1. Section 57(j) of the Bankruptcy Act, barring allowance of
debts owing to federal, state, or local government, as penalties,
except for the amount of the pecuniary loss sustained etc.,
prohibits allowance of tax penalties only if incurred by the
bankrupt prior to bankruptcy. P.
308 U. S.
59.
2. Penalties attaching upon nonpayment of state automobile
license taxes, which taxes and penalties accrued while the business
of bankrupt estate was being operated by a trustee in bankruptcy
for the purpose of liquidation, are allowable against the bankrupt
estate by virtue of the Act of June 18, 1934, which subjects
trustees and other appointees of United States courts, who are
authorized to conduct business, "to all State and local taxes
applicable to such business the same s if such business were
conducted by an individual or corporation. . . ." P.
308 U. S.
60.
100 F.2d 915 affirmed.
Certiorari, 307 U.S. 617, to review the reversal of two orders
of the District Court which in effect held a bankrupt estate not
liable for penalties accruing upon nonpayment of state automobile
license taxes. Appeals from the orders were consolidated for
briefing, hearing, and decision in the Circuit Court of Appeals,
and the cases are treated similarly here.
Page 308 U. S. 58
MR. JUSTICE BLACK delivered the opinion of the Court.
Under California law, vehicle license and registration fees are
due the State on January first of each year; they become delinquent
when a vehicle is operated without registration and license; if the
fees are not paid within thirty days after delinquency, a penalty
equal to the fees accrues; fees and penalties are protected by
statutory lien on the vehicle from the due date. [
Footnote 1]
The single question presented is sufficiently stated by the
petition for certiorari:
"Is a bankrupt's estate liable to penalties imposed by State
statutes for nonpayment of automobile license fees where license
fees and penalties claims accrued during operations for purposes of
liquidation of the business of bankrupt's estate by the Trustee in
Bankruptcy?"
As trustees of a business in bankruptcy, petitioner and his
predecessor continuously operated unregistered and unlicensed
vehicles on California highways, from January first to February
twenty-seventh. Tender of fees without accrued penalties was
rejected by California. Upon petition of the trustee, the referee
in bankruptcy ordered the vehicles sold free and clear of any
claims or liens of the State, but permitted California to file
claims for fees, without penalties, within thirty days or be
forever barred. The referee's order was confirmed by the District
Court, which also directed California officials (respondents here)
to issue licenses to the trustee. The Circuit Court of Appeals
reversed, ordering alternatively that accrued fees and penalties be
paid or that the vehicles be disposed of subject to the lien of the
State for the unpaid taxes and penalties. [
Footnote 2] Because of asserted conflict with the
Page 308 U. S. 59
Court of Appeals for the Seventh Circuit, [
Footnote 3] we granted certiorari.
The trustee insists that the State is barred from collecting the
penalties because of section 57(j) of the Bankruptcy Act, [
Footnote 4] which provides:
"Debts owing to the United States, a State, a county, a
district, or a municipality as a penalty or forfeiture shall not be
allowed, except for the amount of the pecuniary loss sustained by
the act, transaction, or proceeding out of which the penalty or
forfeiture arose, with reasonable and actual costs occasioned
thereby and such interest as may have accrued thereon according to
law."
Recognizing that section 57(j), prohibits allowance of tax
penalties accruing prior to bankruptcy, [
Footnote 5] the State nevertheless insists that this
subdivision does not exempt the trustee from State laws applicable
to the business he operates after bankruptcy. California considers
the trustee subject to the requirements and penalties of its
license and registration laws under an Act of Congress of June 18,
1934, 48 Stat. 993, reading in part as follows:
"Any receiver, liquidator, referee, trustee, or other officers
or agents appointed by any United States court who is authorized by
said court to conduct any business, or who does conduct any
business, shall, from and after June 18, 1934, be subject to all
State and local taxes applicable to such business the same as if
such business were conducted by an individual or corporation. . .
."
First. Subdivision 57(j) prohibits allowance of a tax
penalty against the bankrupt estate only if incurred by the
bankrupt before bankruptcy by reason of his own delinquency. After
bankruptcy, it does not purport to exempt
Page 308 U. S. 60
the trustee from the operation of State laws, or to relieve the
estate from liability for the trustee's delinquencies. [
Footnote 6] For 57(j) is a subdivision
of Section 57 of the Bankruptcy Act governing "Proof and Allowance
of Claims." And 57(a) makes clear that § 57 as a whole relates only
to claims "justly owing from the bankrupt to the creditor." The
fees and penalties in issue were incurred by the trustee in
operating the bankrupt business, and thus were not owed by the
bankrupt to the State as a "creditor." Therefore, regardless of
other rights the State might have, it could not file proof of claim
for these fees and penalties as a creditor under § 57. And neither
the tax liability nor the penalties incurred by the trustee after
bankruptcy are governed by this section or its subdivisions. We
must look elsewhere than to 57(j), to determine whether the court
below correctly held that California may enforce its statutory
penalties against this estate.
Second. The Act of June 18, 1934, declares that a
trustee in bankruptcy conducting a business, as this trustee was,
"shall . . . be subject to all State and local taxes applicable to
such business the same as if such business were conducted by an
individual or corporation. . . ." As originally offered, this Act
applied only to receivers. [
Footnote 7] Reported by the House Committee on the
Judiciary without amendment, [
Footnote 8] the bill was amended on the House floor to
apply not only to receivers but to a "liquidator, referee, trustee
or other officer or agent." [
Footnote 9]
We need not determine whether, without legislation such as the
1934 Act, the fact that a local business in
Page 308 U. S. 61
bankruptcy is operated by a bankruptcy trustee makes the
business immune from State laws and valid measures for their
enforcement. Clearly, means of permitting such immunity from local
laws will not be read into the Bankruptcy Act. At any rate,
Congress has here with vigor and clarity declared that a trustee
and other court appointees who operate businesses must do so
subject to State taxes "the same as if such business[es] were
conducted by an individual or corporation." If businesses in
California not conducted by a bankruptcy trustee are delinquent in
the fees, they must pay the penalty. However, petitioner's
contention would exempt a trustee operating a business in
bankruptcy from this double tax liability which other delinquents
must bear. A State would thus be accorded the theoretical privilege
of taxing businesses operated by trustees in bankruptcy on an equal
footing with all other businesses, but would be denied the
traditional and almost universal method of enforcing prompt
payment.
Taxation on and regulation of highway traffic are matters of
constantly increasing importance and concern to the States. The Act
of 1934 indicates a Congressional purpose to facilitate -- not to
obstruct -- enforcement of State laws; the court below correctly
recognized and applied this Congressional purpose, and its judgment
is
Affirmed.
MR. JUSTICE BUTLER took no part in the consideration or decision
of this case.
[
Footnote 1]
C. 362, Calif.Stat. of 1935, p. 1313, as amended. c. 27,
Calif.Stat. of 1935, Calif.Vehicle Code, pp. 147, 150, 151.
[
Footnote 2]
100 F.2d 915, 918. The court below stated that the two cases
here reviewed (Nos. 15, 16) "involved the identical facts, were
consolidated for briefing and hearing and are disposed of in this
opinion." We have followed the same course.
[
Footnote 3]
In re Messenger's Merchants Lunch Room, 85 F.2d
1002.
[
Footnote 4]
C. 6, 11 U.S.C. § 93(j).
[
Footnote 5]
Cf. New York v. Jersawit, 263 U.
S. 493,
263 U. S.
496.
[
Footnote 6]
Whether the trustee might be personally surcharged because his
refusal to pay the fees subjected the estate to the increased
liability of the penalties is not presented.
[
Footnote 7]
Cong.Record, 73rd Cong., 2nd Sess., p. 4037.
[
Footnote 8]
Id., p. 6067.
[
Footnote 9]
Id., p. 6656.