In Re: Calabrese

The business proprietor, Calabrese, filed for reorganization of the business under Chapter 11 of the Bankruptcy Code. After failure to confirm a reorganization plan, the bankruptcy was converted to Chapter 7. He also filed an individual petition under Chapter 13. The State of New Jersey Department of Taxation filed several secured proofs of claim in the individual bankruptcy. As proprietor of a restaurant, Calabrese was required to collect sales tax from customers. N.J. Stat. 54:32B-3(c)(1), 54:32B-12(a), 54:32B-14(a). Calabrese successfully moved to have the claims reclassified as unsecured. New Jersey filed amended proofs alleging that Calabrese owes $63,437.19 in taxes collected while operating his business from 2003 to 2009. The Bankruptcy Court held the taxes at issue are trust fund taxes under 11 U.S.C. 507(a)(8)(C) rather than excise taxes under 507(a)(8)(E) and, therefore, not dischargeable. The district court and Third Circuit affirmed. Public policy concerns weigh against Calabrese, primarily because sales taxes collected by a retailer never become the property of the retailer; it retains those funds in trust for the state. View "In Re: Calabrese" on Justia Law