Kal W. Lines v. State of California, Department of Employment

This is an appeal from a decision of the District Court in bankruptcy proceedings entitled Matter of Blackwood, 147 F.Supp. 93 . Appellant is the trustee in bankruptcy.

We are here asked to determine whether a trustee in bankruptcy is required to pay to the State of California the tax imposed upon employers by the California Unemployment Insurance Code on wages which had been earned by employees of the bankrupt within the three month period preceding the filing of the bankruptcy petition, when to do so would in effect reduce the dividend paid to the employees out of the bankrupt estate after other expenses .of administration had been paid.

Prior to demand by the state for the tax imposed on employers, it was determined that the value of the estate was only sufficient to pay the expenses of administration and a 52% dividend toward the wage claims. The trustee paid the wage dividend after first deducting state and federal taxes of the employees. There were no remaining assets in the estate from which the employer’s tax on the wages could be paid. The referee in bankruptcy held that the trustee was not obligated to pay the employer taxes, but this holding was reversed by the…