West
Virginia2
[61-1 USTC
¶9337]
Rob
ert L. Shuman, Plaintiff v. John A. Field, Jr., State Tax Commissioner,
and P. L. Charles, District Director of Internal Revenue, Defendants
W.
Va. Circuit Court, Monongalia Cty., In Chancery, No. 9345, 1/12/61
[1954 Code Sec. 6323]
Lien for taxes: Intervenors: Determination of priority: Federal tax
lien v. State lien for unpaid employment security contributions:
Interpleader's attorney fees.--The State of West Virginia's claim
for unpaid employment security contributions, which was reduced to
judgment on February 17, 1957, was superior to the U. S. Government's
tax lien which was filed April 4, 1957. However, the Government's lien
was superior to the State's claim for unpaid employment security
contributions which were reduced to judgment on
August 6, 1957
. Attorney fees of interpleading plaintiff were allowed against the
respective shares of the Government and the State of
West Virginia
in proportion to their participation in the deposited amount.
Stanley R.
Cox, Jr.,
Morgantown
, W.
Va.
, for plaintiff. Albert M. Morgan,
United States
Attorney,
Fairmont
, W.
Va.
, for
United States
. Herman E. Rubin, Charleston, W. Va., for State of West Virginia,
Department of Employment Security, F. Duane Hill, Director.
Final
Decree
EDDY, Circuit
Judge:
This 5th day
of January, 1961, came the plaintiff
Rob
ert L. Shuman and his attorney Stanley R. Cox, Jr., and came also the
United States of America by Albert M. Morgan, United States Attorney,
and the State of West Virginia, Department of Employment Security, F.
Duane Hill, Director, by Herman E. Rubin, its General Counsel,
intervening petitioners, and this cause being now submitted.
Upon
consideration of the pleadings filed and proceedings had herein, and in
further consideration of the representations of counsel, and it
appearing to the Court that plaintiff deposited with the Clerk of this
Court on July 22, 1959, the sum of $3,221.12, the same being the excess
proceeds of sale in his hands as Trustee from his sale of certain real
estate under deeds of trust executed or assumed by Vamco, Inc., a
corporation; and it further appearing that the United States of America
and the State of West Virginia, Department of Employment Security, are
prior lien creditors of Vamco, Inc., that each intervenor has certain
valid liens and claims against said deposited sum, and that said
deposited sum should be disbursed, until exhausted, to said lien
creditors in proper order of priority, subject to the payment of costs
and attorney fees, as prayed for in plaintiff's said bill. And the Court
being advised in the premises and having considered of its judgment, and
there being no objection thereto, it is
ADJUDGED,
ORDERED AND DECREED that the following are the proven liens and prior
claims against said deposited sum of $3,221.12, which will exhaust said
sum, and the order of their priority:
First:
Claim of State of
West Virginia
, Department of Employment Security, for unpaid contributions, in the
amount of $634.00, reduced to judgment
February 17, 1957
, with interest at rate of one percent per month as in said judgment
provided, to
July 22, 1959
, date of said deposit, in amount of $291.35, totalling $925.35.
Second:
Claim of Internal Revenue Service, in the amount of $1654.58, for unpaid
withholding taxes, and return check penalty in the amount of $17.83,
lien therefor filed
April 4, 1957
, with interest to
July 22, 1959
, date of said deposit, in amount of $239.39, totalling $1911.80.
Third:
Claim of State of
West Virginia
, Department of Employment Security, in the amount of $588.78, for
unpaid contributions, reduced to judgment
August 6, 1957
, with interest at rate of one percent per month as in said judgment
provided, to
July 22, 1959
, date of said deposit, an amount of $166.32, totalling $755.10 (of
which $383.97 exhausts said deposited amount).
It is further
ADJUDGED, ORDERED AND DECREED that plaintiff's attorney, Stanley R. Cox,
Jr., be and he is hereby allowed an attorney fee in the amount of
$250.00, which amount, together with the costs of this suit, shall be
paid out of the respective shares of said lien creditors, in proportion
to their participation in said deposited amount, and accordingly it is
ADJUDGED,
ORDERED AND DECREED that the Clerk of this Court shall pay and disburse
the said deposited sum of $3,221.12 as follows:
1.
$1752.74 to the Internal Revenue Service to be applied toward
satisfaction of the above tax liens against Vamco, Inc., said sum being
the claimed amount less $159.06, or 59.35% of the costs and fees
assessed herein.
2.
$1200.38 to State of
West Virginia
, Department of Employment Security, to be applied toward satisfaction
of the above State liens against Vamco, Inc., said sum being the claimed
amounts, until exhaustion of the fund, less $108.95, or 40.65% of the
costs and fees assessed herein.
3.
$250.00 to Stanley R. Cox, Jr., for attorney fees.
4.
$18.00 for costs of this suit to said Clerk.
[37-2 USTC
¶9422]Berrymont Land Company v. Davis Creek Land & Coal Company
West
Virginia Supreme Court of Appeals, No. 8415, 119 WVa 186, Decided June
26, 1937
Priority of liens: State v. Federal.--Where the Federal
Government did not assert its lien for unpaid income taxes for 1920
until after such time as the title to certain land was in the State
because of taxpayer's failure to pay State and local levies assessed
thereon, and where there are no funds in the hands of the court which
can be legally applied to the claim of the Government, it is held that
the lien of the State takes priority in the distribution of proceeds
realized from the sale of such property. Affirming decree of Court of
Common Pleas.
[Question]
FOX, Judge:
The sole
question in controversy is the distribution of the sum of $2,611.27,
realized from the sale of real estate formerly owned by the defendant
company, and now in the hands of the Court of Common Pleas of Kanawha
County. This fund is claimed by both the United States Government and
the State of
West Virginia
, under tax liens asserted by them, respectively, in this cause. The
claim of the government is for 1920 income tax which has been determined
to be $19,660.80; that of the state is $1,814.17, made up of land
property tax for the years 1924 to 1928, both inclusive, aggregating
$1,569.97; 1926 corporation license tax $192.00; and 1926 gross sales
tax, $52.20. In view of the conclusion we have reached, it is difficult
to find grounds for the sale of the real estate from which the fund in
dispute arises, the state not being a formal party to the proceeding in
which its property was sold, although at the time of the entry of the
final decree, the Attorney General appeared in the cause on behalf of
the state. This question not being raised on the record, we have treated
the fund in question as representing the land upon which the liens
asserted originally attached.
[Facts]
On
April 15, 1921
, the defendant company filed its income tax return for the year 1920,
and in that month, the Commissioner of Internal Revenue assessed taxes
against said company, based on said return, in the amount of $23,860.82,
and an additional claim was subsequently made by the government. Notice
of the original assessment was filed in the office of the Clerk of the
District Court of the
United States
for the southern district of West Virginia, on
November 17, 1923
, under the provisions of Section 3186 of the Revised Statutes of the
United States
. No action was taken by the government to enforce the lien created by
said section until after the institution of this suit. Its claim was
then presented and filed herein; litigation ensued with respect to the
amount thereof, which was finally ascertained to be as stated above, and
is not now in dispute. 110 W.
Va.
305, 158 S. E. 651.
The real
estate of the defendant company, from a sale of which the fund in
dispute was realized, was assessed with state and local taxes for the
year 1924, and said taxes not being paid, was regularly returned
delinquent, thereafter sold by the Sheriff of Kanawha County for said
delinquency, purchased by the State of West Virginia, and not redeemed
within one year from date of sale, whereby the title thereto became
vested in the state under the provisions of statutes then in force. The
same procedure was followed with respect to the taxes for the year 1925,
although, of course, there could be but one vesting of title in the
state, and that took place under the sale for the taxes of the year
1924. This suit was instituted on the 9th day of February, 1927, after
the vesting of the title to defendant company's real estate in the state
had resulted from the delinquency and tax sale aforesaid. At the date of
the institution of this suit, and at the time of the appointment of the
special receiver for the property of the defendant company, the title to
its real estate being vested in the State of West Virginia, never at any
time passed into the legal control of the Court of Common Pleas of
Kanawha County or its special receiver.
[Government's
Lien Lost]
The government
perfected its lien before the taxes, which are the basis of the state's
claim of title, were assessed. This was a general lien, not covering
specific property, and not being asserted while the title to the
property in question remained in the defendant, which we think was lost,
and cannot now be asserted against the proceeds, of the sale of
property, the title to which was, and, so far as the record discloses,
is still vested in the state. Under our decisions, the rights of lienors
are precluded by a sale for taxes, and the purchaser who obtains title
to real estate thereby holds the same free from liens binding thereon at
the date of sale. Summers v.
Kanawha
County
, 26 W.
Va.
159. We know of no reason why the government is not amenable to the rule
governing private lienors. Indeed, the intent of the government to
submit itself to such rules is manifest from the provisions of Section
3186 of the federal statutes wherein it is provided, in effect, that the
lien therein created may be lost as to creditors and purchasers, should
their rights accrue before its filing in the District Court of the
district within which the property subject to such lien is situated.
[Title
to Land in State]
We have seen
that at the time the government chose to assert its lien, title to the
land of the defendant company was vested in the State of
West Virginia
. The Constitution and statutes under which this title passed to the
state have been upheld by both state and federal courts, including the
Supreme Court of the
United States
, and are no longer in question. Under both Constitution and statutes,
title to land acquired by the state under tax purchase, or forfeiture
for non-entry, may be transferred from the state to certain persons,
other than those in default, upon certain conditions as to title,
possession and payment of taxes. Constitution, Section 3, Article 13;
Code, 37-3-13. Under one of the provisions thereof, title may be
acquired by possession and payment of taxes for five years. It therefore
appears that the assertion and allowance of a lien such as that
contended for herein might, under some conditions, affect not only the
right to money, but serve to destroy title acquired by a third party
under the provisions of our Constitution and statutes. No such question
arises in this case, but the establishment of the principle for which
the government contends might, in some cases, permit a divesting of a
title which a third party had so acquired, many years after the
acquisition thereof. It would be strange indeed if a person who had thus
acquired title to real estate could be divested thereof through the
assertion of a lien existing before the title passed to the state, and
which could have been but was not asserted.
The right of
the state to the control of its domain has never been questioned, and
the federal government has never asserted a right, directly or
indirectly, involving the acquisition of title to the domain of the
state, except where the consent of the state has been first obtained.
This is illustrated by Section 3, Article 1, Chapter 1 of the Code, by
which the consent of the state is given to the acquisition by the
federal government of real estate for particular purposes within the
range of federal activities. The assertion of a lien is, of course,
distinct from the acquisition of title, but the two might be easily
combined in cases where, in the assertion of a lien, and for its
protection, the acquisition of title might be deemed necessary.
Furthermore,
the right of the state to collect property taxes on its domain for its
own support, and that of its governmental subdivisions, seems inherently
necessary for its preservation. If the federal government may assert its
power over the state's domain, to the extent of enforcing a lien for
taxes to the exclusion of the state's power of taxation thereon, then
the integrity of the state government is seriously affected, for, as has
been held, "the power to tax is the power to destroy." The
territory embraced within the boundaries of this state was formerly the
property of the Crown, and afterwards the
Commonwealth
of
Virginia
. Practically all such territory was granted by the
Commonwealth
of
Virginia
prior to the formation of this state. That territory was granted to
individual owners upon the implied condition attached, subsequently
embodied in the Constitution and statutes of this state, that failure to
pay taxes, either by non-entry on the tax books, or failure to pay taxes
after the assessment thereof, forfeited title to the state. It is under
this development of our tax laws, with respect to real estate and its
taxation, that the state acquired title to the real estate of the
defendant company, and we do not think that the title so vested in the
state under these laws can be divested by the assertion of the lien of
the government set up herein. It follows that if the defendant company
had no title to its real estate at the time of the appointment of the
special receiver, and if the government lost its lien by failure to
assert the same prior to the vesting of title to such real estate in the
state, then neither the said real estate, nor the proceeds thereof, are
subject to the claim of the government herein.
[Congressional
Intent]
It is
difficult to believe that the congress, in enacting Section 3186, which
by its terms protects the rights of purchasers and lienors prior to the
filing of liens by the collector, thereby evincing its intent to make
such liens subject to equitable rules, had any thought of asserting the
same to the prejudice of the states and their local subdivisions, in the
collection of taxes vitally necessary to their continued maintenance.
Support of this theory is found in City of Winston-Salem v. Powell
Paving Company, 7 Fed. Sup. 425, wherein it was held:
Persons
holding liens of any character against real estate hold them subject to
lien of city and county for ad valorem taxes levied annually for
purposes of obtaining revenue to operate city and county governments.
This
was a case in which a lien was asserted under Section 3186 of the
Revised Statutes. The court, in discussing the claim, said:
While
it is a lien, it is not necessarily to be preferred over any other lien.
The government had not fastened a lien on any specific property; nor
does it appear that there is no other property out of which the tax can
be paid. If the government had sold the property for taxes in 1930, the
date of its lien, the state tax which attached first, the county and
municipal tax 1929, and street assessments, and the judgment would have
been paid before the federal tax, or the property would have been sold
subject to them. The land would have been taxed for general taxes in
favor of the city and county, for 1930 and 1931 and 1932. Are these
local groups to be deprived of the tax thus subsequently accruing if the
government did not sell the property in 1930? It does not appear
reasonable that Congress intended such a result. Since the lien is
general and not specific, and expressly exempts the lien "as
against any mortgagee, purchaser, judgment creditor until notice has
been filed by the collector," it would appear that the lien, from
the time of notice, operates as a mortgage or judgment lien, subject to
enforcement by the government if it elects to enforce it. Congress could
have provided here, as it did in section 3466, that the lien is to be
paid first, but it does not do so.
[Priority
Claim Cannot Be Asserted]
The claim of
priority under Section 3466 of the Revised Statutes cannot be asserted
herein. We do not consider it necessary to decide whether or not the
insolvency which, in this case, is asserted as the basis for the claim
of priority, did or did not exist, or may be implied from the
appointment of the special receiver in 1927. If the title to the real
estate from which the fund now in dispute has been realized was, at the
time of such alleged insolvency of the defendant company, vested in the
state, said real estate was never legally within the control of the
special receiver of the court which appointed him, and there was nothing
against which the priority contended for under Section 3466 could be
asserted. The title acquired by the state was absolute. McClure v.
Maitland, 24 W.
Va.
561. Neither the former owner nor any lienor had any right as against
the state. Such privilege as the former owner may have with respect to
redemption in a proceeding taken by the state to sell lands so acquired
by it is a gratuity on the part of the state and creates nor right in
the former owner, his representatives or his creditors beyond that
expressly given by the statute.
[Conclusion]
The discussion
has been confined to the land property tax in question, but it remains
to consider the status of the items of taxes claimed by the state,
growing out of corporation license tax and gross sales tax for the year
1926. If there were funds available, legally in the hands of the court
against which the government's claim could be asserted, we would be
disposed to the view that its claim is prior to that of the state for
the special taxes mentioned. We make a distinction between license and a
so-called indirect tax and a tax upon the state's domain. However, in
view of the fact that there is no fund in the hands of the court which
can be legally applied to the claim of the government, it is not
prejudiced by the decree in favor of the state for the special taxes
aforesaid. If we should give priority to the government over these two
claims, it would avail nothing because of the state's title to the land
in question.
The decree of
the Court of Common Pleas is affirmed.
Affirmed.
