PETER McNIFF, United States Bankruptcy Judge.
THIS MATTER came before the court on the objection of the debtor in possession to the claim of the State of Wyoming, the Wyoming Workers' Safety and Compensation Division (Division) The parties agreed that the issue presented was a legal question which they submitted to the court without hearing. On August 16, 1996, this case was converted to a chapter 7 case. The chapter 7 trustee, Randy L. Royal, is continuing to prosecute the debtor's objection.
The Division asserts a total prepetition claim of $188,437.36. This amount includes a claim for past due "employer payments" of $140,083.07; $32,939.08 due for reimbursement of a worker's claim paid by the Division from its claim fund; and interest of $15,415.21. The issue is whether any of these claim components is entitled to priority status under 11 U.S.C. § 507 (a)(8)(E) or (G).
FACTS
The Wyoming Worker's Compensation Act was established to provide "the quick and efficient delivery of indemnity and medical benefits to injured and disabled workers at a reasonable cost." Wyo. Stat. § 27-14-101 et seq. (Supp. 1996). Participation in the system is compulsory for employers engaged in extrahazardous occupations and is voluntary for some other businesses. Wyo. Stat. § 27-14-108 (Supp. 1996). If an employer is qualified to participate and its premiums are current, the employer has immunity from liability for an employee's injuries. Air Freight, Inc. was engaged in a Wyoming trucking business, and its participation in the system was mandatory.
The system is funded by premiums calculated annually at a rate designed to maintain a self-supporting system. Wyo. Stat. § 27-14210 (Supp. 1996) The rate varies according to the business risks of the employer and the solvency of the fund. If the entire fund is inadequate to pay benefits, the Division may, until the end of fiscal year 1997, impose a rate surcharge upon participating employers. If an employer is delinquent in its payments and a worker is paid benefits from the fund, the employer is liable for "an amount equal to all awards entered for payment to satisfy [the] liability." Wyo. Stat. § 27-14-203(a) (Supp. 1996). Premiums not paid are subject to interest at the rate of 2% per month. WYO.
Stat. § 27-14-203(c) (Supp. 1996). The Division may enforce collection of delinquent payments and reimbursements by civil suit and/or by filing a lien, effective from the date of filing.
CONCLUSIONS
The Division filed its claim under § 507(a)(8)(E) which allows priority status for unsecured claims of governmental units, to the extent that the claim is for "an excise tax on a transaction occurring before the date of the filing of the petition. . . ." The trustee argues that the premium payments due are not an excise tax, but rather a form of accident and disability insurance.
The Bankruptcy Code does not define excise tax, but courts interpreting § 507(a)(8) uniformly apply the definition set forth by the United States Supreme Court in City of New York v. Feiring, 313 U.S. 283, 285 (1941). The Supreme Court defined a tax as "those pecuniary burdens laid upon individuals or their property, regardless of their consent, for the purpose of defraying the expenses of government or of undertakings authorized by it."
This test was reduced to four frequently cited criteria by the Ninth Circuit in In re Lorber industries of California, Inc., 675 F.2d 1062 (9th Cir. 1982). The elements which are necessary to satisfy the definition of a tax under Lorber are:
(a) An involuntary pecuniary burden, regardless of name, laid upon individuals or property;
(b) Imposed by, or under authority of the legislature;
(c) For public purposes, including the purposes of defraying expenses of government or undertakings authorized by it;
(d) Under the police or taxing power of the state.
Id. at 1066.
I. Premiums
Several circuit courts, including the Tenth Circuit, have adopted and applied the standards of Lorber in the context of § 507. In re Cassidy, 983 F.2d 161 (10th Cir. 1992). Clearly, however, under this broad test most governmental charges qualify as a tax. In re Freymiller Trucking, Inc., 194 B.R. 914, 916 (Bankr.W.D.Okla. 1996). Certainly in this case, the premium portion of the claim arguably satisfies all of the elements.
Thus, an inquiry into additional factors is necessary when a workers, compensation system claim is at issue. Some circuit courts, other than the Tenth Circuit, have elaborated on the Lorber test in cases involving workers, compensation premiums.
Recently, the Ninth Circuit Court of Appeals elaborated on the involuntary pecuniary burden element of Lorber. In re Camilli, 94 F.3d 1330 (9th Cir. 1996). The court held that if an exaction is imposed by statute as a result of state law or as a violation of state law, the charge is not contractual or consensual. Thus, by its very terms, the charge cannot be considered a voluntary debt. Nor is a fee for services, such as the sewer tap fee in question in Lorber, an involuntary obligation. Id. at 1333.
In the case of New Neighborhoods, Inc. v. W. Va. Workers Compensation Fund, 886 F.2d 714, 717 (4th Cir. 1989), the court paid particular attention to the public purpose element. As here, New Neighborhoods argued that the West Virginia workers' compensation system was more like an insurance policy than a taxing statute. The Fourth Circuit held that West Virginia's workers' compensation premiums were involuntary exactions, levied by a state government for a governmental purpose and thus, fit the definition of a tax. That court found particularly persuasive the public benefits derived from imposition of the system and discounted the similarity between the system and a private insurance fund. Id. at 719.
The Sixth Circuit held similarly in the first of two cases involving the same debtor, In re Suburban Motor Freight, Inc., 998 F.2d 338 (6th Cir. 1993) (Suburban I). That court also considered the public policy element and looked to whether there were private insurers with similarly situated claims that would not be accorded priority status because they were not governmental entities. The court was persuaded by the mandatory, monopolistic nature of the Ohio workers' compensation scheme, which precluded a private insurance option, and by the statutory mandate that the system was universally applicable to all similarly situated employers. Id. at 342. In Camilli, The Ninth Circuit also addressed and adopted the reasoning of Suburban I relating to this universality element.
With these recent cases in mind, the court turns to the specific application of the law to the premiums due in this case. Although the payments have some characteristics of insurance, they also easily satisfy the elements of the Feiring/Lorber test. Participation in the program is not contractual, is not undertaken as a fee for services, and is, therefore, involuntary. Clearly, the Wyoming system is imposed by the legislature under its police power authority for the public purpose of protecting injured workers and providing expedient payment of their claims. Further, the system creates a universal obligation for all like employers.
In Wyoming, there is no private insurance option allowed or required. Consequently, there is no private insurer with an unsecured claim that will be treated less favorably than Wyoming if this claim is a priority claim.
These premiums are a pecuniary burden mandated to defray the cost of a worker protection system for employees injured on the job. Similar to the Ohio system, the continued functioning of the
Wyoming system depends on payment of the premiums. Thus, this court agrees with the Fourth, Sixth, and Ninth Circuits that this type of revenue raising exaction fits the definition of an excise tax and is in keeping with the priority scheme of the Bankruptcy Code.
Nonetheless, the trustee urges an approach such as that taken by the court in In re Payne, 27 B.R. 809 (Bankr.D.Kan. 1983). That court held that the Kansas system, which required an employer to obtain private insurance, was more akin to an insurance and subrogation scheme.
This court does not view the Kansas system as similar to Wyoming's mandatory, government operated program. In Wyoming, there is no competition between the state and a private carrier for limited estate funds.
Nor does this court find persuasive the trustee's argument that because all citizens are not similarly charged, these premiums cannot be a tax. An excise tax is an indirect tax imposed upon the performance of a specific act, and there is no requirement that every person be equally charged in order for the exaction to be classified as a tax. New Neighborhoods, 886 F.2d at 719. It is sufficient that all similarly situated employers (in this case, those engaged in extrahazardous occupations) are required to participate to the benefit of the public good.
The court holds that under the standard tests for defining a tax, and under the additional elements of universality, fund solvency, and fair bankruptcy treatment, the premiums are an excise tax and have priority status under § 507(a)(8)(E).
II. Claim Reimbursement
After Air Freight, Inc. failed to pay premiums due under the Worker's Compensation Act, the Division paid a claim filed by one of Air Freight's injured employees. The Division now seeks its reimbursement claim authorized under Wyo. Stat. § 27-14-203(a) as a priority claim under § 507(a)(8)(E). The trustee contends that the reimbursement claim is a subrogation claim not entitled to priority treatment.
The application of the same legal standards apply to this issue. The Sixth Circuit directly addressed the question in the context of an Ohio reimbursement claim in the second In re Suburban Motor Freight, Inc. case. In re Suburban Motor Freight, Inc., 36 F.3d 484 (6th Cir. 1994) (Suburban II). Under the Ohio system, employers can either self-insure or can participate by paying premiums to the state. If the employer is delinquent in paying its premiums, the fund pays an employee claim and seeks reimbursement from the employer. The employer receives a credit against the reimbursement for any premiums recovered.
The Sixth Circuit held that the Ohio reimbursement claim was not an excise tax. Two factors relating to the public purpose element of the Lorber test influenced the court. First, the court found that the pecuniary obligation was not universally applicable to all similarly situated employers. If an employer's premiums were current, there was never a reimbursement claim. Thus, the court likened the claim to a penalty for default, not universally applied and not inuring to the public generally. Id. at 489.
Second, private sureties might also seek reimbursement from Suburban for claims paid. Thus, private creditors were disadvantaged by affording priority treatment to the State of Ohio. Under this analysis, allowing the claim evades the fair distribution purpose of § 507.
The court also found that the reimbursement claim did not serve to enhance the state's claim fund because the state calculated its premium rates based on, among other things, the payment history of the participants. Id. at 490. Therefore, the requirement that the exaction defray the expenses of a government program was not satisfied.
A claim for reimbursement under the Arizona workers' compensation statute has been addressed by two courts with different results. In In re Freymiller Trucking, Inc., the bankruptcy court held that the claim arising from the care of an injured worker was not an excise tax even though the Lorber elements were satisfied. The court found determinative the fact that the Arizona payments, unlike a tax, were not assessed at a fixed rate but, rather, depended on the amount of the worker's benefits paid. The court likened the claim to a judgment obtained by the state. In re Freymiller Trucking, Inc., 194 B.R. at 916. The decision appears to be similar to the requirement in Suburban II that private sureties not be treated differently than the governmental claimant.
In In re Camilli, the Ninth Circuit was addressing the same Arizona statute and, contrary to the courts in Freymiller Trucking and Suburban II, held that a reimbursement claim was an excise tax entitled to priority treatment. The court found that the reimbursement charge was universally applicable to all similarly situated employers. Under the Arizona system, there was no possibility of a private carrier having a similar claim. Further, because Arizona did not have a claim for both the unpaid premiums and for claim reimbursement, there was no possibility that the fund would be overcompensated. In re Camilli, 94 F.3d at 1334.
In Wyoming, there is no private carrier to seek reimbursement for benefits paid under the workers, compensation system. The right to reimbursement creates an involuntary obligation related to a pecuniary loss by the fund.
On the other hand, the Wyoming system is operated so that the annual rate adjustments and the collection of past due payments compensate for fund losses. Thus, the reimbursement claim is not essential to the maintenance of a solvent system and may result in over compensation. The public benefit element is not satisfied if the fund is overcompensated. The claim is very similar to a subrogation claim for a monetary loss.
The trustee also points out that only delinquent employers are subject to this provision, and thoe employers are only required to pay after a worker's claim is allowed. Thus, the obligation takes on a punitive quality which is not uniformly applied to all participating employers, and is "punishment for an unlawful act," i.e., failing to pay premiums. See, U.S. v. Reorganized CF I Fabricators of Utah, Inc., ___ U.S. ___, 116 S.Ct. 2106, 2113 (1996).
As previously stated, if the premiums and the reimbursement claim are both accorded priority status, the fund may be compensated twice, both for the default and for the claim arising from the default. Such a result is contrary to the scheme of claim treatment found in § 507. The court holds that the Division's reimbursement claims are not excise taxes entitled to priority under § 507(a)(8)(E).
III. Interest
Finally, the Division seeks a priority claim for interest which accrued prepetition on its claim for unpaid premiums. The issue is whether the interest is compensation for actual pecuniary loss under § 507(a)(8)(G) or a punitive assessment.
Although the language of Wyo. Stat. § 27-14-203(c) (Supp. 1996) denotes the assessment as "interest," the law is clear that the court must look behind the statutory label and examine the actual effects of the assessment. Id. at 2111. In this case the Division calculated the interest at the statutory rate of 2% per month. The trustee argues that 24% per annum is punitive and not the state's actual monetary loss.
In both In re Cassidy and In re CF I Fabricators of Utah, Inc., 53 F.3d 1155, 1157 (10th Cir. 1995), vacated on other grounds, ___ U.S. ___ 116 S.Ct. 2106 (1996), the Tenth Circuit was concerned with whether an obligation owed to the IRS was a tax or a penalty. Two of the determining factors were the policy behind § 507 and fair distribution to similarly situated creditors, and whether the assessment was punitive in nature. In re Cassidy, 983 F.2d at 164-165. The court found that a tax on an unfunded pension liability was of a punitive nature, not consistent with an excise tax or a pecuniary loss penalty.
In this case, although the rate of the interest is high and there is no evidence of the Division's actual financial loss, this assessment is not similar to the IRS penalties discussed in In re Cassidy and In re CF I Fabricators of Utah, Inc. In those cases, the penalties were in addition to the statutory interest and were clearly calculated to deter wrongful conduct. Nor are these calculations incremental the longer the underlying taxes remain unpaid, such as the Washington taxes which were not allowed priority status in In re Hovan, Inc., 96 F.3d 1254 (9th Cir. 1996).
Additionally, the Wyoming statute provides for a separate penalty under § 27-14-203(d) which is included in any judgment obtained by the Division. Thus, the court concludes that the interest portion of the claim which is calculated against the priority taxes (premiums) is reasonably related to actual compensation for pecuniary loss, and as such is entitled to priority under § 507(a)(8)(G).
The statute is clear that an actual pecuniary loss penalty must relate to a tax allowed priority status under § 507. 11 U.S.C. § 507(a)(8)(G). Accordingly, if any interest is sought on the reimbursement portion of the Division's claim, that interest is a general unsecured claim.
It is ORDERED that the Wyoming Worker's Safety and Compensation Division of the State of Wyoming has a § 507(a)(8)(E) priority claim for all unpaid premiums due prepetition and for the prepetition interest thereon, and a general unsecured claim for reimbursement of awards to injured workers'.