BEFORE THE STATE TAX
COMMISSION OF UTAH
_____________________________________
XXXXX
Petitioner, : INFORMAL DECISION
v. :
COLLECTION
DIVISION OF THE : Appeal No. 87-0281
STATE TAX
COMMISSION OF UTAH, ) Acct. No. XXXXX
Respondent. :
_____________________________________
STATEMENT OF CASE
This
is an appeal to the Utah State Tax Commission from a decision of the Collection
Division to assess penalty and interest on sales and use tax account no. XXXXX
for the periods XXXXX. An Informal
Hearing was held on XXXXX, in the offices of the Utah State Tax
Commission. David J. Angerhofer,
Hearing Officer, heard the matter for the Commission. XXXXX represented himself.
The tax for the periods in question amounted to $$$$$. On XXXXX, Respondent assessed a penalty of
$$$$$ and interest of $$$$$. Petitioner
has made payments in the amount of $$$$$, leaving a balance due of $$$$$ as of
XXXXX. Petitioner filed for a Chapter
13 bankruptcy on XXXXX. This was
subsequently converted to a Chapter 7 on XXXXX, and was discharged on
XXXXX. Petitioner had paid a sum in the
amount of the tax for each of the periods in question prior to the filing of
the bankruptcy but did not pay the penalty or interest at that time. Petitioner asserted that tax and interest
should be treated the same; since there was no tax due and owing at the time of
the bankruptcy, there is no priority of interest. Petitioner agreed that some interest was due and agreed to pay a
reasonable interest on the original amount of taxes. Petitioner asserted that the penalty was discharged in bankruptcy
and cited bankruptcy code Section 507(a)(7).
Since the penalty was not "in compensation for actual pecuniary
loss" it was discharged.
FINDINGS
A
sales tax is not dischargeable in bankruptcy.
It is a tax measured by "gross receipts" pursuant to Section
507(a)(7) and is, consequently, nondischargeable pursuant to Section
523(a)(1)(A). In DeChiaro v. New York
State Tax Commission, 760 F.2d 432 (2nd Cir. 1985), the U.S. Court of Appeals
held the sales tax to be a "trust fund" tax and
nondischargeable. Prepetition interest
is treated the same as a prepetition tax claim and is not discharged in
bankruptcy. In re XXXXX, 15 BCD 384
(S.D. W. Va. 1986). Respondent properly
assessed interest in the present case, which interest was not discharged. Penalty is not entitled to priority under 11
U.S.C. 507(a)(7)(G) unless it meets three requirements: "first it must be
a penalty; second, it must be related to a claim of a kind entitled to priority
under Section 507(a)(6) [507(a)(7)]; and third, it must be in compensation for
actual pecuniary loss." In re
XXXXX, 35 B.R. 651, 655 (Bkrtcy. D. Utah 1983) However, priority of a penalty
is not the issue here. The issue in
this matter is whether the penalty is dischargeable. 11 U.S.C. Section 523 lists the exceptions to discharge. Specifically Subsection (a)(7) reads:
(a)
a discharge under Section 727, 1141, or 1328(b) of this title does not
discharge an individual debtor from any debt (7) to the extent such debt is for
a fine, penalty, or forfeiture payable to and for the benefit of a governmental
unit, and is not compensation for actual pecuniary loss, other than a tax
penalty
(A)
relating to a tax of a kind not specified in paragraph (1) of this subsection;
or
(B)
imposed with respect to a transaction or event that occurred before three years
before the date of the filing of the petition; Subsection (a)(7) requires the
tax and the penalty to be treated the same.
"In other words, 'a penalty relating to a tax cannot be nondischargeable
unless the tax itself is nondischargeable'." In re XXXXX, 19 B.R. 73, 74 (D. N.M. 1982)(Citing 3 Collier on
Bankruptcy 523.17 (15th ed.
1979)). XXXXX also cited the
legislative history of Section 523(a)(7) as support for the statement that tax
penalties are nondischargeable if the underlying tax is also
nondischargeable. Since the sales and
use tax is nondischargeable, the penalty is also nondischargeable in this
matter. The fact that the penalty did
not have priority status during bankruptcy is irrelevant.
DECISION AND ORDER
It
is the Decision and Order of the Utah State Tax Commission that Petitioner's
request for waiver of penalty and interest on sales and use tax account No.
XXXXX for the XXXXX be denied. The
assessment of penalty and interest by the Collection Division of the Utah State
Tax Commission is hereby affirmed.
DATED
this 5 day of October, 1987.
BY ORDER OF THE STATE TAX COMMISSION OF UTAH.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner