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In re Sandia Tobacco Mfrs., Inc.

United States Bankruptcy Court for the District of New Mexico

October 12, 2018, Decided

Case No. 16-12335-j11



THIS MATTER is before the Court on cross motions for summary judgment on Debtor's objection to the United States Department of Agriculture's (the "USDA") proof of claim. See Docket Nos. 300 & 311. Debtor manufactured cigarettes, cigars, and other tobacco products. As a tobacco manufacturer, Debtor is subject to the federal Fair and Equitable Tobacco Reform Act of 2004 ("FETRA"). 7 U.S.C. § 518d. Under FETRA, the Debtor was subject to assessments starting in 2004 to fund the USDA's payments to stabilize the tobacco industry as tobacco farmers transitioned to the free market. If the assessments are "excise taxes" under FETRA the amount due is entitled to priority status under 11 U.S.C § 507(a)(8)(E).1 The Debtor objects to the USDA's proof of claim on the basis that the FETRA assessments are not excise taxes [*2]  and therefore give rise to a nonpriority unsecured claim under § 507(a)(8)(E). The USDA does not agree and asks the Court to find that the claim is entitled to priority status.

The issues presented in the cross motions for summary judgement can be distilled to the following: (1) whether the FETRA assessments are excise taxes or regulatory fees; (2) if the FETRA assessments are not regulatory fees, whether the assessments should be characterized as excise taxes or customs duties; and (3) if the FETRA assessments are excise taxes, when the taxed transactions occurred. As explained below, the Court will grant the USDA's motion for summary judgment in part. The FETRA assessments are excise taxes entitled to priority status to the extent the tax was imposed on the removal of tobacco product for sale within the three years prior to the commencement of the Debtor's bankruptcy case.


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2018 Bankr. LEXIS 3165 *

In re: SANDIA TOBACCO MANUFACTURERS, INC. A New Mexico corporation. Debtor.


tobacco, manufacturers, public purpose, farmers, excise tax, importers, tobacco product, entitled to priority, invoice, Coal, customs duties, inventory, pecuniary, domestic, quotas, taxes, summary judgment, contributions, transactions, transition, quarterly, exaction, purposes, involuntary, cigarettes, calculation, occurring, subsidies, removal, principal purpose

Civil Procedure, Summary Judgment, Entitlement as Matter of Law, Appropriateness, Burdens of Proof, Movant Persuasion & Proof, Nonmovant Persuasion & Proof, Judgments, Evidentiary Considerations, Bankruptcy Law, Administrative Expenses, Priority, Taxes, Business & Corporate Compliance, Agriculture & Food, Governments, Agriculture & Food, Tax Law, Federal Excise Taxes, Alcohol, Firearm & Tobacco Taxes, Tobacco & Tobacco Products, Governments, State & Territorial Governments, Constitutional Law, Congressional Duties & Powers, Spending & Taxation