax Injunction Act”).

        Our inquiry, however, does not end with our recognition of the
status of unemployment compensation contributions thereby
permitting us to affirm the district court’s order affirming the
bankruptcy court. We cannot do so because, as a non-profit employer,
United did not make contributions and thus we are concerned only
tangentially with the status of contributions. Instead, as we have
indicated it opted, pursuant to N.J. Stat. Ann. § 43:21-7.2 (West
2004), to reimburse NJDOL for any unemployment compensation
benefits NJDOL actually paid to former United employees.6 This

       5
         Section 43:21-7 reads, in relevant part, “[e]mployers other than
governmental entities, whose benefit financing provisions are set forth
in section 4 of P.L. 1971, c. 346 (C. 43:21-7.3), and those nonprofit
organizations liable for payment in lieu of contributions on the basis set
forth in section 3 of P.L. 1971, c. 346 (C. 43:21-7.2), shall pay to the
controller for the unemployment compensation fund, contributions . . .
.”
       6
        Section 43:21-7.2 provides, “[n]otwithstanding any other
provisions of the Unemployment Compensation Law, for payments of

                                    5
provision presents non-profit employers with a choice as it provides
that a non-profit employer either “shall pay contributions” to the fund
or elect to reimburse NJDOL for benefits actually paid to former
employees in lieu of contributions.

        This statutorily-provided choice brings New Jersey law in
compliance with the Federal Unemployment Tax Act (“FUTA”), 26
U.S.C. § 3301 et. seq., which established a federal “excise tax” equal
to a certain percentage of the total wages paid by an employer in a
calendar year. 26 U.S.C. § 3301. An employer’s FUTA obligation is
calculated based on “employment,” as that term is defined in the Act.
Service performed for a non-profit organization classified as such
under the federal income taxation statutes is excepted, however, from
the term “employment” for federal unemployment tax purposes. 26
U.S.C. § 3306(c)(8).7 Wages paid for services performed in the
employment of a qualifying non-profit organization, therefore, do not
give rise to any federal unemployment tax.

       In addition to establishing the federal unemployment tax,
FUTA governs many aspects of state unemployment compensation
systems, including how state unemployment compensation laws treat
non-profit organizations. Each state must provide organizations
exempted from federal unemployment tax pursuant to 26 U.S.C. §
3306(c)(8) with the opportunity to elect to make reimbursement
payments in lieu of contributions. 26 U.S.C. § 3309(a). Accordingly,
as we have explained, New Jersey has provided qualifying non-profit
organizations with this option.

contributions by employers, benefits paid to individuals in the employ
of nonprofit organizations . . . shall be financed in accordance with the
following provisions . . . .” Additionally, N.J. Stat. Ann. § 43:21-19(f)
(West 2004) provides separate definitions for “contributions” and for
“payments in lieu of contributions.” “Contributions” is defined as “the
money payments to the State Unemployment Compensation Fund. . . .”
Id. “Payments in lieu of contributions” is defined as “the money
payments to the State Unemployment Compensation Fund by employers
electing or required to make payments in lieu of contributions . . . .” Id.

       7
         New Jersey law does not except service to a non-profit employer
from its definition of “employment.” See N.J. Stat. Ann. § 43:21-19(i)
(West 2004).

                                    6
        B. Classification of a New Jersey Non-Profit Employer’s
        Reimbursement Obligation under the Bankruptcy Code

        The Bankruptcy Code provides priority status to certain
claims. 11 U.S.C. § 507. Unsecured claims of governmental units
may be entitled to priority, but only if the statute expressly grants
priority to the type of claim asserted. 11 U.S.C. § 507(a)(8)
(providing that “[t]he following expenses and claims have priority in
the following order: . . . (8) Eighth, allowed unsecured claims of
governmental units, only to the extent that such claims are for--”).
Section 507(a)(8)(E) affords priority status to an unsecured claim of a
governmental unit to the extent it is for:

         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.

The bankruptcy court determined, and the district court agreed, that
NJDOL’s claims for reimbursement of the unemployment benefits it
paid to United’s former employees are claims for excise taxes
afforded priority under section 507(a)(8)(E).

         The Committee argues that the bankruptcy court and the
district court erred in determining that the reimbursement obligation
is an excise tax under section 507(a)(8)(E) because they failed to
recognize that federal and New Jersey unemployment compensation
laws distinguish between for-profit and non-profit employers and
establish different obligations for each. The Committee argues that
the obligation reserved for non-profit employers creates a debt
obligation, and is not a tax. Conducting its own analysis of the non-
profit obligation, the Committee concludes that the non-tax
characteristics of the obligation outweigh any of its characteristics
suggesting it is a tax. The Committee alternatively argues that if the
obligation is a tax for bankruptcy purposes, it is not an excise tax,
and even if it is an excise tax, it is not the type of excise tax entitled
to priority under section 507(a)(8)(E).

        On the other hand, NJDOL contends that the bankruptcy and

                                     7
district courts ruled correctly. Emphasizing the close relationship
between reimbursement payments and unemployment compensation
contributions, it argues that they are functional equivalents; that the
reimbursement option is simply an alternative method to pay a tax.
To support this argument, NJDOL points out that if a non-profit
employer does not elect the reimbursement alternative, it is liable to
make contributions. NJDOL also argues that because federal
unemployment taxes are considered excise taxes, and given the close
relationship between federal unemployment taxes and state
unemployment taxes, the reimbursement payments also must be
excise taxes. In summary, NJDOL concludes that the tax-like
characteristics of the reimbursement payments predominate.
Responding to the Committee’s alternative argument, NJDOL
argues that the reimbursement obligation precisely fits into the
excise tax category contained in section 507(a)(8)(E).

        1. Definition of “Excise Tax” Under the Bankruptcy Code

        For us to affirm the order of the district court and thus
uphold the reasoning or at least the order of the bankruptcy court, we
must agree that the obligation to reimburse NJDOL is characterized
properly as an excise tax as that term is used in the Bankruptcy
Code. A determination whether the obligation is a tax, excise or
otherwise, is implicit in the determination of whether an obligation
is an excise tax.8

        The Bankruptcy Code does not define “tax,” “excise” or
“excise tax.” United States v. Reorganized CF&I Fabricators of
Utah, Inc., 518 U.S. 213, 220, 116 S.Ct. 2106, 2111 (1996).
Nonetheless when necessary a court determines under federal law
whether an obligation is a “tax” for bankruptcy purposes. City of
New York v. Feiring, 313 U.S. 283, 285, 61 S.Ct. 1028, 1029
(1941); State of New Jersey v. Anderson, 203 U.S. 483, 491-92, 27
S.Ct. 137, 140 (1906). When state law, however, creates the
obligation at issue, a court looks to that law to ascertain its attributes
so that the court can determine its characterization under federal
bankruptcy law. Feiring, 313 U.S. at 285, 61 S.Ct. at 1029.

        8
          Because we determine that the reimbursement obligation at issue
is not a tax, we need not address the Committee’s argument that even if
the obligation is a tax, it is not an excise tax or the kind of excise tax
entitled to priority.

                                    8
        In Anderson, the State of New Jersey sought priority status
for payments, alleged to be franchise taxes, owed to the state.
Distinguishing between taxes and contractual debts, the Supreme
Court determined that “[g]enerally speaking, a tax is a pecuniary
burden laid upon individuals or property for the purpose of
supporting the government.” 203 U.S. at 492, 27 S.Ct. at 140.
Based on that characterization, the Supreme Court determined that
the obligation owed to the state was, in fact, a franchise tax
deserving priority. Id. at 493, 27 S.Ct. at 140. The Court stated that
“this imposition is in no just sense a contract. The amount to be
paid, fixed by the statute, is subject to control and change at the will
of the state.” Id. The Supreme Court later relied on the Anderson
definition of a tax to determine that the obligation to pay sales tax
qualified as a tax deserving priority status. Feiring, 313 U.S. at 287-
88, 61 S.Ct. at 1030-31. The Court determined that “[a] pecuniary
burden so laid upon the bankrupt seller for the support of
government, and without his consent thus has all the characteristics
of a tax entitled to priority.” Id. at 287, 61 S.Ct. at 1030.

        The Court decided Anderson and Feiring at a time when the
priority treatment of government obligations was broader than now
under bankruptcy law.9 Today, a government obligation must fall
under one of the specific categories of section 507(a)(8) to receive
priority. Since Anderson and Feiring, courts have attempted to
formulate and apply a definition of “tax” that recognizes the
precedent of Anderson and Feiring but also accommodates the
evolution of the law governing priority of government obligations.

       The bankruptcy court applied the tests resulting from what
we believe are the three most frequently cited courts of appeals
decisions to have engaged in this process, In re Lorber Industries of
California, Inc., 675 F.2d 1062 (9th Cir. 1982), In re Suburban
Motor Freight, Inc., 998 F.2d 338 (6th Cir. 1993) (“Suburban I”),

       9
          In Anderson, the Court explained that the version of the
Bankruptcy Act in operation granted priority status to “all taxes legally
due and owing by the bankrupt to the United States, state, county,
district, or municipality.” Anderson, 203 U.S. at 487-88, 27 S.Ct. at 138.
The Supreme Court decided Feiring during the operation of the
Bankruptcy Act as amended in 1938. At that time, the Act awarded
priority status to “taxes legally and owing by the bankrupt to the United
States or any State or any subdivision thereof.” Feiring, 313 U.S. at 285,
61 S.Ct. at 1029.

                                   9
and In re Suburban Motor Freight, Inc., 36 F.3d 484 (6th Cir. 1994)
(“Suburban II”). In Lorber, the Court of Appeals for the Ninth
Circuit faced the issue whether sewer use fees constituted taxes
entitled to priority. Building on the “pecuniary burden laid upon
individuals or property for the purpose of supporting the
government” standard the Supreme Court established in Anderson,
the court developed a four-part test to determine whether an
obligation is a tax for bankruptcy purposes: (1) “an involuntary
pecuniary burden, regardless of name, laid upon individuals or
property”; (2) “imposed by, or under authority of the legislature”; (3)
“for public purposes, including the purposes of defraying expenses
of government or undertakings authorized by it”; (4) “under the
police or taxing power of the state.” Lorber, 675 F.2d at 1066
(quoting Dungan v. Dep’t of Agric., State of California, 332 F.2d
793 (9th Cir. 1964)). When the court applied this test to the sewer
use fees at issue, it determined they were more like non-tax fees or a
contractual debt than a tax. Lorber, 675 F.2d at 1067. The court
observed that the use fees were assessed proportionately to use, and
concluded that because the charges resulted from the voluntary act
of producing wastewater for disposal, they were classified better as
debt.10 Id. The court determined that its characterization of the use
fees as contractual debt was consistent with the history and purpose
of the bankruptcy laws, which had narrowed the reach of the priority
tax category over time. Id. at 1067-68.

        In Suburban I the Court of Appeals for the Sixth Circuit was
dissatisfied with the four-part Lorber test and sought to narrow its
reach. The court found the Lorber test to be overly broad,
determining that its factors did not significantly narrow the pool of
government obligations that could be characterized as taxes.
Concerned that courts were relying too heavily on the “public
purpose” Lorber factor, the court observed that if that factor is
determinative, all money collected by the government would qualify
as a “tax” because all money collected by the government is used for
public purposes in some way. Suburban I, 998 F.2d at 341. The
court commented that “[t]he threat of the Lorber reasoning . . . is that
the Government automatically wins priority for all money any debtor
owes it, regardless of the nature of the payments.” Id. Such an
advantage could “eliminate all distinction between ‘taxes’ and

       10
          It must be acknowledged that much the same thing could be
said about sales taxes as the greater the purchases of taxable items or
services the greater the tax owed.

                                  10
‘fees’” and would allow the government to “prevail consistently
against private creditors with arguably equal claims.”11 Id. To
address its concern that the Lorber test is overly broad, in Suburban
II the court added two factors to the Lorber analysis: (1) whether the
obligation is “universally applicable to similarly situated entities”;
and (2) whether granting priority status to the government will
“disadvantage private creditors with like claims.” Suburban II, 36
F.3d at 488-89.

         In Suburban I, the court determined that premium payments
to Ohio’s workers’ compensation fund are taxes. After observing
that the state law demanded compulsory payments and did not allow
employers to purchase private insurance,12 the court concluded that
the additional factors it set forth to determine if an obligation is a tax
had been satisfied and that the obligation in question was a tax for
bankruptcy purposes. Suburban I, 998 F.2d at 342. The court stated,
“[i]f the State had an optional participation program, or allowed
employers to purchase private liability insurance, it would be unfair
and without statutory justification to call state-collected premiums
‘taxes’ and put the [state] ahead in line while leaving unpaid private
insurers to languish along with the rest of the unsecured creditors.”13
Id.

       In Suburban II, the obligation before the court was money
owed to the Ohio Bureau of Workers’ Compensation for payments
the Bureau made to workers’ compensation claimants. Suburban II,

        11
             Ironically, the government had lost in Lorber.
        12
         Ohio law did permit employers to self-insure. Suburban I, 998
F.2d at 341.
        13
          The Court of Appeals for the Fourth Circuit’s opinion in New
Neighborhoods, Inc. v. West Virginia Workers’ Compensation Fund,
886 F.2d 714 (4th Cir. 1989), influenced the court in Suburban I. The
Court of Appeals for the Sixth Circuit elected to follow the “relatively
balanced approach” of New Neighborhoods. Suburban I, 998 F.2d at
341. In New Neighborhoods, the court determined that contributions to
West Virginia’s workers’ compensation scheme are taxes. New
Neighborhoods, 886 F.2d at 720. In reaching this conclusion, the court
analyzed the nature of the obligation, considered its insurance-like
characteristics, and also recognized that the bankruptcy laws limit the
availability of priority claims.

                                     11
36 F.3d at 486. These reimbursement payments were due to the
Bureau because the employer failed to pay premiums and also failed
to pay claims while it was self-insured. Id. The court refused to
extend its holding in Suburban I, which afforded priority status to
claims for unpaid premiums, to the obligation in Suburban II, which
involved reimbursement claims. Id. at 487-88. After applying the
Lorber test and the two additional factors derived from Suburban I,
the court determined that because the employer’s liability resulted
solely from its default, the obligation failed the universality test of
Suburban I. Id. at 489. Moreover, the court believed that classifying
the obligation as a priority claim would disadvantage private
creditors with like claims. Id.

        The Supreme Court has considered whether an obligation is a
tax in contexts other than bankruptcy. For example, the Court
considered the nature of an obligation owed to a federal agency to
allow it to recoup the cost of regulating a particular industry or
activity. National Cable Television Ass’n, Inc. v. United States, 415
U.S. 336, 94 S.Ct. 1146 (1974). As the Court explained, the
legislative power in enacting a tax may “disregard benefits bestowed
by the Government on a taxpayer.” Id. at 340, 94 S.Ct. at 1149. But
a situation in which a “public agency may exact a fee for a grant
which, presumably, bestows a benefit on the applicant, not shared by
other members of society” is different. Id. at 340-41, 94 S.Ct. at
1149. See also In re Wm. Akers, Jr., Co., 121 F.2d at 850 (quoting
with approval language explaining that taxes cannot be required to
benefit taxpayers proportionately to their tax payments).
Additionally, the government’s ability to manipulate the assessment
to encourage or discourage a certain activity is a characteristic of a
tax. National Cable, 415 U.S. at 341, 94 S.Ct. at 1149.

        Returning to the bankruptcy context, the Supreme Court,
after Lorber and Suburban, again addressed the question of whether
an obligation is a tax for bankruptcy purposes. In CF& I Fabricators,
the Court considered whether a federally mandated payment equal to
10 percent of a pension plan funding delinquency is an excise tax
under the bankruptcy laws.14 CF& I Fabricators, 518 U.S. at 215,

       14
         CF & I Fabricators arose under the pre-1994 Bankruptcy Code.
Under that prior version of the Code, Congress granted excise taxes
seventh priority under section 507. In 1994, Congress moved the
provision to eighth priority, but did not alter the language of the
provision. CF & I Fabricators, 518 U.S. at 216 n.1, 116 S.Ct. at 2109

                                  12
116 S.Ct. at 2109. In reviewing Anderson, Feiring and other
precedent addressing whether a particular obligation is a tax, but
without commenting on the reasoning of Lorber or Suburban, the
Court remarked that “in every one of those cases the Court looked
behind the label placed on the exaction and rested its answer directly
on the operation of the provision using the term in question.” Id. at
220, 116 S.Ct. at 2111. Additionally, the Court observed that “[i]n
each instance the decision turned on the actual effects of the
exactions.” Id. at 221, 116 S.Ct. at 2111. The Court recognized that
it decided Anderson and Feiring before enactment of the 1978
Bankruptcy Code, but concluded that Congress did not reject the
Anderson-Feiring reasoning in enacting the 1978 Code.15 Id. at 224,
116 S.Ct. at 2113. Therefore, the Court proceeded to undertake a
“functional examination” of the obligation at issue and concluded
that its “obviously penal character” signaled that it was a penalty,
and not a tax. Id. at 225, 116 S.Ct. at 2113-14.

       We, of course, will follow the lead of the Supreme Court and
accordingly will make a functional examination of the obligation at
issue here that focuses on actual effects and looks behind labels
while recognizing the precedent of Anderson and Feiring.16 While

n.1.
       15
         The Court recognized a “statement from the legislative history
of the 1978 Act that ‘[a]ll Federal, State or local taxes generally
considered or expressly treated as excise taxes are covered’ by §
507(a)(7)(E).” The Court also recognized, however, that the obligation
that was before it was not expressly called an excise tax and that whether
the obligation is considered generally to be an excise tax was precisely
the question before the Court. CF & I Fabricators, 518 U.S. at 223-24,
116 S.Ct. at 2112-13.
       16
           Chief Judge Scirica in his dissenting opinion agrees that this
functional examination is the appropriate analysis to employ to
determine whether the reimbursement obligation is a tax for bankruptcy
purposes. He focuses his functional examination, however, on whether
the reimbursement obligation falls into one of four rigid categories: tax;
debt; fee in exchange for a benefit; or a penalty. We believe that a
broader, more fluid approach is necessary to conduct a true functional
analysis. Our task is not to test whether the reimbursement obligation
fits into one of those four categories precisely, though we do characterize
the obligation as a debt, but to look behind labels and to examine the

                                   13
the Lorber-Suburban analysis is helpful in executing this
examination, we do not believe that its six factors should constrain
our inquiry. We believe a functional examination that balances the
characteristics of the obligation at issue will signal whether an
obligation is a tax for bankruptcy purposes, and that an examination
should be flexible enough to allow for consideration of any relevant
factor. The problem with applying only the Lorber-Suburban six-
factor test is that it may prove too rigid to provide an effective
analysis of every potential obligation and thus could preclude
consideration of important characteristics. Also, by employing a
functional examination we preempt the concern that the Court of
Appeals for the Sixth Circuit expressed that the Lorber test produces
overly broad classification of claims as taxes. Moreover, our more
flexible approach allows us to consider the characteristics of the
obligation in light of the evolving treatment of priority claims under
the Bankruptcy Code. We emphasize, however, that the Lorber and
Suburban factors are helpful in undertaking this functional
examination, and at times application of those factors alone
sufficiently may answer the question whether a governmental
obligation is a tax.

       2. The Analysis of the Bankruptcy Court Regarding the
       Classification of a New Jersey Non-Profit Employer’s
       Reimbursement Obligation under the Bankruptcy Code

         The bankruptcy court applied the Lorber-Suburban factors to
the reimbursement obligation option and concluded that it satisfied
all six factors. The court stated, “[b]ecause United could not escape
its statutory obligation to make payments to the Unemployment
Compensation Fund, it was subject to an involuntary pecuniary
burden imposed by the legislature as described in the Lorber test.
United was only able to choose how to make the payments, not
whether to make the payments.” 282 B.R. at 337. The court
determined with regard to the public purpose Lorber factor, that New
Jersey enacted the unemployment compensation law for a public
purpose because the fund arrangement protects the public against the
evils associated with unemployment. The bankruptcy court further
determined that the Suburban factors were met. The “universally
applicable” factor was met because “New Jersey [law] requires all
employers to make payments to the unemployment compensation
fund.” Id. at 338. The bankruptcy court also determined that there

operation of the statutory scheme.

                                 14
were no private creditors with like claims because the
unemployment compensation law does not “permit” employers to
obtain private insurance to satisfy their obligations.17 Id.

        The bankruptcy court recognized that the Court of Appeals
for the First Circuit directly had addressed whether a non-profit
employer’s obligation to reimburse a state unemployment
compensation fund amounted to an excise tax for bankruptcy
purposes in In re Boston Regional Medical Center, Inc., 291 F.3d
111 (1st Cir. 2002) (“Boston Regional I”). In that case, the court
reached a result opposite of that of the bankruptcy court here,18
concluding that a non-profit employer’s choice to make payments in
lieu of contributions creates a kind of obligation different than a tax.
The court illuminated a distinction between the obligation to make
quarterly contributions and the obligation to reimburse for benefits
actually paid. Employers reimbursing the state are not “sustain[ing]
a government undertaking as a whole,” but instead only are
compensating the state for the cost that particular employer caused
the state to incur.19 Id. at 122.

       17
         The bankruptcy court used the word “permit.” Perhaps the
word “authorize” might have been better as it is possible that outside of
the aegis of the unemployment compensation laws a private insurance
company could insure a non-profit employer for losses attributable to its
reimbursement obligations. We hasten to add, however, that we do not
predicate our result on this probably theoretical possibility.
       18
          The Court of Appeals for the First Circuit considered the
Massachusetts statute creating the commonwealth’s reimbursement
option. We note that Chief Judge Scirica cites Boston Regional I in his
dissent but does not attempt to distinguish that case which is inconsistent
with his result.
       19
          In a later decision involving the same debtor, the same court
determined that mandatory payments to Massachusetts’ Uncompensated
Care Pool are taxes for bankruptcy purposes. In re Boston Regional
Medical Ctr., Inc., 365 F.3d 51 (1st Cir. 2004) (“Boston Regional II”).
The court distinguished the payments to the Uncompensated Care Pool
from the unemployment compensation reimbursement payments because
the former are “geared to sustain, as a whole, the stated governmental
undertaking of providing access to health care for low-income uninsured
and under-insured residents.” Id. at 61.

                                   15
        According to the bankruptcy court, this distinction did not
cause the reimbursement obligation to fail the Lorber-Suburban test.
The bankruptcy court stated, “[t]he fact that employers paying
contributions absorb a greater share of the cost, does not mean that
payments in lieu of contributions are not universal, and therefore not
taxes. The payment burden of many tax statutes falls unevenly on
taxpayers.” 282 B.R. at 338. Also, the bankruptcy court disagreed
with the Court of Appeals for the First Circuit’s conclusion that the
legislative history of FUTA supported a conclusion that the
reimbursement obligation is not a tax.

         In Boston Regional I, the court of appeals acknowledged that
a reasonable argument could be made that payments in lieu of
contributions could be called taxes. Boston Regional I, 291 F.3d at
121-22. What “tip[ped] the scales” for the court was the
commonwealth’s ability to require a non-contributory employer to
post a bond to secure payments required by it. Id. at 122. Because
the commonwealth did not require a bond of the non-profit
employer, the court determined that the commonwealth, and not the
class of general unsecured creditors, should endure the result of its
decision to risk that benefits would not be repaid. Id. at 123. The
ability to require a bond made the commonwealth something more
than an involuntary creditor, thus undermining a traditional policy
reason behind affording priority status to governmental obligations.
Id. at 122-23. In this case, the bankruptcy court acknowledged that
New Jersey law permits NJDOL to require a bond, and that if a bond
were required, “a surety with the same claim as the government
could be disadvantaged if the government claim received priority,”
but concluded that the tax-like characteristics of the reimbursement
obligation outweighed this one non-tax-like characteristic. 282 B.R.
at 340-41.

        In its decision, the bankruptcy court relied on the district
court’s opinion in In re Sacred Heart Hospital of Norristown, 209
B.R. 650 (E.D. Pa. 1997). In that case, the district court, after
applying the Lorber-Suburban factors, concluded that a non-profit
employer’s obligation to reimburse the Pennsylvania Unemployment
Compensation Fund is an excise tax entitled to priority. Id. at 658.
The district court stated: “Payments in lieu of contributions are
excise taxes and entitled to priority in bankruptcy. First, without a
doubt the payments are ‘involuntary.’ See 43 P.S. § 781(a)(1)
(‘[e]ach employer shall pay contributions . . .’) . . . Simply stated, all
employers–for-profit and nonprofit–must pay them.” Id. at 656.

                                   16
The district court reasoned in Sacred Heart that the reimbursement
payments benefit the public because the provision of unemployment
compensation benefits protects all taxpayers from demands that
unemployed persons otherwise would make on the welfare system.
Id. at 656. The district court also held, “the law satisfies the two
‘public purpose’ factors articulated by the Sixth Circuit in Suburban
II. The obligation is universally imposed on all employers. . . .
Further, . . . there are no private creditors with claims sufficiently
similar to violate the bankruptcy policy of equal distribution.”20 Id.
at 656.

       3. Functional Examination of a New Jersey Non-Profit
       Employer’s Reimbursement Obligation

         After making an independent analysis predicated on a
functional examination such as that applied in CF & I Fabricators,
we have determined that United’s obligation to reimburse NJDOL
for unemployment compensation benefits is not a tax for bankruptcy
purposes. We acknowledge that this case is close, given that
reimbursement payments and quarterly contributions are
complementary. But the fact remains that while reimbursement
payments are related to unemployment compensation contributions,
they are not the same obligation. Though we characterized the
contribution obligation as a tax in In re Wm. Akers, Jr., Co.,
United’s duty to reimburse NJDOL is a different kind of obligation
as it is better characterized, in view of its direct correlation to

       20
          The district court in In re Sacred Heart distinguished
unemployment reimbursement obligations from workers’ compensation
premiums in its analysis. In re Sacred Heart, 209 B.R. at 657-58. The
district court discussed a line of cases holding that worker’s
compensation premiums are not taxes where the state law at issue
provided employers with the option to subscribe to a state fund, to obtain
private insurance, or to self-insure. Id. The reasoning behind this line
of cases is that where a state does not monopolize coverage, the state
looks more like just another private participant and less like a taxing
authority. Id. The district court observed that the Commonwealth of
Pennsylvania “monopolizes” the unemployment compensation system
because employers do not have a private insurance or self-insurance
option. Id. While this observation may be correct, and may support the
conclusion that unemployment compensation contributions are taxes, it
does not speak to the heart of the matter before us, the nature of the
function or effect of the reimbursement obligation.

                                  17
payments NJDOL made by reason of United having terminated
employees, as an alternative to paying taxes rather than as an
alternative method to pay a tax.

        While we agree with the conclusion of the Court of Appeals
for the First Circuit that a non-profit employer’s reimbursement
obligation is not a tax, we support our conclusion with different
emphasis. We do not believe that NJDOL’s ability to require a bond
to secure an employer’s payment dictates a conclusion that this
obligation is not a tax.21 Instead, we believe that a broader
examination of the nature of the reimbursement obligation reveals its
non-tax character.

        We question the district court’s treatment in Sacred Heart of
contributions and reimbursement payments as similar for bankruptcy
purposes under the Pennsylvania statute. See In Re Sacred Heart,
209 B.R. at 656. More to the point, we conclude that under the New
Jersey statute at issue here contributions and reimbursement
payments are distinct obligations. According to the New Jersey
statute establishing the contribution obligation, “[e]mployers other
than governmental entities, whose benefit financing provisions are
set forth in section 4 of P.L. 1971, c. 346 (C. 43:21-7.3), and those
nonprofit organizations liable for payment in lieu of contributions on
the basis set forth in section 3 of P.L. 1971, c. 346 (C. 43:21-7.2),
shall pay to the controller for the Unemployment Compensation
Fund, contributions . . . .” N.J. Stat. Ann. § 43:21-7 (emphasis
added). Section 43:21-7.2 provides, “[n]otwithstanding any other
provisions of the Unemployment Compensation Law, for payments
of contributions by employers, benefits paid to individuals in the
employ of nonprofit organizations . . . shall be financed in
accordance with the following provisions . . . .” Additionally, N.J.
Stat. Ann. § 43:21-19(f) (West 2004) provides separate definitions
for “contributions” and for “payments in lieu of contributions.”

        21
          The Court of Appeals for the First Circuit noted, “[w]e do not
hold that the availability of a surety bond, as in this case, would alone be
sufficient to render an obligation not a tax,” but that combined with the
other reasons before the court, the bond issue was the “decisive factor.”
Boston Regional I, 291 F.3d at 123 n.14. The New Jersey statute also
provides that the state may require a bond. N.J. Stat. Ann. § 43:21-
7.2(h) (West 2004). This circumstance is not determinative, however,
because the state in general may require a bond for the payment of a state
tax. See N.J. Stat. Ann. § 54:49-2 (West 2002).

                                   18
        The language of sections 43:21-7.2 and 43:21-19(f)
evidences that, even though under New Jersey law service to a non-
profit employer is not excepted from the definition of
“employment,” see N.J. Stat. Ann. § 43:21-19(i) (West 2004), the
statute does except non-profit employers engaging in “employment”
from the contribution obligation section 43:21-7 creates. Instead,
section 43:21-7.2 contains a different kind of obligation for those
non-profit employers. The bankruptcy court determined that under
the above statutes, all New Jersey employers must “make
payments.” 282 B.R. at 338. That may be true, but the key here is
that contributory payments are a different obligation than
reimbursement payments.22

        Having concluded that contributions and reimbursement
payments are different obligations, we next consider the nature of
the reimbursement obligation. One major characteristic of the
reimbursement obligation is that payments in lieu of contributions
reimburse NJDOL for unemployment benefits actually paid and do
not raise funds to support a general governmental undertaking.23 In
contrast, quarterly contribution payments do support a general
governmental undertaking. An employer paying the quarterly
contribution tax is helping to create a fund from which NJDOL
appropriately pays benefits. A contributory employer is obligated to

       22
          The legislative history of section 43:21-7.2 and of FUTA
support our conclusion that the New Jersey statute creates two different
obligations. According to the Senate Report accompanying FUTA,
“[s]tate programs would be required to permit nonprofit organizations
the option of reimbursing the state for unemployment compensation
payments attributable to service for them rather than paying regular state
unemployment compensation taxes.” S. Rep. No. 91-752, 1970
U.S.C.C.A.N. 3606, 3609. Similarly, the sponsor statement to the bill
that created the non-profit reimbursement obligation in New Jersey
states, “the nonprofit organizations are afforded a choice to either elect
to pay contributions or to make reimbursement to the fund for benefits
paid.” Sponsor Statement, N.J. Stat. Ann. § 43:21-7.2, Laws of 1971,
Ch. 346, Bill No. A2501 (1971).
       23
          The reimbursement payments arguably are used for a
government-sponsored purpose. If, however, the standard is whether
monies collected are used for any government-sponsored purpose, it is
hard to imagine any claim held by a government that would not qualify
as a tax.

                                  19
contribute even if it does not actually use the government program,
here unemployment compensation benefits paid to former
employees. A payment in lieu employer, however, only reimburses
NJDOL for payments NJDOL has made to its former employees.

        We disagree with the bankruptcy court that this distinction is
immaterial; in fact, this distinction is crucial in unveiling the
operation and actual effect of the reimbursement obligation. The
bankruptcy court’s focus on its observation that “[t]he payment
burden of many tax statutes falls unevenly on taxpayers” is
misplaced. 282 B.R. at 338. The issue is not whether some
taxpayers pay more or less, but rather whether an entity is paying
taxes or incurring some other type of obligation. Again, the relevant
distinction is not whether some pay more or less, but whether some
are paying to sustain a general governmental undertaking while
others only are reimbursing the system for exactly the benefits paid
to their former employees.24

        Thus, rather than a tax, the reimbursement obligation is more
like a promise in exchange for the privilege of employing
individuals in the state without being required to pay state
unemployment compensation contributions. The state will allow a
non-profit employer to conduct business without making
contributions to the state unemployment compensation fund, and the
state will pay the unemployment compensation benefits due to the
non-profit employer’s former employees, but this creates a debt, and
the state insists on being repaid.

        NJDOL’s observation that if the reimbursement option is not
selected, a non-profit employer must make contributions does not
undermine this point. Rather than address the nature of the
reimbursement payments, this argument only highlights the statutory
scheme granting non-profit employers with a choice unavailable to
other employers. We similarly reject NJDOL’s argument that
because federal unemployment taxes are considered excise taxes,
and given the close relationship between federal unemployment
taxes and state unemployment taxes, the reimbursement payments

       24
         Even if, as explained by NJDOL, contributions and
reimbursements once paid are intermingled in the same state fund, that
fact does not negate the reality that employers electing to make
reimbursement payments pay only for the benefits disbursed from the
fund by reason of their termination of employees.

                                  20
also must be excise taxes. The role of FUTA as germane to our
inquiry is limited to its mandate that states must provide non-profit
employers with a reimbursement obligation option. That mandate
still leaves open the question surrounding the nature of this
obligation.

        While National Cable was decided in a different context, its
reasoning is transferable, and it further illuminates the non-tax
character of the reimbursement obligation. See, e.g., In re Jenny
Lynn Mining Co., 780 F.2d 585 (6th Cir. 1986) (applying reasoning
of National Cable to determine whether strip mining permit
obligation is an excise tax entitled to bankruptcy priority); In re
Trism, Inc., 311 B.R. 509 (8th Cir. BAP 2004) (borrowing reasoning
of National Cable to determine whether a highway user fee is an
excise tax entitled to priority). In National Cable, the Supreme
Court pointed out that a “disregard [of] benefits bestowed by the
Government on a taxpayer” is indicative of a tax. National Cable,
415 U.S. at 340, 94 S.Ct. at 1149. The government’s ability to
manipulate the assessment also is characteristic of a tax. Id. at 341,
94 S.Ct. at 1149. In contrast, a situation in which a payment is
exchanged for a government benefit not shared by others indicates
that the debt is not for a tax. Id. at 340-41, 94 S.Ct. at 1149.

         NJDOL, in demanding reimbursement, may not disregard the
benefits it bestowed. In fact, the reimbursement obligation directly
is linked to the benefits it paid. Non-profit employers enjoy a
benefit not shared by other employers, as they may operate in the
state without making quarterly contributions to the state
unemployment compensation fund. Additionally, the state cannot
manipulate a reimbursement obligation to encourage or discourage
certain activity. Again, under the reimbursement program, the
government pays out benefits, and the non-profit employer simply
refills the government’s coffers.

        Contribution and reimbursement payments are distinct
obligations with different sets of accompanying rules. They do not
create one obligation that is applied to all New Jersey employers.
Reimbursement payments are made in lieu of, or instead of,
contributions. Reimbursement payments thus are something
different than contributions, and the issue is whether those payments
are excise taxes. Our functional examination reveals that
reimbursement payments are not taxes, and therefore cannot be
classified as excise taxes entitled to priority under section

                                  21
507(a)(8)(E).

                         IV. CONCLUSION

        For the reasons stated above, the order of the district court of
November 13, 2003, will be reversed and the case will be remanded
to that court, which in turn shall remand the matter to the bankruptcy
court to reverse its order granting NJDOL’s claim priority and for
further proceedings consistent with this opinion.

                                  22
SCIRICA, Chief Judge, dissenting.
        In this difficult and close case, I respectfully dissent. At
issue is whether the New Jersey Department of Labor’s
(“NJDOL”) claim seeks recovery of an excise tax that would
entitle it to bankruptcy priority under 11 U.S.C. § 507(a)(8)(E).
       New Jersey’s unemployment compensation fund is a
general social welfare program paid for by contributions from
both for-profit and non-profit employers. Like the for-profit
employer, the non-profit employer’s required contribution
funds the New Jersey statute’s objective – to ameliorate
“economic insecurity due to unemployment.” N.J.S.A. § 43:21-
2. For this reason, the non-profit employer’s contribution more
closely resembles a tax than other kinds of government
assessments, such as debt obligations, fees in exchange for
benefits, or penalties. In my view, the distinction between the
contributory payment and the reimbursement obligation is one
of degree rather than kind. Because both forms of
unemployment contribution constitute a tax for bankruptcy
purposes, I would affirm the judgment of the District Court.
                                 I.
        In United States v. Reorganized CF & I Fabricators of
Utah, Inc., the Supreme Court conducted a “functional
examination” to determine whether the levy in question was
entitled to bankruptcy priority because it more closely
resembled a tax than another form of government assessment.
518 U.S. 213, 224-25 (1996). In my view, the question is
whether the non-profit employer’s reimbursement obligation
here functions more like a tax than another kind of assessment,
such as a debt, a fee in exchange for a benefit, or a penalty.
       A. Debt obligation
        The Supreme Court has distinguished tax obligations
from ordinary debt because unlike debt, taxes are involuntary.
N.J. v. Anderson, 203 U.S. 483, 492 (1906); See also In re
Boston Reg’l Med. Ctr., Inc., 291 F.3d 111, 120 (1st Cir. 2002)
(citing Anderson, 203 U.S. at 492). The non-profit employer’s
reimbursement obligation here lacks the distinguishing
characteristics of debt. It is not a voluntary obligation, nor is it

                                 23
based on express or implied contract.25 Rather it is mandated
by statute.26 The 1970 FUTA amendment required formerly
excluded non-profit employers to pay the contributory tax or to
make reimbursement payments in its place. Although not
identical in form, the 1970 FUTA amendment imposed on non-
profit employers a burden similar to that imposed on for-profit
employers – an obligation to fund New Jersey’s unemployment

       25
         The majority holds the reimbursement obligation more
closely resembles a debt, likening the non-profit’s obligation to a
“promise in exchange for the privilege of employing individuals in
the state without being required to pay state unemployment
compensation contributions.” While this is plausible, I believe
these are the very characteristics of debt that the reimbursement
obligation lacks – it is not made voluntarily nor is it pursuant to a
contractual agreement.
       26
         Before 1970, non-profit organizations did not pay the
unemployment compensation tax or contribute to state
unemployment compensation funds. 26 U.S.C. § 3306(c)(8)
excluded from “covered” employment “service performed in the
employ of a religious, charitable, educational, or other [tax exempt]
organization.” See Pub. L. 86-778, § 533, 74 Stat. 984; Cal. v.
Grace Brethren Church, 457 U.S. 393, 398 n.6 (1982). Congress
amended FUTA in 1970, requiring state unemployment plans to
cover employees of non-profit organizations and obligating non-
profit employers to contribute to the state unemployment
compensation fund. See 26 U.S.C. § 3309(a)(1). The 1970
amendment extended state participation to non-profit organizations
because it recognized that “unemployment affects a substantial
number of their employees[.]” S. Rep. No. 91-752, at 48-49,
reprinted in 1970 U.S.C.C.A.N. 3606, 3617-18 (1970). But at the
same time, the federal scheme sought to minimize the cost to the
non-profit employer, limiting its obligation to the actual amount
that former employees cost the unemployment compensation fund.
See id. (“These [non-profit] organizations, which are often
dependent upon charitable contributions, should not be required to
share in the costs of providing benefits to workers in profit-making
enterprises.”).

                                24
payments furthering the goals of the unemployment
compensation regime.
       B. Fee in Exchange for a Benefit
        The non-profit employer’s reimbursement obligation
functions more like a tax than a fee in exchange for a benefit.
The Supreme Court has distinguished tax obligations from
government fees in exchange for benefits or for services
rendered. See Nat’l Cable Television Ass’n, Inc. v. United
States, 415 U.S. 336, 340-42 (1974); see also County
Sanitation District No. 2 of Los Angeles County v. Lorber
Indus. of Cal. (In re Lorber), 675 F.2d 1062 (9th Cir.1982)
(holding that sewer and water user fees imposed for voluntary
use of system are not taxes); In re Adams, 40 B.R. 545, 548
(E.D. Pa. 1984) (“The ‘inherent character’ of the charges are
premised upon an implied agreement to pay for the water and
sewer services furnished.”).
       National Cable held that costs imposed by the Federal
Communications Commission (“FCC”) on certain broadcasters
to cover the expenses of FCC oversight did not constitute a tax.
The Court’s distinction between tax and fee rested on whether
the obligation imposed on the regulated entity supported the
FCC’s function “to safeguard the public interest in the
broadcasting activities of members of the industry” or
supported a “benefit” of “value to the recipient.” National
Cable, 415 U.S. at 341-42. The Court found the predominant
feature of the imposed cost was to benefit the broadcasters, not
the public – hence it was a fee, not a tax.27 There were three

       27
          FCC oversight benefitted the cable operators by, for
example, enabling them to broadcast without interference.
National Cable, 415 U.S. at 343. In addition, the Court remanded
for a recalculation of the fee because it determined that the fees
imposed by the FCC were too broadly calculated. Id. The FCC
had imposed all of the costs of regulating cable television systems
to the industry and none to the general public. Id. at 341-42. As a
result, the fee schedule in question resembled a tax because the
value of the fee was greater than the service provided to the
recipient. Id.

                               25
major factors that informed the holding in National Cable: (1)
whether payment of the assessment is voluntary, that is,
whether it could be avoided by not taking advantage of the
government service, id. at 340; (2) whether the government
assessment is in exchange for a specific government service
that benefits the entity paying in a manner “not shared by other
members of society,” id. at 341; and (3) whether the
government assessment is collected to compensate the
government for the expense of providing the service to the
entity, but not to raise revenues to cover the cost of providing
the service for others. Id. at 341-42.
       In my view, only the last consideration favors reversal
here. As the majority notes, the reimbursement obligation
does not support the costs of other employers’ former workers
or of administering the unemployment compensation fund.
Instead, a non-profit employer only reimburses the state for the
costs imposed by its own former employees. Nevertheless the
statutory purpose of the obligation is to benefit the former
employees and the public good, not the employer.
       Moreover, application of the first and second factors
supports the view that this reimbursement obligation is a tax.28
Considering the first factor, there is no voluntary act here.
National Cable stated that a fee (as opposed to a tax) “is
incident to a voluntary act, e.g., a request that a public agency
permit an applicant to practice law or medicine or construct a
house or run a broadcast station.” Id. at 340. If the non-profit

       28
        In re Sacred Heart Hosp. of Norristown held that
reimbursement obligations to the Pennsylvania unemployment
compensation fund constituted a tax entitled to priority for
bankruptcy purposes. 209 B.R. 650 (E.D. Pa. 1997). After
considering who benefits from the reimbursement obligation and
whether it is voluntary, the court concluded that “the payments are
used to benefit the public generally because compensating
unemployed workers reduces the chances of their becoming poor
and making demands on the federal and state welfare systems and
thus all taxpayers” and that the reimbursement obligation is
“without a doubt . . . ‘involuntary.’” Id. at 656.

                                26
employer does not elect to reimburse, then it must contribute in
the same manner as a for-profit employer. That is, the non-
profit employer either pays the contributory tax or elects to
make payments in lieu of the tax, but it cannot evade its
responsibility to the unemployment compensation fund
altogether. The non-profit employer is not a voluntary
“applicant” for “benefits,” but rather, a required participant in
the unemployment compensation program.
       Considering the second factor, the non-profit employer
does not enjoy a “benefit” that is “not shared by other members
of society.” In this case, the most direct “recipient of the
benefit” is the former employee that receives payments from
the unemployment compensation fund. These payments also
benefit the public interest, helping to reduce the strain on
society that unemployment would otherwise cause. But the
payments do not grant an affirmative benefit on the non-profit
employer. In National Cable, by contrast, the broadcasters’
fees benefitted themselves, at least in part, by paying for the
administrative cost of FCC oversight.
        It would be inaccurate to characterize the “benefit” of
the reimbursement obligation as the ability to operate in New
Jersey without having to pay the contributory tax. Such a
characterization differs from the fee-for-benefit scheme in
National Cable, where cable broadcasters paid a fee in
exchange for the benefits of FCC oversight. In National Cable
the Supreme Court cited as an example of a fee-for-benefit, “a
request that a public agency permit an applicant to practice law
or medicine or construct a house or run a broadcast station.”
Id. at 340. But here, it is difficult to conceptualize the
reimbursement obligation as a license, permit, or operating
fee.29 In short, the paradigm fee in exchange for a benefit,
under National Cable, is an applicant that pays in exchange for

       29
         The differences between In re Jenny Lynn Mining Co., 780
F.2d 585 (6th Cir. 1986), and this case are instructive. Unlike the
reimbursement obligation here, the government assessment in In re
Jenny Lynn Mining Co. directly benefitted the applicant by
licensing it to engage in operating a strip mine.

                               27
administrative oversight or for a license to engage in a certain
business activity. An unemployment reimbursement obligation
– which supports a general social welfare program – does not
comfortably fit into that model.
        The majority views this differently, holding that the non-
profit employer enjoys the “benefit” that it “may operate in the
state without making quarterly contributions to the state
unemployment compensation fund.” Nonetheless, before 1970,
non-profit employers had no obligation to the unemployment
compensation fund at all. I find more persuasive the view that,
instead of bestowing a benefit, the 1970 FUTA amendment
imposed on non-profit employers a new burden to support the
unemployment compensation fund, with the option to pay the
quarterly tax or reimburse the state for costs.
       C. Penalty
        The reimbursement obligation functions more like a tax
than a penalty. The Supreme Court distinguished taxes from
penalties on the basis that a tax supports government policies
while a penalty punishes unlawful activity. Reorganized CF &
I Fabricators, 518 U.S. at 224. The non-profit employer’s
reimbursement obligation is clearly not a penalty on unlawful
activity. It is a burden imposed on non-profit entities lawfully
engaged in employment.30

       30
         It bears noting that failure to give the reimbursement
obligation priority in bankruptcy will likely increase non-profit
employers’ operating costs – a result contrary to the federal and
state legislative objectives. See S. Rep. No. 91-752, at 48-49,
reprinted in 1970 U.S.C.C.A.N. 3606, 3617-18 (1970) (stating
intent to minimize cost to non-profit organizations because they
“are often dependent upon charitable contributions”). NJDOL may
require from non-profit organizations “a bond or other security . .
. for the payment of any taxes, interest, and penalties imposed
pursuant to any state tax law[.]” N.J.S.A. 54:49-2. This allows
New Jersey to shield itself, in advance, from an unpaid
reimbursement obligation. Generally, not requiring a bond lowers
the costs to non-profit employers of doing business in New Jersey.
Allowing payments in lieu of the contributory tax and not requiring

                               28
                                  II.
        The final issue is whether the non-profit employer’s
reimbursement obligation constitutes an excise tax on a pre-
petition transaction under 11 U.S.C. § 507(a)(8)(E). 31 The
statute requires that reimbursement obligations constitute an
“excise tax” on “a transaction,” “occurring before the date of
the filing of the petition.” The Bankruptcy Code provides no
definition of “excise” or “excise tax.” Reorganized CF & I
Fabricators, 518 U.S. at 220. In determining whether a tax is
an “excise tax,” courts have used a range of definitions, some
broader than others. In the context of bankruptcy priority, the
non-profit employer’s reimbursement obligation constitutes an
excise tax on a transaction – a tax on the act of employing
workers. See In re Suburban Motor Freight, Inc., 998 F.2d
338, 340 n.3 (6th Cir. 1993) (noting that an excise tax may be
based upon a transaction or act of employing); see also In re
Deroche, 287 F.3d 751, 757 (9th Cir. 2002) (“act of employing
a worker without carrying required insurance” constitutes a
“transaction” under 11 U.S.C. § 507(a)(8)(E)); 9E Am. Jur. 2d
Bankruptcy § 3099 (“For priority purposes, an ‘excise tax’
covers practically any tax which is not an ad valorem tax and
which is imposed on the performance of an act, the engaging in
an occupation, or the enjoyment of a privilege.”). All of the
employment that contributed to United Healthcare’s
reimbursement obligation occurred pre-petition. Therefore, the
reimbursement obligation is an excise tax on a pre-petition

a bond both reduce the cost of non-profit employers’ obligations.
See Amy L. Henrich, Preferential Treatment of Charities Under
the Unemployment Insurance Laws, 94 Yale L.J. 1472, 1478 n.35
(1985) (“The present value of a future debt obligation decreases as
the payment is deferred into the future.”) .
       If the reimbursement obligation is not entitled to priority in
bankruptcy proceedings, NJDOL may well require a bond from
non-profit employers. Requiring a bond works against FUTA’s
stated objective to minimize the cost of non-profit organizations’
participation in the unemployment compensation scheme.
       31
            The majority did not have to reach this issue.

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transaction.
       For these reasons, I would have affirmed the judgment
of the District Court.

                              30