The United States and the State of New York seek review of a judgment of the Circuit Court of Appeals for the Second Circuit reversing in part a District Court order for the distribution of the assets of a bankrupt estate. The Independent Automobile Forwarding Corporation was adjudicated a bankrupt on April 26, 1938. A total of $3053.20 eventually became available for distribution. This amount was insufficient even to meet those claims of the federal and state governments which were assertedly entitled to priority as taxes under § 64, sub. a(4) of the Bankruptcy Act. The federal claims of this character were for amounts due under §§ 801 and 802 of Title VIII and under § 901 of Title IX of the Social Security Act, and for certain taxes as to which no question is raised in this case. The state claims were for payments due its unemployment insurance fund, and for taxes not in issue here.
The state's appeal from the District Court's first order of distribution was discontinued by agreement of the parties because the Social Security Act had been extensively amended while the appeal was pending. A second order was thereupon entered by the District Court. The state again appealed to the Circuit Court of Appeals. It contended that the share of the assets granted to the federal government was excessive for three reasons: (1) the claim based on § 801 of Title VIII of the Social Security Act was a claim for a debt rather than for taxes and thus was not entitled to priority under § 64, sub. a (4) of the Bankruptcy Act; (2) no more than 10% of the claim based on § 901 of Title IX of the Social Security Act was entitled to allowance because the balance constituted a claim for a penalty rather than a tax and thus fell within the prohibition of s 57, sub. j of the Bankruptcy Act; and (3) the credit against the Title IX claim provided for in § 902, 42 U.S.C.A. § 1102, was incorrectly calculated. The Circuit Court of Appeals sustained the state's contention with respect to the Title VIII claim and reversed to that extent the order of the District Court, but rejected the state's arguments with respect to the claim under Title IX.
First. The claim based on Title VIII. Section 801 bears the heading 'Income tax on employees' and provides for a tax 'upon the income of every individual' equal to 1 per centum of the wages received by him with respect to employment during 1937. Section 802(a) provides that this tax 'shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid.' The employer is made liable for the payment of the tax. By regulation, pursuant to Title VIII, the Treasury Department has explicitly ruled that the tax may be assessed against the employer, regardless of whether he has in fact deducted it from the employee's wages. The Circuit Court (118 F.2d 537, 539) held that the employer was liable 'only as an agent bound to pay whether its duty to collect was performed or not' and that his liability was for a debt rather than for taxes.
As authority for this view it relied upon its decision of the same date in City of New York v. Feiring, 2 Cir., 118 F.2d 329. The city sales tax involved in that case was laid upon receipts from sales of personal property. The vendor was required to collect the amount of the tax from the vendee separately from the sales price. He was obliged to report periodically concerning his receipts from sales and to turn over to the City Comptroller the taxes due, whether or not he had actually collected them from the purchasers. If the vendor failed to collect the tax, the vendee was required to report the transaction and to pay the tax directly. Thus, the procedure contemplated was that the purchaser should bear the burden of the tax, but that the seller should collect and transmit it to the Comptroller. If the seller did not obtain it from the purchaser, however, the Comptroller was authorized to proceed to collect it from either of them. The Circuit Court of Appeals held that the claim of the City against a bankrupt vendor for the amount of the sales tax outstanding was a claim for a debt and not for taxes, within the meaning of § 64, sub. a(4). We reversed this decision and held that the burden imposed upon the seller by the city taxing act had 'all the characteristics of a tax entitled to priority' under § 64, sub. a(4). 313 U.S. 283, 61 S.Ct. 1028, 1030, 85 L.Ed. 1333.
