California State Board of Equalization v. Sierra Summit, Inc.

1989-06-12

Headline: Court allows states to collect sales and use taxes on bankruptcy liquidation sales, overturning a Ninth Circuit rule and making it easier for states to tax goods sold or rented after trustee liquidations.

Holding: The Court holds that states may impose nondiscriminatory sales and use taxes on bankruptcy liquidation sales and related uses, vacating the Ninth Circuit’s rule that had barred such taxation.

Real World Impact:

Allows states to collect sales and use taxes on bankruptcy liquidation sales.
Makes buyers and equipment renters possibly responsible for unpaid use taxes.
Reduces ability to claim immunity from state taxes during liquidations.

Topics: state taxes, bankruptcy liquidation, sales and use tax, trustee sales

Summary

Background

The dispute involved California’s tax agency and a company that bought inventory at a bankruptcy trustee’s liquidation sale of a ski resort. A Bankruptcy Court had approved the sale, and a prior Ninth Circuit rule (known as Goggin II) prevented the State from assessing sales or use taxes on such liquidation sales. The Board later tried to collect a use tax from the buyer’s renters, and the Ninth Circuit relied on Goggin II to block the tax.

Reasoning

The Court addressed whether the bankruptcy process or a 1934 federal statute barred nondiscriminatory state sales and use taxes on liquidation sales. The majority said older doctrines of absolute tax immunity have eroded, and the statute does not clearly exempt liquidation sales from ordinary state taxes. The Court therefore concluded that nondiscriminatory sales and use taxes can apply to bankruptcy liquidations and related uses, vacating the Ninth Circuit’s contrary rule and sending the case back for further proceedings.

Real world impact

States may collect sales or use taxes tied to trustee liquidation sales and charges for later use or rental of those goods. Buyers, lessees, and trustees should expect state tax claims to be enforceable unless a specific exemption applies. Because the Court remanded, the ruling requires lower courts to apply this holding to the case’s particular facts.

Dissents or concurrances

Justice Blackmun (joined by Justices Brennan and Marshall) argued the issue was already resolved by a final bankruptcy court order and that the Court should not relitigate settled issues now, stressing final-judgment protections against collateral attack.