High Court Says Bankruptcy Sale Items May Be Taxed

The Supreme Court, in a case involving ski equipment rentals, ruled Monday that state taxes may be imposed when bankrupt companies sell their assets.

In another ruling, the high court turned down an appeal by hazardous waste companies aimed at forcing the government to adopt tougher environmental rules.

In the bankruptcy case, by a 6-3 vote, the justices said the taxes may be imposed on such sales and on a buyer’s subsequent use of the assets when bankrupt companies are ordered to liquidate.

The court allowed California officials to tax the rental of skis by a ski resort that acquired the equipment from a bankrupt company.

Nothing in the Constitution or federal law forbids such state taxes, said Justice John Paul Stevens for the court.

He said a doctrine that bars states from imposing taxes on the federal government does not extend to private companies in bankruptcy proceedings. Such proceedings are overseen by federal judges who appoint officials to dispose of the assets.

States may tax private parties with whom the federal government does business even if a financial burden falls on the government, Stevens said.

“Whatever immunity the bankrupt estate once enjoyed from taxation on its operations has long since eroded and there is now no constitutional impediment to the imposition of a sales tax or use tax on a liquidation sale,” he said.

Defeat for Firm

Dissenting were Justices Harry A. Blackmun, William J. Brennan and Thurgood Marshall.

The ruling is a defeat for Sierra Summit and the ski resort’s parent corporation, Snow Summit Ski Corp.

The corporation acquired the assets of China Peak Resort for $3.5 million after China Peak declared bankruptcy in 1981. The assets included skis to be used for renting to customers.

The California State Board of Equalization sought to assess $55,000 in taxes on the sale of the assets. But a federal bankruptcy judge in 1983 barred the tax on grounds the assets transferred from a bankrupt company are exempt.

The state board took another approach in 1985, seeking to impose a use tax on income of $196,518 that Sierra Summit received from renting the skis acquired from China Peak.

Under California law, if Sierra Summit had paid either sales or use tax on its purchase of the skis, the rental income would not be taxable.

The 9th U.S. Circuit Court of Appeals barred the taxes.

In the suit by the firms treating hazardous waste, the court, without comment, refused to let the firms sue for stricter standards that could increase their business volume or give them a competitive advantage over other waste-treatment companies.

Instead, the justices let stand a ruling that denies the companies legal standing to sue in such cases.

The case prompted an unusual alliance between business and environmental groups.

Lost Earlier Decision

The appeal by the Hazardous Waste Treatment Council, representing leading treatment firms and makers of advanced technology treatment equipment, was supported by such prominent environmental groups as the Environmental Defense Fund, the National Wildlife Federation and the Natural Resources Defense Council.

The U.S. Circuit Court of Appeals here ruled against the waste-treatment companies last October.

The appeals court said the companies generally may not challenge as too lax the rules adopted by the federal Environmental Protection Agency for the treatment, storage and disposal of hazardous waste.

For example, the companies sought stricter deadlines and standards for cement kilns used to burn liquid hazardous wastes.