Could California collect a receiver's unpaid sales tax from an owner's bankruptcy estate after the receiver returned the business assets?

Plain-English summary

A court-appointed receiver operated a restaurant during a dispute between its owners and incurred unpaid sales-tax liability under the receiver's own permit. The receiver later filed a no-asset Chapter 7 case. One owner also had a Chapter 11 case and eventually resumed the business under a reorganization plan.

The bankruptcy court had already found that the owner did not incur the earlier tax debt, and the Board concluded she was not liable for the period when the receiver operated under its own permit.

The collections memorandum also rejected seeking the receiver's liability from the owner's bankruptcy estate merely because the receiver turned over the business assets. The estate received the same assets it would have received directly from the debtor if no receiver had existed, so it was not enriched by the turnover. The official annotation characterized that transfer as involving no sale.

The recommended collection path was a claim against the receiver's bond. District collection efforts remained appropriate for the owner's separate liability under her own permit.

Common questions

Did taking the business back under a reorganization plan create liability for the receiver's tax?

No, under the court findings and facts described in the memorandum.

Why did the asset turnover not support collection from the estate?

The estate obtained only the same business assets it would have received without the receivership.

What if the receiver transferred more value than it originally received?

The source asked collections staff to report that fact because it could change the analysis.

Citations and references

• Bankruptcy court order disallowing the Board's claim against the owner, as described in the official memorandum
• Official annotation conclusion that the receiver-to-estate transfer involved no sale

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/495-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/495-0737.pdf

Original ruling text

State of California

Board of Equalization
Legal Division (MIC:82)

495.0737

Memorandum
To

:

Mr. Bill Ragle
Collections Section - MIC:55

From :

Thomas Cooke
Staff Counsel

Subject:

P--- H--W--- & L--- K--Account No. SR --- 23-XXXXXX

Date:

March 29, 1995

(916) 445-6496
CalNet 485-6496

Telephone:

L--- K--Account No. SR --- 99-XXXXXX
F--- M. R---, Receiver
Account No. SR -- 23-XXXXXX
On February 7, 1991, W--- and L--- K--- applied for a permit to operate a restaurant known as S--- Meat, Fish & Liquor Co. at XX-XXX Hwy XXX in [California 1]. The account number was SR --- 23-XXXXXX. The Board issued two determinations on this account in 1992 for the periods of October 1, 1991 to March 31, 1992 and April 1, 1992 to June 17, 1992. The taxpayers' mail on this account was sent to XX-XXX Hwy XXX, [California 2]. On September 18, 1992, L--- K--- filed Chapter 11 bankruptcy. The Board filed a Proof of Claim in the bankruptcy on the above account for $91,066.33 for the period of October 1, 1991 to June 17, 1992. L--- K--- objected to the Board's claim stating that she separated from her husband on July 26, 1991 and was divorced in August of 1992. She stated that W--- K--- was given sole ownership of S--- Meat, Fish & Liquor Co. and another restaurant known as the P--- H--- in
[California 2] in the marital settlement agreement. Because of a breach of the marital settlement agreement, Mrs. K--- had a receiver appointed to operate the [California 2] restaurant. Mrs. K--rejected any liability for taxes due on the [California] account. On January 19, 1994, the bankruptcy court disallowed the Board's claim against L--- K--- finding "that the debt to the Board of Equalization was not incurred by debtor herein." On April 25, 1994, the Board withdrew its amended claim for the [California] liability from the bankruptcy action. F--- R--- was appointed to operate the [California 2] restaurant known as the P--- H--- on June 18, 1992. Mr. R--- applied for a permit on June 26, 1992. The permit was issued under Account No. SR --- 23-XXXXXX. For some reason, the permit was issued to P--- H---, Estate of W--- and L--- K---. A determination was issued under this name on March 12, 1993. On March 18, 1994, the determination was reissued to F--- M. R---, Receiver in the amount of

Mr. Bill Ragle

-2-

March 29, 1995
495.0737

$48,441.41 for the period of June 1, 1992 to September 26, 1992. On September 26, 1992, the Board closed out Mr. R---'s permit based on the bankruptcy filing by L--- K--- as a debtor-inpossession. On November 21, 1994, Mr. R---'s liability was redetermined to $14,938.32. On August 2, 1993, Mr. R--- filed Chapter 7 bankruptcy listing the Board as a creditor. Apparently, this is a "no-assets" case. On September 29, 1992, L--- K--- applied for a seller's permit for P--- H--- of
[California 2]. The permit number is SR --- 99-XXXXXX. The address for this business is XXXXX Hwy XXX, [California 2]. The reason that Mrs. K--- applied for this permit is that in August of 1992, the superior court awarded this business to her as her separate property. On April 1, 1994, the bankruptcy court entered its order confirming Mrs. K---'s plan of reorganization. We believe a referral to the Attorney General's office is warranted only to satisfy Mr. R---'s liability from the amount of the receiver's bond that was required to be posted. The bankruptcy court has held that Mrs. K--- has no liability in bankruptcy court for the taxes due under Account No. SR --- 23-XXXXXX. She also has no liability for the period that Mr. R--was operating the [California 2] restaurant under his own permit. Mrs. K---'s liability under Account No. SR --- 99-XXXXXX is presently approximately $25,000.00. It is our recommendation that collection efforts be employed at the district level to collect this liability. We believe that a motion made in Mrs. K---'s bankruptcy proceeding to seek payment of Mr. R---'s sales tax liability will not succeed. It may be true that there was a turnover of all receivership estate's assets to the K--- bankruptcy estate. When Mr. R--- was appointed receiver of the [California 2] business, all of the assets belonging to that business and owned by the K--‘s were transferred to the receiver to enable the receiver to operate the business. Mrs. K---'s bankruptcy estate is not enriched when it obtains the same assets that it would have received directly from the debtor had there been no receiver. If there is information that the receiver turned over to the bankruptcy estate assets greater in value than he received from the K---s, please advise this office.

TJC:plh