US Supreme Court Resolves State Stamp Tax Question

by Glen Shapiro, LawAndTax-News.com, New York

17 June 2008

The United States Supreme Court has ruled that failing businesses cannot be exempted from state stamp taxes on the sale and transfer of assets to new owners unless they have obtained court approval for reorganization plans.

The Supreme Court justices decided in a majority 7-2 verdict that the Florida Department of Revenue was entitled to collect stamp taxes on the transfer of assets which belonged to Piccadilly Cafeterias Inc. - once one of the country's largest cafeteria chains - to new owners because the transfer took place one day before the firm filed for Chapter 11 bankruptcy protection, and eight months prior to the reorganization plan that was approved by a court.

The case hung on the court's interpretation of section 1146 (a) of the US Bankruptcy Code, which was acknowledged to be ambiguous in scope.

However, the Supreme Court found that "the most natural reading of §1146(a)'s text...and applicable substantive canons all lead to the same conclusion: Section 1146(a) affords a stamp-tax exemption only to transfers made pursuant to a Chapter 11 plan that has been confirmed."

The ruling overturned an April 2007 Eleventh Circuit Court of Appeals decision, but has helped to resolve differing interpretations of the provision by the Eleventh, Third and Fourth Circuits.

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