Case CSS Doc 541 Filed 07/07/15 Page 1 of 5 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case CSS Doc 541 Filed 07/07/15 Page 1 of 5 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Baxano Surgical, Inc. Case No (CSS Debtor Obj. Deadline July 10, :00 p.m. Hearing: August 12, :00 a.m. RESPONSE OF OHIO DEPARTMENT OF TAXATION TO FIRST OMNIBUS OBJECTION OF THE DEBTOR (SUBSTANTIVE OBJECTION - RECLASSIFICATION OF CLAIMS AND REDUCTION AND/OR DISALLOWANCE OF CLAIMS The Ohio Department of Taxation, ( Ohio Tax, through its attorney, Donn D. Rosenblum, Assistant Attorney General of Ohio, hereby responds to the Debtor s ( Debtor First Omnibus Objection of the Debtor (Substantive Objection Reclassification of Claims and Reduction and/or Disallowance of Claims. 1. The Debtor asserts that claim number 43 filed by Ohio Tax (the "Claim should be disallowed on the basis that the claim amount does not agree with the Debtors books and records. 2. Ohio Tax asserts that the objection should be overruled and the Claim should be allowed in full as filed. Sales tax penalties are assessed pursuant to Ohio Rev. Code (A. Interest on sales tax assessments is assessed pursuant to Ohio Rev. Code (B. Penalties for filing withholding tax returns filed after the due date are assessed pursuant to Ohio Rev. Code (A and interest is imposed pursuant to Ohio Rev. Code (A. The Claim includes unpaid sales tax plus statutory interest and penalties. 3. The Claim has two components; (1 Employer Withholding Tax and (2 Sales Tax.

2 Case CSS Doc 541 Filed 07/07/15 Page 2 of 5 a. Employer Withholding Tax represents a late filing penalty because the return, although filed, was not timely filed. The late filing penalty of $50.00 is statutory and listed in the Claim as a general unsecured claim. b. The Sales Tax portion of the Claim is based on a filed return and includes a late payment penalty and additional penalties because, not only was the return not timely filed, the tax was not timely paid. The sales taxes of $94.51 reported by the Debtor and the pre-petition interest of $0.62 are properly claimed as priority claims pursuant to 11 U.S.C. 507(a(8(D. The penalties are properly listed as general unsecured. 4. Since the sales tax amount listed on the Claim is based upon a filed sales tax return and the only other amounts listed on the claim are statutory interest and penalties for not having timely filed required returns or timely paid the taxes, the basis for the Debtor's objection is not clear. 5. [T]he basic federal rule in bankruptcy is that state law governs the substance of claims. Congress left the determination of property rights in the assets of a bankrupt's estate to state law; unless some federal interest requires a different result. There is no reason why the state interests should be analyzed differently simply because an interested party (a debtor-in-possession or trustee is involved in a bankruptcy proceeding. Raleigh v. Ill. Dep t of Revenue, 530 U.S. 15 (U.S ; Butner v. United States, 440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 2d 136 ( In Ohio, the taxpayer has burden of proof to show that a determination by the Tax Commissioner is incorrect as "the Tax Commissioner's findings 'are presumptively valid, absent a demonstration that those findings are clearly unreasonable or unlawful." Satullo v. Wilkins, Tax Commr. 111 Ohio St.3d 399, 15 (2006 (citing Nusseibeh v. Zaino, (2003, 98 Ohio St.3d 292. The Debtor is required to produce evidence to show that the sales and withholding tax

3 Case CSS Doc 541 Filed 07/07/15 Page 3 of 5 returns were timely filed, that the taxes were timely paid and, as to the withholding portion of the Claim, the amount listed on the Claim is incorrect. 7. In claims litigation in bankruptcy, the burden of proof shifts based upon the evidence produced. FRBP Rule 3001(f provides that "A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the amount and validity of the claim." The burden then shifts to the objecting party, here the Debtor, to produce sufficient evidence to negate this prima facie validity of the claim. In re Allegheny Int l, Inc., 954 F.2d 167, 173 (3d Cir VFB LLC v. Campbell Soup Co., 482 F.3d 624 (3 rd Cir citing In re Allegheny Int l. Inc., 954 F.2d 167, 173 (3 rd Cir In this case, the Claim is prima facie evidence of its validity which shifts the burden to the Trustee to come forward with evidence "equal in force" to rebut the prima facie case. See In re Consol. Pioneer Mortgage, 178 B.R. 222, 226 (9th Cir. BAP 1995, aff'd, 91 F.3d 151 (9th Cir (quoting Allegheny Int'l, Inc., 954 F.2d 167 at Here, Debtor's bare assertion that the [C]laimed amount does not agree with the Debtor's books and records" without any evidentiary proof showing the dates the returns were filed, date(s the sales taxes and other payments were remitted or that the amounts the Debtor reported to Ohio Tax are not correct, is insufficient to meet the Debtor's burden. 9. The Trustee s bare assertion is not evidence; it does not refute the prima facie validity of the Claim. The Claim is valid as filed. The Objection should be denied. WHEREFORE, the Debtor s Objection to claim no. 43 must be denied.

4 Case CSS Doc 541 Filed 07/07/15 Page 4 of 5 Dated: July 7, 2015 MICHAEL DEWINE Attorney General of Ohio DONN D. ROSENBLUM (OH Bar Reg. No Assistant Attorney General 150 East Gay Street, 21 st Floor Columbus, OH Tel: ( Fax: ( donn.rosenblum@ohioattorneygeneral.gov Attorney for State of Ohio, Department of Taxation CERTIFICATE OF SERVICE I hereby certify that on July 7, 2015, copies of the foregoing Response of Ohio Department of Taxation to the First Omnibus Objection of the Debtor Pursuant to 502 and 507, Fed. R. Bankr. P. 3007, and Del. Bankr. L.R (Substantive Objection Reclassification of Claims and reduction and/or Disallowance of Claims were served via electronic mail, the Court's ECF or Ordinary U.S. Mail or electronic mail upon: Electronic Mail John D. Demmy jdd@stevenslee.com John C. Kilgannon jck@stevenslee.com Robert Lapowsky rl@stevenslee.com Leo T.Crowley leo.crowley@pillsburylaw.com Matthew R. Koch mkoch@mnat.com Ordinary U.S. Mail Baxano Surgical, Inc. Cole, Shotz, Meisel, Forman & Leonard, P.A. Attn: John L. Palmer Attn: Stuart Komrower, Ilana Volkov c/o Tamarack Associates, Inc. 25 Main Street 1441 Knightsbridge Dr. Hackensack, NJ Blue Bell, PA Donn D. Rosenblum Assistant Attorney General of Ohio

5 Case CSS Doc 541 Filed 07/07/15 Page 5 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 Baxano Surgical, Inc., et al., Case No (BLS Debtors.. I, Donn D. Rosenblum, hereby certify as follows: 1. I am a Principal Assistant Attorney General for the State of Ohio. 2. I am admitted to practice by the Supreme Court of Ohio, U.S. District Court for the Northern District of Ohio, U.S. District Court for the Southern District of Ohio, United States Sixth Circuit Court of Appeals, U.S. District Court for the Western District of Pennsylvania and the Supreme Court of Pennsylvania. 3. I am in good standing in each jurisdiction in which I have been admitted to practice, except that with respect to the Supreme Court of Pennsylvania I voluntarily changed my status to inactive effective July 1, 2009 with no disciplinary action pending. I have maintained my "inactive" status through the date of this certification. 4. I will be bound by the Rules of this Court and I submit to the jurisdiction of this Court for disciplinary purposes. 5. This certificate is intended to comply with the provisions of Rule (c(ii of the Local Rules of the United States Bankruptcy Court for the District of Delaware allowing the appearance of government attorneys without the necessity of obtaining local counsel. Date: July 7, 2015 Donn D. Rosenblum (OH # Principal Assistant Attorney General 150 East Gay Street, 21 st Floor Columbus, OH Tel ( ; Fax ( donn.rosenblum@ohioattorneygeneral.gov