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Business Taxes Law Guide—Revision 2024
Sales And Use Tax Court Decisions
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Harleston v. State Board of Equalization … (In re Harleston)
Board Waived Eleventh Amendment Sovereign Immunity by Filing Proof of Claim in Bankruptcy Case.
The Board filed a proof of claim for unpaid taxes in the Debtors' chapter 13 bankruptcy case. The Debtors objected to the Board's claim. The bankruptcy court set the issue of the claim's secured status for an evidentiary hearing. The Debtors' case converted to chapter 7 before the evidentiary hearing. After the Debtors received their discharge, the Board commenced collection action. The Debtors filed an adversary complaint seeking a judgment that would discharge their tax debt. The Board asserted its Eleventh Amendment sovereign immunity and moved for judgment on the pleadings. The bankruptcy court denied the motion. The Bankruptcy Appellate Panel affirmed and the Board appealed to the Ninth Circuit. The Ninth Circuit, citing the rule of Gardner v. New Jersey, 329 U.S. 565 (1947) , held that when a state files a proof of claim, it waives its sovereign immunity with respect to adjudication of that claim. Furthermore, the scope of the waiver extends to claims that arise from the same transaction or proceeding, so the bankruptcy court had jurisdiction to determine the dischargeability of the debt. State Board of Equalization v. Harleston (In re Harleston), 331 F.3d 699. (2002).