Sales Tax
Organization Sales Tax Dischargeability
Nonetheless, for several small organizations, an situation of sales taxes can come up in their bankruptcy filings.
A 1986 Ninth Circuit Court of Appeals situation (In re Shank) reviewed whether or not sales taxes can be discharged. In that situation, Shank ran a business in the State of Washington. For each of his sales, Shank was to collect sales tax and remit the funds to the State as sales tax. Shank, in turn, failed to remit the funds and eventually filed bankruptcy five (5) years following the business ceased operations. He sought to discharge the debts in the bankruptcy.
The court reviewed the rule that specific tax debts can be discharged after 3 (three) years. Nevertheless, a law was enacted beneath the Bankruptcy Code in 1966 wherein certain tax liabilities would not be dischargeable, no matter how significantly time had passed. One particular such tax was “trust-fund tax.” The situation went on to evaluation the historical past of the legislation enactment via both the United State Home of Representatives and the United State Senate.
The court’s ruling presented two separate types of sales tax liability: “[1] these owed personally by a retailer and [two] those incurred by a retailer’s customers which are collected by the retailer underneath the authority of the state, held in trust, and then remitted by the retailer to the state.” To recognize the difference between the two taxes, a Seventh Circuit Court of Appeals situation determined that a five% occupation tax on the gross receipts was not regarded as a “trust fund tax.” However, Shank’s obligation to remit the sales tax he collected for his sales, did fall beneath the trust category, and could not be discharged. Another court reasoned that if the tax is paid by the purchasers of goods or services, it is probably that the tax is portion of a trust that will not be discharged.
(MAN2822c29)
Finding Sales Tax