Personal Property Tax Law Changes
(from Maine Townsman, October 2001)
by James Katsiaficas, Senior Staff Attorney, MMA
Administering the personal property tax in Maine always has been more difficult than administering the real property tax. For instance, when personal property taxes are delinquent, a notice of lien must be filed in the Office of the Secretary of State in Augusta rather than at the county Registry of Deeds. Filing a personal property tax notice of lien means filling out a form meant for commercial transactions - a UCC-1 - rather than the real property tax lien forms available from Maine Revenue Service and from commercial printing houses. The lien is not self-foreclosing (as real property tax liens are); collection requires the filing of a civil lawsuit.
As the result of changes to Article 9 of Maine's version of the Uniform Commercial Code (the "UCC") that became effective July 1, 2001, filing, continuing and discharging personal property tax liens have become even more complex. This article is intended to provide municipal officials with the basic information needed to comply with the new filing, continuation and discharge requirements.
First, it may be helpful to review the personal property tax lien process. Under 36 M.R.S.A. § 612, there is a lien to secure the payment of all personal property taxes legally assessed on or after April 1, 1984. This lien, when perfected, "shall take precedence over all other claims on the personal property." While the lien attaches on the date of assessment, it becomes perfected by filing of a notice of lien, signed by the tax collector, within two years from the date of assessment. This lien is effective for a period of five years, may be discharged upon payment by the filing of a discharge (a "termination statement") and may be extended by the filing of a continuation statement. If the taxpayer does not pay the delinquent amounts of personal property taxes, the municipality arguably has several collection options available to it: (1) seizure and sale ("distraint") of the personal property under 36 M.R.S.A. §§ 991, 992, 994 and 996 (which should not be attempted without the assistance of the town attorney in order to avoid claims of an unconstitutional taking); (2) arrest of the taxpayer under 36 M.R.S.A. §§ 993 and 997 (which should not be used at all); and (3) a civil action for collection under 36 M.R.S.A. § 1031 or 1032 (this is the preferred option).
Perfection of a lien on personal property taxes requires the tax collector to file the lien, discharge and continuation statements in compliance with the UCC. 36 M.R.S.A. § 612 requires: that the "inventory and valuation" forming the basis for the assessment must contain a description of the personal property that meets the requirements of 11 M.R.S.A. § 9-1504; that the filing of a lien must comply with § 9-1516; that the filing of a continuation statement must be in the same manner as provided in § 9-1515; and that a discharge is accomplished by the filing of a termination statement in accordance with § 9-1513. These Title 11 sections referred to in 36 M.R.S.A. § 612 are part of Maine's version of Article 9 of the UCC. The UCC is intended to allow for the efficient sale of goods nationwide by providing a common set of laws for each state to adopt (with some modification from state to state) that govern commercial transactions. Under Article 9 of the UCC, when a party is extending credit for the purchase of goods, it perfects its security interest in the goods by filing a financing statement in the appropriate filing office. This "financing statement" is what we refer to as the UCC-1 form.
As noted above, the Second Regular Session of the 119th Maine Legislature made several changes to Maine's version of Article 9 of the UCC. As a result, effective July 1, 2001, the former Article 9 has been repealed and replaced by Article 9-A (P.L. 1999, c. 699). These new sections are found at 11 M.R.S.A. § 9-1101-1709. In the same law, the Legislature made changes to the personal property tax lien provisions of § 612 to make it correspond to the new Article 9-A. The effects of these changes on the personal property tax lien procedures and some suggested ways to cope with them are discussed below.
Place of filing notice of lien. The biggest change caused by the new law involves the place of filing of notices of personal property tax liens. Tax collectors no longer will file a notice of lien in the Office of the Secretary of State in Augusta just because the personal property is located in Maine; instead, they will do so only if the taxpayer is "located" (as defined by Article 9-A) in Maine.
This is because personal property tax liens are filed in the same manner and place as are security interests in goods. As noted above, the personal property tax lien statute, 36 M.R.S.A. § 612, requires the tax collector to file notice of lien pursuant to the provisions of 11 M.R.S.A. § 9-1516. Section 9-1516 states that the financing statement must be filed at a "filing office" to be effective. The definition of "filing office" in § 9-1102(37) is the office designated in § 9-1501. In turn, § 9-1501 states that "if the local law of this State governs perfection of a security interest or agricultural lien," the filing office is: (1) for goods that are or are to become fixtures to real estate, the registry of deeds of the county in which the real estate is located, and (2) for all other goods, the Office of the Secretary of State.
The problem is that the new Article 9-A has changed "the local law of this State" so that financing statements (and therefore notices of tax liens) must be filed where the debtor (taxpayer) is located - not where the personal property is located. Under the old Article 9, a party trying to perfect a security interest in goods located in Maine would do so by filing a UCC-1 financing statement in Maine's Office of the Secretary of State, since the law of the place where the goods were located governed which state's filing procedure would apply. Now, under 11 M.R.S.A. § 9-1301, it is the law of the state in which the debtor is located that governs where a financing statement is filed. Location of the debtor is governed by 11 M.R.S.A. § 9-1307. For an individual debtor, the location is that person's residence. For a debtor that is a corporation or partnership and that has only one place of business, the location is that place of business. For a debtor that is a corporation or partnership and that has more than one place of business, the location is the business' chief executive office. A corporation, limited liability corporation or limited partnership that is organized under the laws of a particular state and as to which public records are kept by the state is known as a "registered organization" and is located in that state.
Therefore, under the new Article 9-A, a financing statement is filed in the Office of the Secretary of State or Registry of Deeds in accordance with Maine's filing procedure if the personal property is that of: an individual whose personal residence is in Maine; a corporation or partnership whose only place of business or chief executive office is in Maine; or a corporation, limited liability corporation or limited partnership that is organized under the laws of Maine. However, if the organization, - corporation, limited liability corporation or limited partnership - is organized under the laws of another state, the financing statement would be filed in that state, even if the organization is registered to do business in Maine and has personal property in the State of Maine.
Because a notice of lien against a taxpayer's personal property is filed in the same manner as is a financing statement, the new Article 9-A leaves the tax collector with two possibilities to perfect a personal property tax lien:
(1) If the taxpayer is "located" in Maine, then Maine's filing procedure applies to the filing of a notice of a lien to perfect the personal property tax lien. The tax collector should file a UCC-1 financing statement form with Maine's Office of the Secretary of State, UCC Division, 148 State House Station, Augusta, ME 04333. 11 M.R.S.A. § 9-1501. The new form, which is a standard national form, will require the person filing the form to determine whether the taxpayer is an individual or an organization, and if an organization, the state under whose laws it is organized, but this is needed in the first place (as stated above) to determine whether the notice of lien is filed under Maine law or under the law of another state.
(2) If, however, the taxpayer is not "located" in Maine, then the tax collector must follow the law of the state in which the taxpayer is located in order to perfect the personal property tax lien. In other words, another state's security interest filing procedure applies to the filing of a notice of a lien to perfect that personal property tax lien. The tax collector should file a UCC-1 financing statement form in accordance with the law of the state under whose laws the taxpayer (corporation, limited liability corporation or limited partnership) is organized or where the chief executive office is located.
UCC-1 form problems. The new national UCC-1 form causes another problem for personal property tax administration. The notice of lien must comply with the personal property tax lien statute, 36 M.R.S.A. § 612. Section 612 requires that the notice of tax lien be signed by the tax collector and that it contain the information required by (name of the owner, if owner is not the taxpayer; owner's residence or business address; taxpayer's residence of business address; property subject to the lien; tax year(s) for which lien is claimed; amount of tax, interest and costs due; and the municipality placing the lien). However, the new UCC-1 financing statement (which must be completed and filed in order to file the notice of lien) contains no space for the tax collector's signature, for the tax year(s) for which lien is claimed and for the amount of tax, interest and costs due. Municipal tax collectors can address this deficiency in the form by attaching an exhibit (labeled "Exhibit A") to the UCC-1 form that states the tax year(s) for which lien is claimed and the amount of tax, interest and costs due, and which is signed by the tax collector.
Other requirements. In filing notices of tax liens, tax collectors must be sure to provide an adequate description and, if they want the municipal tax lien to have super-priority over all other interests, must be sure to notify all other holders of a security interest in the liened personal property.
Title 11 M.R.S.A. § 9-1504 requires that the notice of lien contain a description of the personal property taxed which meets the requirements of 11 M.R.S.A. § 9-1108. This section states that a description of personal property is sufficient if it reasonably identifies the property by specific listing; by category; by type; by quantity; by computational or allocational formula or procedure; or by any other method if the property's identity is objectively determinable. However, descriptions such as "all of the taxpayer's assets" or "all of the taxpayer's personal property" do not reasonably identify the property.
Title 36 M.R.S.A. § 612 requires the municipality to send a copy of the notice of lien by certified mail return receipt requested, to the taxpayer (and to the owner, if the owner is not the taxpayer) at the last known address and to any secured party with a recorded security interest. If the municipality has to record the notice of lien in another state, this will require the municipality to research the lien files in that state in order to know whether it must send copies to any secured parties, which will result in additional costs for personal property tax administration.
CONTINUING THE LIEN
A financing statement, and therefore a personal property tax lien, is effective for five years after the date of filing. To continue a personal property tax lien in effect, the municipality must file a continuation statement in accordance with 11 M.R.S.A. § 9-1515. As was the case under Article 9, in general, the continuation statement must be filed at least six months prior to expiration of this five-year period. The new UCC form for this purpose also lacks a space for the tax collector's signature.
DISCHARGING THE LIEN
To discharge a personal property tax lien (because it was paid, or because it was filed erroneously), the municipality must file a termination statement in accordance with 11 M.R.S.A. § 9-1513. State law requires a mortgagee to record the release of a mortgage within 60 days after full performance of the conditions of the mortgage, and imposes a penalty of $200 per week up to the limit of $5,000 for failure to comply with this requirement. 14 M.R.S.A. § 551. While this statute may not apply to municipal real property tax lien mortgages and the personal property tax lien is not in the nature of a mortgage, it would be prudent to promptly file termination statements when appropriate since the statute also requires that all discharges of recorded liens be recorded by written instrument.
The transition from the old Article 9 to the new Article 9-A raises some legal and practical concerns.
From the legal perspective, a concern is the effectiveness of a notice of lien filed before July 1, 2001 where the taxpayer, subsequent to filing of the notice of lien, has reorganized under the laws of another state or has moved its chief executive office to another state. Title 11 M.R.S.A. § 9-1316 provides that the security interest remains in effect until the earliest of: the time perfection would have ceased, four months after a debtor's change of location, or one year after the transfer of collateral to another person located in another jurisdiction. Therefore, it appears that a municipality now will have to keep track of the legal status, acquisition and office location of any corporations, limited liability corporations and partnerships against which it may have filed property tax liens to ensure that they can be filed promptly in appropriate jurisdictions before they expire.
From a practical perspective, it may become more expensive for municipalities to administer personal property taxes. In the past, municipalities had paid a single fee to the Secretary of State's office for filing the notice of lien, and no fee was charged for filing a termination. However, that Office now charges a separate fee for each filing. Therefore, if a municipality wishes to file a termination statement after July 1, 2001 based upon a notice of lien filed before that date, it now must pay an additional fee. Because this additional fee was not built into the interest, fees and costs charged by the municipality, it may represent a new and unrecoverable cost that the municipality may have to bear in order to fulfill its legal duty to promptly discharge the lien upon the taxpayer's payment of outstanding personal property taxes secured by the lien, plus interest and costs.
In short, an already complex area of municipal tax collection has been made more complex because of changes to a commercial code that itself is intended to make the sale of goods more uniform, simple and efficient. However ironic this situation is, it will not change, since the drafters of the national commercial code are not concerned about the effects these changes have on Maine's system of personal property tax collection and administration. Therefore, until Maine's Legislature abolishes the personal property tax (and reimburses municipalities for the resulting loss of revenues) or enacts a different system for placing liens on personal property, municipal officials should become familiar with the new requirements described in this article.