Appeal from the Ninth Circuit Bankruptcy Appellate Panel. BAP No. AZ-93-02437-JmR. Russell, Meyers, and Jones, Judges, Presiding.
Before: Procter Hug, Jr., Chief Judge, Mary M. Schroeder and Michael Daly Hawkins, Circuit Judges. Opinion by Judge Schroeder.
SCHROEDER, Circuit Judge:
The United States Bankruptcy Code establishes a priority for nondischargeable obligations owed by a debtor to a state that are in the nature of an "excise tax." 11 U.S.C. § 507(a)(8)(E). The statute in relevant part provides:
(a) The following expenses and claims have priority in the following order:
(8) Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for -
(ii) . . . a transaction occurring during the three years immediately preceding the date of the filing of the petition . . . .
11 U.S.C. § 507(a)(8)(E)(ii).
This case concerns a statutorily-imposed obligation of the debtor, Karen Camilli, to the Industrial Commission of Arizona (ICA) for workers' compensation benefits the Commission had to pay to one of Camilli's employees who was injured on the job. The ICA's obligation arose because Camilli had failed to obtain workers' compensation insurance in violation of state law. The sole issue is whether Camilli's debt to the ICA is a "tax" within the meaning of the Bankruptcy Code, and therefore nondischargeable.
A divided Bankruptcy Appellate Panel ("BAP") held that the obligation was not a "tax" but was instead a "fee" that was to be treated as any other dischargeable, unsecured debt. In re Camilli, 182 Bankr. 247 (9th Cir. BAP 1995). The BAP majority decision reversed the decision of the Bankruptcy Court that had held the obligation nondischargeable as a tax.
The federal bankruptcy statutes do not define "tax," but the Supreme Court has made it clear that labels imposed by state law are not controlling. Rather, the Supreme Court has stated that taxes are "pecuniary burdens laid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or of undertakings authorized by it." New York v. Feiring, 313 U.S. 283, 285, 85 L. Ed. 1333, 61 S. Ct. 1028 (1941).
The leading case in this circuit is In re Lorber Industries of California, 675 F.2d 1062 (9th Cir. 1982), which refined that general principle by holding that to qualify as a tax, a debt must be (1) an involuntary pecuniary burden; (2) imposed by the state legislature; (3) for a public purpose; (4) under the police or taxing power. Id., 675 F.2d at 1066. We dealt in Lorber with charges imposed for the individual use of a city's sewer system to dispose of hazardous waste materials. The sewer system, with its concomitant charges, was one of the options available to entities wishing to dispose of waste materials lawfully, and users received a permit to use the sewer services in return for paying the charges. We characterized the obligation in Lorber as more akin to a contractual obligation, voluntarily incurred by the debtor, than to an "involuntary pecuniary burden" characteristic of a tax. Id., 675 F.2d at 1067, n. 4.
In this case the debtor violated state law by failing to obtain workers' compensation insurance for her employees. Under Arizona law, such violation could not operate to deprive an employee of workers' compensation benefits. Thus, when one of Camilli's employees was injured at work, Arizona law required the statutorily-established Special Fund to pay the benefits and obtain a judgment ...