Belmont Law Review


In most states, counties are allowed to tax personal property and may attach liens to the personal property if the taxes are not paid. However, secured creditors may already have a lien on the same personal property, which they perfected by making the appropriate filing as set forth by the Uniform Commercial Code (the “UCC”). The laws that control the relative rights of the counties and the secured creditors vary widely among states. In some states, despite a creditor’s apparent priority under the UCC, a county’s lien can override a creditor’s prior lien, even without any registration or opportunity for the creditor to discover the county’s lien. Some states also allow counties to attach liens to property in other counties in the state. The conflict between the rights of the counties and the rights of the secured creditors comes up most often in the context of repossession by the creditor. When the creditor repossesses and liquidates its collateral, the law often requires that creditor to repay delinquent taxes to the county. However, the creditor may not even be able to discover if any taxes were due until pursued by the county. Furthermore, in some states, a creditor who repossesses and liquidates collateral may be forced to pay the county up to the entire amount to satisfy the taxpayer’s outstanding personal property taxes, regardless of whether those taxes reflected amounts due on that creditor’s collateral or whether it was based on taxes due on other property. Because of the unpredictability and financial burden on creditors in states with such laws, this Note argues that some states should reconsider their current laws to more appropriately balance the interests of the creditors with the interests of the counties. This Note argues for objectively balancing the interests of the parties, keeping in mind the counties’ legitimate need to collect taxes while incorporating the creditors’ need for predictability and fair treatment. In order to understand the perspective and normal expectations of the secured creditors, this Note first examines how their security interests usually work under the UCC absent any government tax liens. Section I starts with explaining UCC Article 9, which governs secured transactions in all fifty states, and the special type of security interest known as a purchase money security interest (“PMSI”). The Section will examine how Article 9 normally dictates priority among secured creditors. Next, in Section II, the state laws that control the rights of counties and secured creditors are broken down into four dimensions: priority, discoverability, scope, and apportionment. The Section examines each of these four dimensions and explores the variations that exist among the states. Next, in Section III, this Note analyzes the laws in several states that have recently had changes in their laws related to personal property taxes. This brings together the four dimensions to illustrate how they can be combined in ways that are more favorable to counties or more favorable to creditors. Finally, in Section IV, this Note presents the best practice model that states ought to adopt to balance the interests of the counties and the secured creditors fairly and explains why the proposed rules are the fairest and most practical approach.