Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales And Use Tax Court Decisions

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Sierra Summit, Inc.; California State Board of Equalization v. . . . (1989)

Liquidation Sales by Trustee in Bankruptcy Are Subject to Tax

Respondent purchased skis from a bankruptcy trustee for use as rentals. The U.S. Court of Appeals, Ninth Circuit, held that the bankruptcy court's injunction against the Board's assessment of sales tax or use tax on a trustee's liquidation sale of the skis also barred the purchaser's collection of use tax from its lessees. The Court of Appeals relied on two previous Ninth Circuit cases, Cal. St. Bd. of Equalization v. Goggin (1951) 191 F.2d 726, and Cal. St. Bd. of Equalization v. Goggin (1957) 245 F.2d 44. In the Goggin cases, the Board assessed sales and use taxes on bankruptcy liquidation sales. The Ninth Circuit Court of Appeals held that the taxes were unlawful because they burdened the federal functions of the bankruptcy court, and violated the principle of intergovernmental tax immunity. However, other federal circuit courts had reached the contrary result in similar cases.

The U.S. Supreme Court held in favor of the Board. The court held that a nondiscriminatory tax on a bankruptcy liquidation sale was not barred by the now-discredited intergovernmental tax immunity doctrine, and that there was no longer any constitutional impediment to the imposition of a sales tax or a use tax on a bankruptcy liquidation sale. The tax does not discriminate against bankruptcy trustees or those with whom they deal. Nor is the bankruptcy trustee so closely connected to the federal government that the two cannot realistically be viewed as separate entities. The court also held that there was no federal statute expressly preempting the power of the states to tax in this area. California State Board of Equalization v. Sierra Summit, Inc. (1989) 490 US 844, 104 L.Ed.2d 910.