Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Sluggo's Chicago Style, Inc. , In re . . . (1990)

Automatic Stay in Bankruptcy Violated by Board's Cashing of Certificate of Deposit Taken as Security from Taxpayer

The Board required that, as a condition of taxpayer's doing business, taxpayer provide security for payment of the sales and use taxes. Taxpayer complied by providing a certificate of deposit payable to the Board. Taxpayer subsequently filed a petition for reorganization pursuant to Chapter 11 of the Bankruptcy Law and ceased doing business, at which time taxpayer owed the Board sales and use tax in excess of the amount of the certificate. The Board presented the certificate for payment, and the Chapter 11 proceeding was converted to a Chapter 7 proceeding. The Ninth Circuit Court of Appeals rejected the Board's argument that the certificate of deposit became the property of the Board held in trust and was thus immune from the claims of general creditors. Property seized by a creditor prior to the filing of a petition for reorganization pursuant to Chapter 11 belongs to the bankruptcy estate, and the court therefore found that the Board violated the automatic stay in bankruptcy by cashing taxpayer's certificate of deposit. In re Sluggo's Chicago Style, Inc. (9th Cir. 1990) 912 F.2d 1073.