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Margaret Kinney v. HSBC Bank USA

Summarizing by Lars Fuller

In re Calabrese

In re Michael Calabrese, Jr., 11-3793 (3d Cir. 7/20/2012)
New Jersey sales taxes are considered trust fund taxes for purposes of priority and dischargeability and fall under 507(a)(8)(C) rather than 507(a)(8)(E).
Procedural context:
Bankruptcy Court ruled that NJ Sales Taxes are considered trust fund taxes and not dischargeable. The Debtor appealed, and the District Court affirmed the ruling of the Bankruptcy Court.
Third Circuit ruling following determinations of 2nd, 7th and 9th Circuits (but not all the reasoning) that excise taxes which are also trust fund taxes fall under section 507(a)(8)(C), not 507(a)(8)(E). The opinion discusses that trust fund taxes involve taxes that are required to be collected and withheld from others, but the focus of the opinion is on the priority of the New Jersey excise tax which is a trust fund tax because it is required to be collected and withheld from customers. Appellant Michael Calabrese operated "Don's What a Bagel, Inc.", which filed for chapter 11. Pursuant to applicable law in New Jersey, Calabrese was required to collect sales tax from his customers. The chapter 11 case was converted to a chapter 7. Calabrese also field for personal bankruptcy under Chapter 13. The State of New Jersey Department of Taxation (New Jersey) filed several secured proofs of claim in Calabrese’s individual bankruptcy. Calabrese moved to have the claims reclassified as unsecured, and the Bankruptcy Court granted his motion. New Jersey thereafter filed amended proofs of claim alleging that Calabrese owes $63,437.19 in taxes collected while operating his business from 2003 to 2009. Calabrese moved to expunge the claims, and after briefing and a hearing, the Bankruptcy Court held the taxes at issue are trust fund taxes under 11 U.S.C. § 507(a)(8)(C) rather than excise taxes under § 507(a)(8)(E). Calabrese appealed that decision to the District Court, which affirmed the Bankruptcy Court.
McKee, Chief Judge; Hardiman, Circuit Judge; Jones, II, District Judge

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