Sales Tax and Bankruptcy

Retail sales tax is not dischargeable in bankruptcy. Excise taxes under 11 United States Code Section 507(a)(8)(E) enjoy priority status and are non-dischargeable unless over 3 years from the filing of the bankruptcy petition. Trust fund taxes under 11 U.S.C. Section 507(a)(8)(C) are never subject to discharge in bankruptcy, no matter how old the tax debt. As a tax which is required to be withheld, retail sales taxes may be considered trust fund taxes. As a tax on the "manufacture, sale, or use of goods," Black's Law Dictionary 646 (9th ed. 2009), retail sales tax is an excise tax. The Legislature created ambiguous language, however, the court, in Dep't of Revenue v. Hayslett/Judy Oil, Inc., 426 F3.d 899, 904-905 (7th Cir. 2005), held that a tax collected on behalf of another was a trust fund tax. When collecting sales tax, a proprietor is aware the tax is to be held until paid to the government. Therefore, retain sales tax is trust fund tax and non-dischargeable in bankruptcy no matter how long the time it has been owing. In re Calabrese, No. 11-3793 (3rd Cir. 2012) sets forth the premise that, although a debtor may obtain a discharge from his debts, it is unjust for him to retain the money of another for his own benefit through the declaration of bankruptcy. As sales tax is truly a tax on the consumer rather than the seller of goods, the seller of goods never truly has title to the funds collected as sales tax. If you are considering bankruptcy you should seek experienced legal counsel immediately in order to fully protect your rights. For more information on foreclosure, bankruptcy or other consumer debt related matters in New Jersey visit TheNJBankruptcyAttorney.com. This blog is for informational purposes only and in no way intended to replace the advice of an attorney regarding your specific matter.