Lindsay K. Taft


In June of 2008, in Florida Department of Revenue v. Piccadilly Cafeterias, Inc., the Supreme Court settled a circuit split and issued a bright line rule stating that asset transfers made prior to the confirmation of a Chapter 11 plan of reorganization no longer benefit from certain tax exemptions. As a result, the cost of selling assets in a bankruptcy case outside of a plan will increase. The provision at issue in the case, which exempts asset transfers and sales from certain state taxes, contains language ambiguous enough that four federal circuit courts have contemplated which types of asset sales qualify for the tax benefit. Although the Supreme Court set a bright line rule that brings clarity and simplicity to the provision, the Court ignored the intent behind the provision, and the Court’s decision may ultimately result in the exemption’s obsolescence. As a result, Congress should adopt a revised provision that nullifies the Supreme Court’s Piccadilly decision in order to stay true to the purpose behind the Code. This Comment analyzes the Piccadilly opinion and its practical effects. Part II discusses the history and purpose of the stamp tax exemption within the Bankruptcy Code. Part III discusses the circuit split resolved by Piccadilly and addresses the problems each side presents. Part IV first presents the background and procedural history of Piccadilly and then summarizes the Supreme Court’s creation of the bright line rule and decision to limit the tax exemption to post confirmation transfers. Part V critiques the Court’s decision and suggests that Congress reject the Supreme Court’s bright line rule and revise the statute to remove the temporal limitation and add a notice provision. In addition, Part V addresses the suggested revision’s application and its potential pitfalls. Finally, Part VI concludes and briefly comments on the future impacts of the decision.