Opinion 85-1

JIM JONES ATTORNEY GENERAL S T A T E O F I D A H O OFFlCB OF THE ATTOilNEY GENERAL BOISE 8 3 7 2 0 TELEPHONE I2081 334-2400 ATTORNZY GEMEIIEIL OPINION NO. 85-1 TO : C o m n i s s i o n e r Morgan Munger I d a h o S t a t e Tax Cominission S t a t e h o u s e M a i l P e r r e q u e s t f o r A t t o r n e y G e n e r a l O p i n i o n . . . . . . QUESTION PRESENTED: Are p e r s o n a l p r o p e r t y t a x l i e n s s u p e r i o r t o p r i o r p e r f e c t e d p u r c h a s e money s e c u r i t y i n t e r e s t s i n t h e same p r o p e r t y ? CONCLUSION: Yes. ANALYSIS: Nothing i n A r t i c l e 9 o f t h e Uniform C o m n e r c i a l Code g o v e r n s t h e p r i o r i t y between t a x l i e n s , which a r e s k a t u t o r y , and A r t i c l e 9 s e c u r i t y i n t e r e s t s . I d a h o Code § 23-9-102(2) s t a t e s : " T h i s c h a p t e r d o e s n o t a p p l y t o s t a t u t o r y l i e n s e x c e p t a s p r o v i d e d i n S e c t i o n 28-9-310 ." I d a h o Code § 28-9-310 d e a l s on1 w i t h t h e p r i o r i t y o f p o s s e s s o r y l i e n s i n goods s u b j e c t s e c u r i t y i n t e r e s t s where t h e p o s s e s s o r y l i e n a r o s e f r f u r n i s h i n g m a t e r i a l s o r s e r v i c e s w i t h r e s p e c t t o s u c h goods. The C o l o r a d o Supreme C o u r t h a s c o n s i d e r e d t h e p r i o r i t p e r s o n a l p r o p e r t y t a x l i e n s c o n p r e 6 t o A r t i c l e 9 s e c u r i t y i n t e r e s t s . I n Moorehead v . J o h n Deere I n d u s t r i a l Equipment Co., 194 C a l o . 3 9 8 , 572 P.2d 1 2 0 7 , 23 UCC Rep. S e r v . 505 (1977, Reh den. 1 9 7 8 ) , t h e c o u r t h e l d t h a t a t a x s a l e o f p e r s o n a l p r o p e r t f o r d e l i n q u e n t p e r s o n a l p r o p s r t y t a x e s v e s t e d c l e a r t i t l e i t h e t a x s a l e p u r c h a s e r a n d e x t i n g u i s h e d a p r i o r l i e n s a encumbrances. The t a x s a l e purchaser was c o m p e t i n g w i t h p r e v a i l e d o v e r a p r i o r p e r f e c t a d s e c u r i t y i n t e r e s t . The Co s t a t e d : Attorney General Opinion Page 2 I t i s an e s t a b l i s h e d p r i n c i p l e of r e a l property law i n Colorado t h a t a t r e a s u r e r ' s deed issued pursuant t o a v a l i d t a x s a l e extinguishes a l l p r i o r l i e n s , encumbrances, and other charges a g a i n s t t h e r e a l property and conveys a new and paramount t i t l e t o t h e grantee.. In enacting t h e present personal property t a x s a l e s t a t u t e i n 1 9 6 4 , t h e General Assembly apparently decided t o track t h e language from i t s r e a l property counterpart. Colo Sess Laws 1 9 6 4 , ch 9 4 , S 137-10-11(7) a t 720. This use of almost i d e n t i c a l language i n d i c a t e s a l e g i s l a t i v e i n t e n t t h a t t h e purchaser a t t h e personal property t a x s a l e should receive t h e sane unencuabered, new, and paramount t i t l e a s t h a t received by a grantee of a t r e a s u r e r ' s deed. We s o hold. Important policy considerations s u p ~ o r t our decision. We note t h e f undamental n e c e s s i t ~ r f o r t h e unimpared c o l l e c t i o n of general t a x revenues f o r t h e support of our government. An i n t e r p r e t a t i o n of t h e s t a t u t e which would render t h e t a x c o l l e c t i o n provisions l e s s e f f e c t i v e should not be adopted unless c l s a r l y indicated by t h e s t a t u t o r y language employed. Thus, we a r e i r r e s i s t i b l y l e d t o t h e conclusion t h a t p u b l i c p o l i c y and p r i o r case law d i c t a t e t h a t a t r e a s u r e r ' s c e r t i f i c a t e of purchase, issued pursuant t o a s a l e of personal property, extinguishes a l l prior l i e n s and encumbrances. 1 9 4 Colo. a t 4 0 1 , 4 0 2 . Although t h e i s s u e addressed by t h e court d e a l t w i t h whether t h e prior s e c u r i t y i n t e r e s t s were extinguished by the t a x s a l e , these r e s u l t s were d e r i v a t i v e from the l i e n p r i o r i t i e s . ~t a l l types of f o r e c l o s u r e s a l e s , higher p r i o r i t y l i e n s a r e preserved, lower p r i o r i t y l i e n s a r e discharged. The Attorney General Opinion Page 3 c o u r t was, i n e s s e n c e , h o l d i n g t h a t t h e t a x l i e n s were f i r s t p r i o r i t y . The c o u r t looked t o t h e t a x s t a t u t e s t o d e t e r m i n e t h e p r i o r i t y . Pre-Code law looked t o t h e s t a t u t e imposing t h e t a x l i e n t o d e t e r m i n e t h e t a x l i e n ' s c o m p a r a t i v e p r i o r i t y . G e n e r a l l y , t h e t a x laws gave f i r s t p r i o r i t y t o t h e t a x l i e n . These i s s u e s a r e d i s c u s s e d i n 3 T. Cooley, The Law of T a x a t i o n , S 1240, pp. 2467-2472 ( 4 t h e d . , 1 9 2 4 ) . P r o f e s s o r Cooley s t a t e s : Not o n l y is it competent f o r t h e s t a t e t o c h a r g e p r o p e r t y w i t h a l i e n f o r t h e t a x e s imposed t h e r e u p o n , b u t t h e l e g i s l a t u r e may, i f i t s h a l l deem it p r o p e r o r n e c e s s a r y t o do s o , make t h e l i e n a f i r s t c l a i m on t h e p r o p e r t y , w i t h precedence of a l l o t h e r . claims. and l i e n s whatsoever, whether c r e a t e d by judgment, mortgage, e x e c u t i o n , o r o t h e r w i s e , and whether a r i s i n g b e f o r e o r a f t e r t h e assessment of t a x , . . . T h i s s t a t u t o r y p r i o r i t y g e n e r a l l y e x t e n d s t o p r i o r mortgage l i e n s s o a s t o s u b o r d i n a t e s u c h l i e n s t o t a x l i e n s . So t h e p r i o r i t y may b e g i v e n t o l i e n s f o r a p e r s o n a l p r o p e r t y t a x . When a p r e f e r e n c e is g i v e n , t h e l i e n does n o t s t a n d on t h e same f o o t i n g w i t h an o r d i n a r y encumbrance, b u t a t t a c h e s i t s e l f t o t h e r e s w i t h o u t r e g a r d t o i n d i v i d u a l ownership, and i f e n f o r c e d by s a l e of t h e l a n d t h e p u r c h a s e r w i l l t a k e a v a l i d and u n i n p e a c h a b l e t i t l e . ( C i t e s o m i t t e d ) , I n o r d e r t o d e t e r m i n e t h e r e l a t i v e p r i o r i t y of p e r s o n a l p r o p e r t y t a x l i e n s , i t i s n e c e s s a r y t o review t h e Idaho s t a t u t e s irnposing t h e l i e n and t h e c a s e l a v i n t e r p r e t i n g t h o s e s t a t u t e s . The b a s i c a u t h o r i t y t o l e v y ad v a l o r e n t a x e s i s given i n A r t i c l e VII, $5 2 , o f t h e Idaho C o n s t i t u t i o n which p r o v i d e s i n r e l e v a n t p a r t a s f o l l o w s : § 2 . Revenue t o b e p r o v i d e d by t a x a t i o n . - - ~ h 2 l e g i s l a t u r e s h a l l p r o v i d e silch revenu? a s may b e n e e d f u l , by l e v y i n g a t a x by v a l u a t i o n , s o t h a t e v e r y p e r s o n o r c o r p o r a t i o n s h a l l pay a t a x i n p r o p o r t i o n t o t h e v a l u e of h i s , h e r , o r i t s p r o p e r t y , e x c e p t a s i n t h i s a r t i c l e h e r e i n a f t e r o t h e r w i s e p r o v i d e d . . . . A t t o r n e y General Opinion Page 4 The importance of t h e s e t a x e s i n t h e scheme of government is d e c l a r e d i n A r t i c l e V I I , S 7, of t h e C o n s t i t u t i o n , which p r o v i d e s : T h i s S 7 . S t a t e t a x e s t o b e p a i d i n f u l l . - - A l l t a x e s l e v i e d f o r s t a t e purposes s h a l l b e p a i d i n t o t h e s t a t e t r e a s u r y , and no county, c i t y , town, o r o t h e r municipal c o r p o r a t i o n , t h e i n h a b i t a n t s t h e r e o f , nor t h e p r o p e r t y t h e r e i n , s h a l l b e r e l e a s e d o r d i s c h a r g e d from t h e i r o r i t s p r o p o r t i o n a t e s h a r e of t a x e s t o b e l e v i e d f o r s t a t e purposes. s t a t e Idaho s e c t i o n h a s been h e l d t o b e self-implementing, Cunningham v. Moody, 3 Idaho 125, 2 8 P. 395 ( 1 8 9 1 ) . I n Kieldsen v. B a r r e t t , 50 Idaho 466, 297 P. 405 (1931) ( h e r e a f t e r , K i e l d s e n ) t h e Idaho Supreme Court h e l d , i n p a r t , t h a t t h i s s e c t i o n mandated f i r s t p r i o r i t y f o r t a x l i e n s . The c o u r t s t a t e d : Tax l i e n s on r e a l p r o p e r t y c a n n o t b e made s u b o r d i n a t e t o o t h e r l i e n s w i t h o u t d i s r e g a r d i n g s e c . 7 , A r t . V I I , of Idaho Const. 50 Idaho a t 472. The c o u r t w e n t on t o h o l d t h a t t h e maximum p r i o r i t y t h e l e g i s l a t u r e c o u l d g r a n t t o o t h e r s t a t e l i e n s was co-equal p r i o r i t y w i t h t a x l i e n s . The c o n s t i t u t i o n a l a u t h o r i z a t i o n s have been implemented and augmented by s t a t u t e . Idaho Code S 63-102 i s t h e s t a t u t o r y f o u n d a t i o n f o r t h e a d valorem t a x s y s t e n . The r e l e v a n t p a r t of t h a t s t a t u t e r e a d s : 63-102. Lien of taxes--All p r o p e r t y s u b j e c t t o assessment s h a l l be a s s e s s e d a n n u a l l y f o r t a x a t i o n . . under t h e p r o v i s i o n s of t h i s a c t , . . . on t h e f i r s t day of J a n u a r y . . . A l l t a x e s l e v i e d ugon r e a l e s t a t ; ? under t h e p r o v i s i o n s of t h i s a c c , s h a l l be a l i e n upon t h e r s a l p r o p e r t y a s s e s s e d , and a l l t a x e s l e v i e d upon p e r s o n a l p r o p e r t y s h a l l b e a l i e n upon t h e p e r s o n a l p r o p e r t y a s s e s s e d and upon any o t h e r p e r s o n a l o r r e a l p r o p e r t y of t h e owner t h e r s o f w i t h i n t h e county where a s s e s s e d , . . . which s e v e r a l l i e n s a t t a c h a s of t h e f i r s t day o f J a n u a r y i n t h a t y e a r , and s h a l l o n l y be d i s c h a r g e d by t h e payment, c a n c e l l a t i o n o r r e b a t e of t h e t a x e s a s p r o v i d e d i n t h i s a c t : . . . (Emphasis a d d e d ) . - * " . - C A t t o r n e y G e n e r a l O p i n i o n Page 5 I d a h o Code § 63-102 g i v e s p r i o r i t y t o a l l a d v a l o r e m t a x e s f o r a l l s t a t e , c o u n t y o r l o c a l p u r p o s e s . The a u t h o r i t y t o e x t e n d p r i o r i t y t o c o u n t y a n d l o c a l t a x e s was u p h e l d i n Bosworth v . Anderson, 47 I d a h o 697, 280 P. 227 ( 1 9 2 9 ) . The s t a t e t a x e s , b y t h e c o n s t i t u t i o n , a n d t h e c o u n t y a n d c i t y t a x e s , by l e g i s l a t i v e d e c l a r a t i o n , a r e p r i o r t o t h e s p e c i a l a s s e s s m e n t , a n d t h i s c o u r t h a s , i n e f f e c t , s o h e l d . ( c i t e s o m i t t e d ) . 47 I d a h o a t 707. The K i e l d s e n c a s e d e a l t w i t h a d v a l o r e m t a x e s on r e a l p r o p e r t y . However, t h e c o n s t i t u t i o n a l p r o v i s i o n r e g a r d i n g p r i o r i t y a n d t h e s t a t u t o r y l a n g u a g e l i m i t i n g d i s c h a r g e t o payment, c a n c e l l a t i o n o r r e b a t e a p p l y - e q u a l l y t o p e r s o n a l - p r o p e r t y a d v a l o r e m t a x e s . AS t h e u n d e r l y i n g p o l i c i e s a r e i d e n t i c a l , t h e r e s h o u l d be n o d i f f e r e n c e between t h e t r e a t z e n t o f r e a l a n d p e r s o n a l p r o p e r t y a d v a l o r e m t a x e s . I n S c o t t i s h American Mortgage Co., L t d . , v . Minidoka County, 47 I d a h o 33, a t 4 1 , 272 P. 498 ( 1 9 2 8 ) , t h e I d a h o Supreme C o u r t i n d i c a t e d t h a t I f f a c e d w i t h t h e i s s u e it would - d e c l a r e t h e p e r s o n a l p r o p e r t y t a x l i e n t o b e f i r s t p r i o r i t y o v e r a n t e c e d e n t encumbrances. S c o t t i s h A n e r i c a n Mortgage g o e s on t o h o l d t h a t where u n c o l l e c t e d p e r s o n a l p r o p e r t y t a x e s a r e e x t e n d e d o n t h e r e a l p r o p e r t y r o l l s , t h e l i e n t h a t a r i s e s i s governed by f i r s t - i n - t i m e , f i r s t - i n - r i g h t p r i o r i t i e s . The c o u r t d i s c u s s e d , b u t d i d n o t d e c i d e , t h e r e l a t i v e p r i o r i t y o f t h e t a x l i e n t h a t a r i s e s when o n e i t e m o f p e r s o n a l p r o p e r t y is e n c u n b e r e d f o r t h e t a x e s a c c r u i n g o n o t h e r items o f p e r s o n a l p r o p e r t y . D e t e r m i n i n g t h a t p e r s o n a l p r o p e r t y t a x l i e n s a r e e n t i t l t e d t o f i r s t p r i o r i t y i s c o n s i s t e n t w i t h t h e s t r u c t u r e of ad v a l o r e m t a x e s . The t a x e s a r e a d i r e c t c h a r g e o n t h e p r o p e r t y r a t h e r t h a n s e c u r i t y f o r a p e r s o n a l l i a b i l i t y . A s no p e r s o n a l l i a b i l i t y i s i n v o l v e d , n o d e t o r n i n a t i o n o f t h e t a x p a y e r ' s i n t e r e s t i n t h e p r o p e r t y i s n e c e s s a r y . The t a x i s a t t a c h e d t o t h e r e s . T h i s r u l e p r e v e n t s p r i v a t e p a r t i e s from d e f e a t i n g t h e t a x by a l l o c a t i n g t h e e n t i r e e q u i t y i n t h e p r o p e r t y t o a p r i o r l i e n h o l d e r . COMCLUSIQM I n I d a h o , p e r s o n a l p r o p e r t y t a x l i e n s a r e e n t i t l e d t o f i r s t p r i o r i t y , e v e n o v e r a n t e c e d e n t encumbrances, i n c l u d i n g p r i o r p e r f e c t e d p u r c h a s e money s e c u r i t y i n t e r e s t s . I d a h o t a x s t a t u t e s p r o v i d e t h i s p r i o r i t y a n d a r e n o t c o n t r a d i c t e d b y A r t i c l e 9 of t h e UCC o r a n y Pre-Code l a w . - I , . . . + - a * - C. . I t _ A t t o r n e y G e n e r a l O p i n i o n P a g e 6 AUTHORITIES CONSIDERED: I d . C o n s t . a r t V I I S S I d a h o Code S 63-102. K i e l d s e n v. B a r r e t t , 5 0 I d a h o 466, 297 P. 405 ( 1 9 3 1 ) B o s w o r t h v. A n d e r s o n , 47 I d a h o 6 9 7 , 280 P . 227 ( 1 9 2 9 ) . S c o t t i s h A m e r i c a n M o r t g a g e C o . , L t d . , v. Minidoka C o u n t y , 47 I d a h o 3 3 , 272 P. 498 ( 1 9 2 8 ) . Cunningham v . Moody, 3 I d a h o 1 2 5 , 28 P. 3 9 5 ( 1 8 9 1 ) . Moorehead v . J o h n Deere I n d u s t r i a l E q u i p m e n t C o . , 1 9 4 C o l o . 3 9 8 , - 5 7 2 P . 2 d 1 2 0 7 , 23 u . C . C . Rep. S e r v . 505 - ( 1 9 7 7 , Reh. d e n . 1 9 7 8 ) . 3 T . C o o l e y , 2467-2472 ( 4 t h L4. DATED t h i s _?n? d a y T h e Law o f T a x a t i o n , § 1 2 4 0 , pp. e d . , 1 9 2 4 ) . I ATTORNEY GENEXAL STATE OF I D A H O P A . U, C . A. DAW D e p u t y A t t o r n e y G e n e r a l CAD: 6 5 3 l J cc: I d a h o S u p r z n e C o u r t Supreme C o u r t Law L i b r a r y I d a h o S t a t e L i b r a r y