New Jersey v. Reading Co.

Background

The dispute involves the State of New Jersey and trustees running the business of a bankrupt railroad. A federal district court recognized that officers running court-authorized business must pay state and local taxes as they accrue under a federal statute, but the court still approved a reorganization plan that deferred those tax payments. The Third Circuit affirmed the approval. New Jersey holds tax claims against the trustees from 1972–1977 totaling $250,000 and has not agreed to be paid in securities instead of cash.

Reasoning

Justice Rehnquist explains the core question as whether the plain language of two federal laws requires trustees to pay state and local taxes as they accrue while operating a debtor’s business. He points to 28 U.S.C. § 960 and a provision of the Bankruptcy Act that allows payment in securities only when the tax claimant agrees. The district court justified deferral by citing the public interest in keeping the railroad running, but Rehnquist says that interest cannot override Congress’s clear mandate and that the lower courts erred by approving the plan that deferred tax payments.

Real world impact

If Rehnquist’s view controlled, trustees running a failed railroad (or similar businesses) would have to pay state and local taxes as they come due, and states would be less likely to have to accept securities in place of cash. The current lower-court outcome permits deferral despite the statute. Because this opinion is a dissent calling for review, the ultimate result could change if the Court reconsiders the case.

Dissents or concurrances

The dissent emphasizes strict adherence to the statute and rejects the idea that a court’s sense of public interest can override clear congressional commands.