state board of equalization says I owe $2k in sales tax b/c of a transaction I made a few years ago. What about filing chapter 7
I was already considering filing for bankruptcy. Now, here is just one more debt I didn't know about. It has to do with a personal property transaction. I am not a business. Would this discharge in a chapter 7? If so, what would need to be done to make that happen
Chapter 7 Bankruptcy Attorney
No. You can not get rid of these taxxes in bankruptcy with a discharge.
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Disclaimer: This answer does not constitute legal advice. I am admitted in the States of New York, New Jersey and Massachusetts only and make no attempt to opine on matters of law that are not relevant to those three States. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship. The opinions expressed herein are those of the author only and the fact that he has worked as an Assistant District Attorney; State Supreme Court Clerk; Special Assistant United States Attorney (Hawaii); Assistant Cornell University Counsel or Judge Advocate, United States Marine Corps should not be relied upon to assume that these statements reflect the policy of these organizations.
Imagine sales tax as money you were supposed to hold on behalf of the state as opposed to a debt you owed. Perhaps that will provide perspective as to why this debt cannot be wiped out in your bankruptcy case.
Chapter 7 Bankruptcy Attorney
In some instances, a tax can be discharged in a chapter 7 if it is sufficiently old enough. You will want to check with a local bankruptcy attorney with tax experience to establish whether this particular tax debt is eligible to be discharged. BTW, the cheap high volume attorneys are unlikely to offer you an answer with this issue, so go with a tax expert. You will pay a little more for the expertise, but it will be worth it!
This is a treacherous area of law. Sales taxes can be discharged under certain circumstances. It depends in part on whether the tax is considered an excise tax, a tax measured by gross receipts, or a trust fund tax. If it is either of the first two, it can be discharged if it is more than 3 years since the returns was last due to be filed, and over 2 years since the return(s) for the periods in question were actually filed. There's a few more requirements, but that's the basic test.
If it is a trust fund tax, then it is never dischargeable. Determining which of the above the tax is depends in part on state law, and how the debt was incurred.. For example, if you collected the tax from the customers as part of your transaction, but didn't turn it over to the board of equalization, they will most likely consider it a trust fund tax; otherwise, it would likely be considered an excise tax or tax measured by gross receipts.
You definitely need an attorney to analyze your specific facts.
Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.