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In re BROWN.

No. 4738.

District Court, S. D. Ohio, E. D.

Feb. 20, 1926.

The opinion of Frederick N. Sinks, Referee, on claim of county treasurer for taxes, is as follows:

This matter has been submitted on the question of the right of the county treasure!* of Fayette county to collect penalties on taxes due on certain real estate heretofore belonging to the bankrupt herein.

The trustee claims that the treasurer cannot collect the penalties assessed, while the county treasurer maintains that he is entitled to them.

The decision in this matter involves the construction of section 57j of the Bankruptcy Act (11 USCA § 93) as interpreted by the courts. The difficulty of applying this statute seems to arise not so much from the language of the section itself as its application to different states of fact.

In the ease of People of State of New York v. Jersawit, decided by the Supreme Court of the United States in January, 1924, and found in the 263 U. S. 493, 44 S. Ct. 167, 68 L. Ed. page 405, it was held that the 10 per cent, upon the amount of the tax, plus 1 per cent, per month imposed by the New York statute for the neglect to promptly pay a corporate franchise tax, are penalties and should be disallowed by the provisions of the Bankruptcy Act.

To the same effect is the decision of Judge Westenhaver for the Northern District, rendered in the ease of In re Portage Rubber Co., which case subsequently went to the Court of Appeals and will be found in 288 F. page 182.

' It is true the Court of Appeals did not pass upon this question, but the order entered by Judge Westenhaver, as shown by the original records in the District Court, copies of which are in the possession of the Attorney General of the state of Ohio, specifically provided that the penalty assessed by the state of Ohio on the franchise tax should be disallowed.

In re Scbeidt Bros. (D. C.) decided by Judge Sater, found in 177 F. 599, 23 A. B. R. 778, would seem to be contrary to the foregoing rules. However, -a consideration of the *229ease discloses that the tax there under consideration was a personal, not a real tax, and the Ohio statute there referred to does not provide for interest on the personal tax, and the court therefore construes the penalty to be in lieu of interest. No such question arises in the instant ease, because interest has been added to the claim of the county treasurer for taxes, plus the penalty. There is therefore a substantial difference in the two eases.

In view of the foregoing, I am of opinion that the county treasurer of Fayette county is entitled to collect the amount of the taxes, plus interest to the date of payment, but without any penalty and it is accordingly so ordered.

Tom S. Maddox and Ra,y R. Maddox, both of Washington C. H., Ohio, for County Treasurer of Fayette County, Ohio-.

D. C. Badger, of Columbus, Ohio, • for trustee.

HOUGH, District Judge.

Report of Referee approved and confirmed under construction section 57j, Bankruptcy Act, and upon the authority of People v. Jersawit, 263 U. S. 493, 44 S. Ct. 167, 68 L. Ed. 405.

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