Florida Dep't of Revenue v. Piccadilly Cafeterias, Inc.

Florida Dep't of Revenue v. Piccadilly Cafeterias, Inc., No. 07-312, 2008 U.S. LEXIS 5025 (June 16, 2008) limits the Bankruptcy Code's transfer tax exemption to transfers that occur "after" the Chapter 11 plan’s confirmation. Although most bankruptcy sales occur before confirmation, the Supreme Court imposed the temporal limitation based on the statute’s "natural reading.” Charolette Noel, a state tax partner with Jones Day, comments on the Piccadilly decision and its impact on real estate owners and investors, states and local governments, and tax practitioners. She writes:
     Bankruptcy Code § 1146(a) provides in its entirety:
The issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under Section 1129 of this title, may not be taxed under any law imposing a stamp tax or similar tax.
The provision generally applies as an exemption to certain state and local taxes. Courts typically apply a three-part test when determining if the tax is exempt under § 1146(a). For a tax to be exempt: (i) the tax must be a stamp or similar tax; (ii) the tax must be imposed upon the making or delivery of an instrument transferring an interest in property; and (iii) the transfer taxed must be made in connection with a confirmed bankruptcy plan. Like all multi-part tests, each prong comes with its own set of questions (e.g., what is a “stamp tax” and what state transfer taxes are sufficiently similar to a stamp tax?). The exact scope of this exemption has been debated in courts of all levels for decades.
     . . . .
     The bankruptcy court granted summary judgment to Piccadilly, finding that the words “under a plan confirmed” can indeed mean “before the plan is confirmed” if the sale is necessary to the ultimate confirmation of the plan. The district court and the Eleventh Circuit both affirmed the bankruptcy court’s ruling, although under differing rationales. Florida appealed, and the Supreme Court granted certiorari to resolve a split between the circuits as to whether § 1146(a) applies to transfers prior to confirmation.
     The case presented a chance for the court to sift through what it termed “dueling canons” of statutory construction. Citing [California State Bd. of Equalization v.] Sierra Summit, Inc., [1989 U.S. LEXIS 2865] Florida argued that the court should “proceed carefully when asked to recognize an exemption from state taxation that Congress has not clearly expressed.” Not to be outdone, Piccadilly cited its own canons, arguing that Sierra Summit does not apply because § 1146(a) is a “clear expression of an exemption from state taxation,” that “a remedial statute such as the Bankruptcy Code should be liberally construed,” and that the objectives of Chapter 11 include “preserving going concerns and maximizing property available to satisfy creditors.”
“Relying on the ‘substantive canon’ created by Sierra Summit, the Supreme Court narrowly construed § 1146(a) to apply ‘only to transfers made pursuant to a Chapter 11 plan that has been confirmed.’ States, counties, and municipalities may impose taxes on transfers in bankruptcy that occur before the plan is confirmed.”    
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