May 13, 2010

Creditor Liens and Delinquent Taxes on Personal Property

IC 6-1.1-23-1(c)-(g) requires creditors who come into possession of personal property that is subject to an adjudicated tax delinquency to pay the appropriate county treasurer a certain amount of the delinquent taxes pursuant to a predetermined formula. To the extent that manufacturers become creditors when selling their goods to end users, they may be liable for delinquent property taxes if they repossess and liquidate goods to satisfy debts owed to them by the end user.

The statute only applies to personal property that (1) is the subject of a creditor's lien after June 30, 2005, (2) comes into the possession of the creditor, or their agent, (3) has an assessed value of more than $3,200, and (4) has an adjudicated tax delinquency filed against it. As soon as practicable after the creditor comes into possession of the property, the creditor is required to obtain County Form 143C from the appropriate county treasurer. In order to obtain the form, the creditor must give the county treasurer the name and address of the debtor and a specific description of the property in question. Before transferring the subject property, the creditor must file the form with the county treasurer.

Compliance with the statute, from a process perspective, appears to take the following path. First, the creditor comes into possession of the personal property and requests County Form 143C from the county treasurer. Second, the creditor liquidates the personal property, but does not transfer the personal property to the buyer nor apply any of the liquidation proceeds against the debt owed to the creditor. Third, the creditor fills out the necessary information, which includes the amount received from the liquidation and the direct costs required to liquidate the subject property, signs the form and files the form to the county treasurer. Fourth, once the filing has taken place, the creditor may transfer the subject property to the buyer in liquidation. Fifth, the county treasurer makes the calculation of tax due by the creditor, and notifies the creditor of the tax due. Sixth, the creditor remits the tax due to the county and applies the remainder to the debt owed to the creditor.

The statute does not provide a county treasurer or the Indiana State Board of Accounts any authority to enforce this statute, and regulations have not been adopted regarding the statute. The scheme relies on voluntary compliance of creditors. There does not appear to be any structure by which a county treasurer could learn that the creditor has taken possession of and sold the subject property, triggering application of the statute. Conversely, there is no affirmative duty placed upon a creditor to discover whether or not personal property that it has possessed for liquidation has an adjudicated tax delinquency. Lastly, there is no appeal mechanism, short of legal action, that a creditor can utilize to challenge a county treasurer's calculation of the formula.

Because of the requirements facing a creditor to proceed through the above process, a creditor's desire to come into possession of personal property upon which it has a lien may be substantially lessened. The creditor may elect to use judicial process to foreclose a lien and recover from collateral (which does not appear to trigger the statute) as opposed to exercising self help remedies under the Uniform Commercial Code (that could trigger the statute). Of course, this cost-benefit analysis would be fact sensitive to the total debt owed, the market for the personal property in liquidation, the total tax delinquency, and transaction costs.

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