Personal property tax liens differ from real property tax liens in that personal property tax liens do not automatically attach to the property assessed.
Upon assessment, and under certain circumstances, personal property taxes may constitute an automatic lien on real property belonging to the owner of the personal property assessed, but not a lien on the personalty itself. Thus, in a bankruptcy context or other priority of liens contest as to personal property, personal property tax liens are subordinate to senior perfected liens, including financing security interests.
The reason is that California’s Revenue and Taxation Code does not specifically provide that a tax on personal property constitutes an automatic lien on the personal property assessed.
The California Supreme Court addressed this issue in T. M. Cobb Co. v. County of Los Angeles, 16 Cal.3d 606, 618 -620 (Cal. 1976). The Court analyzed the California tax code and explained that a taxing authority in California has four ways of collecting unsecured personal property taxes.
First, the taxing authority may sue the taxpayer for the recovery of delinquent taxes or assessments, with penalties and costs. (Section 3003) If the taxing authority obtains a lien, the lien is subordinate to the rights of all prior lien holders pursuant to Section 2897.
Second, the official collecting taxes on the unsecured roll may file in the office of the county clerk a certificate specifying certain facts and obtain a summary judgment against the taxpayer entered by the court clerk without a hearing. This procedure results in a judgment lien against all property in any county where the lien is filed, and any such property acquired in the next 10 years. (Section 3101 et seq.; Section 3103) Again, the lien is subordinate to the rights of all prior lien holders pursuant to Section 2897.
Third, the tax collector or assessor may file a certificate of delinquency for record in the county recorder’s office. (Section 2191.3 and 2191.4) From the time of such filing the amount required to be paid together with interest and penalty “constitutes a lien upon all personal and real property in the county owned by and then assessed to and in the same name as the taxpayer named in such certificate or acquired by him in such name before the lien expires.” A lien obtained this way is subordinate to any other lien prior in time under section 2191.5.
The fourth method of collection is found in Sections 2914-2921, which permit the tax collector to seize and sell any personal property “belonging or assessed to the assessee.” Though the tax collector’s power seems broad, the Court in the T.M. Cobb Co. case pointed out an important limitation on the ‘seize and sell’ power granted to the tax collector for personal property taxes.
Relying on basic principles of statutory construction, the Court noted that if the Legislature intended to create a superior lien on personal property to secure the collection of taxes, it would have done so by explicit language to that effect. Since the Legislature did not provide for personal property tax liens to be superior to other liens, then there is no basis for a tax collector to claim a super-priority lien over prior existing liens on a taxpayer’s personal property.
The bottom line of the Court’s ruling in the T.M. Cobb Co. case is that while a personal property tax collector may seize personal property belonging to or assessed to the taxpayer, the tax collector’s claim is subordinate to any prior existing liens on the personal property, so the tax collector must defer to superior lien holders before disposing of seized property.
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