§ 40-29-22 — Lien for Taxes - Validity and Priority Against Certain Persons

Alabama § 40-29-22

• Jurisdiction: Alabama
• Title 40: Revenue and Taxation
• Ch. 29: Enforcement of Tax Laws
• Art. 2: Collections

Text

(a) Purchasers, holders of security interests, mechanic’s lienors, and judgment lien creditors. The lien imposed by Section 40-29-20 shall not be valid as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Commissioner of Revenue or his delegate, and shall not be perfected as against any purchaser, holder of a security interest, mechanic’s lienor, or judgment lien creditor until the date such notice is filed.
(b) Protection for certain interest even though notice filed. Even though notice of a lien imposed by Section 40-29-20 has been filed, such lien shall not be valid:
(1) SECURITIES. With respect to a security (as defined in subsection (g)(4)):
a. As against a purchaser of such security who at the time of purchase did not have actual notice or knowledge of the existence of such lien; and
b. As against a holder of a security interest in such security who, at the time such interest came into existence, did not have actual notice or knowledge of the existence of such lien.
(2) MOTOR VEHICLES. With respect to a motor vehicle (as defined in subsection (g)(3)), as against a purchaser of such motor vehicle, if:
a. At the time of the purchase such purchaser did not have actual notice or knowledge of the existence of such lien; and
b. Before the purchaser obtains such notice or knowledge, he has acquired possession of such motor vehicle and has not thereafter relinquished possession of such motor vehicle to the seller or his agent.
(3) PERSONAL PROPERTY PURCHASED AT RETAIL. With respect to tangible personal property purchased at retail, as against a purchaser in the ordinary course of the seller’s trade or business, unless at the time of such purchase such purchaser intends such purchase to (or knows such purchase will) hinder, evade, or defeat the collection of any tax under this title.
(4) PERSONAL PROPERTY PURCHASED IN CASUAL SALE. With respect to household goods, personal effects, or other tangible personal property purchased (not for resale) in a casual sale for less than $250, as against the purchaser, but only if such purchaser does not have actual notice or knowledge (A) of the existence of such lien, or (B) that this sale is one of a series of sales.
(5) PERSONAL PROPERTY SUBJECT TO POSSESSORY LIEN. With respect to tangible personal property subject to a lien securing the reasonable price of the repair or improvement of such property, as against a holder of such a lien, if such holder is, and has been, continuously in possession of such property from the time such lien arose.
(6) REAL PROPERTY TAX. With respect to real property, as against a holder of a lien upon such property, if such lien is entitled to priority over security interests in such property which are prior in time, and such lien secures payment of ad valorem tax.
(7) REAL PROPERTY SUBJECT TO A MECHANIC’S LIEN FOR CERTAIN REPAIRS AND IMPROVEMENTS. With respect to real property subject to a lien for repair or improvement as against a mechanic’s lienor but not to exceed $5,000.
(8) ATTORNEYS’ LIENS. With respect to a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who holds a lien upon or a contract enforceable against such judgment or amount, to the extent of his reasonable compensation for obtaining such judgment or procuring such settlement.
(9) CERTAIN INSURANCE CONTRACTS. With respect to a life insurance, endowment, or annuity contract, as against the organization which is the insurer under such contract, at any time:
a. Before such organization had actual notice or knowledge of the existence of such lien; or
b. After such organization had such notice or knowledge, with respect to advances required to be made automatically to maintain such contract in force under an agreement entered into before such organization had such notice or knowledge.
(c) Protection for certain commercial transactions financing agreements, etc.
(1) IN GENERAL. To the extent provided in this subsection, even though notice of a lien imposed by Section 40-29-20 has been filed, such lien shall not be valid with respect to a security interest which came into existence after tax lien filing but which:
a. Is in qualified property covered by the terms of a written agreement entered into before tax lien filing and constituting:
1. A commercial transactions financing agreement;
2. A real property construction or improvement financing agreement; or
3. An obligatory disbursement agreement; and
b. Is protected against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation.
(2) COMMERCIAL TRANSACTIONS FINANCING AGREEMENT. For purposes of this subsection:
a. Definition. The term “commercial transactions financing agreement” means an agreement (entered into by a person in the course of his trade or business):
1. To make loans to the taxpayer to be secured by commercial financing security acquired by the taxpayer in the ordinary course of his trade or business; or
2. To purchase commercial financing security (other than inventory) acquired by the taxpayer in the ordinary course of his trade or business;
but such an agreement shall be treated as coming within the term only to the extent that such loan or purchase is made before the forty-sixth day after the date of tax lien filing or (if earlier) before the lender or purchaser had actual notice or knowledge of such tax lien filing.
b. Limitation on qualified property. The term “qualified property,” when used with respect to a commercial transactions financing agreement, includes only commercial financing security acquired by the taxpayer before the forty-sixth day after the date of tax lien filing.
c. Commercial financing security defined. The term “commercial financing security” means (i) paper of a kind ordinarily arising in commercial transactions, (ii) accounts receivable, (iii) mortgages on real property, and (iv) inventory.
d. Purchaser treated as acquiring security interest. A person who satisfies paragraph a. by reason of clause (ii) thereof shall be treated as having acquired a security interest in commercial financing security.
(3) REAL PROPERTY CONSTRUCTION OR IMPROVEMENT FINANCING AGREEMENT. For purposes of this subsection:
a. Definition. The term “real property construction or improvement financing agreement” means an agreement to make cash disbursements to finance:
1. The construction or improvement of real property;
2. A contract to construct or improve real property; or
3. The raising or harvesting of a farm crop or the raising of livestock or other animals.
For purposes of subparagraph 3, the furnishing of goods and services shall be treated as the disbursement of cash.
b. Limitation on qualified property. The term “qualified property,” when used with respect to a real property construction or improvement financing agreement, includes only:
1. In the case of subparagraph a1, the real property with respect to which the construction or improvement has been or is to be made;
2. In the case of subparagraph a2, the proceeds of the contract described therein; and
3. In the case of subparagraph a3, property subject to the lien imposed by Section 40-29-20 at the time of tax lien filing and the crop or the livestock or other animals referred to in subparagraph a3.
(4) OBLIGATORY DISBURSEMENT AGREEMENT. For purposes of this subsection:
a. Definition. The term “obligatory disbursement agreement” means an agreement (entered into by a person in the course of his trade or business) to make disbursements, but such an agreement shall be treated as coming within the term only to the extent of disbursements which are required to be made by reason of the intervention of the rights of a person other than the taxpayer.
b. Limitation on qualified property. The term “qualified property,” when used with respect to an obligatory disbursement agreement, means property subject to the lien imposed by Section 40-29-20 at the time of tax lien filing and (to the extent that the acquisition is directly traceable to the disbursements referred to in paragraph a) property acquired by the taxpayer after tax lien filing.
c. Special rules for surety agreements. Where the obligatory disbursement agreement is an agreement ensuring the performance of a contract between the taxpayer and another person:
1. The term “qualified property” shall be treated as also including the proceeds of the contract the performance of which was ensured; and
2. If the contract the performance of which was ensured was a contract to construct or improve real property, to produce goods, or to furnish services, the term “qualified property” shall be treated as also including any tangible personal property used by the taxpayer in the performance of such ensured contract.
(d) Forty-five day period for making disbursement. Even though notice of a lien imposed by Section 40-29-20 has been filed, such lien shall not be valid with respect to a security interest which came into existence after tax lien filing by reason of disbursements made before the forty-sixth day after the date of tax lien filing, or (if earlier) before the person making such disbursements had actual notice or knowledge of tax lien filing, but only if such security interest:
(1) Is in property (A) subject at the time of tax lien filing, to the lien imposed by Section 40-29-20, and (B) covered by the terms of a written agreement entered into before tax lien filing; and
(2) Is protected against a judgment lien arising, as of the time of tax lien filing, out of an unsecured obligation.
(e) Priority of interest and expenses. If the lien imposed by Section 40-29-20 is not valid as against a lien or security interest, the priority of such lien or security interest shall extend to:
(1) Any interest or carrying charges upon the obligation secured;
(2) The reasonable charges and expenses of an indenture trustee or agent holding the security interest for the benefit of the holder of the security interest;
(3) The reasonable expenses, including reasonable compensation for attorneys, actually incurred in collecting or enforcing the obligation secured;
(4) The reasonable costs of insuring, preserving, or repairing the property to which the lien or security interest relates;
(5) The reasonable costs of insuring payment of the obligation secured; and
(6) Amounts paid to satisfy any lien on the property to which the lien or security interest relates, but only if the lien so satisfied is entitled to priority over the lien imposed by Section 40-29-20, to the extent that any such item has the same priority as the lien or security interest to which it relates.
(f) Place for filing; form.
(1) PLACE FOR FILING. The notice referred to in subsection (a) shall be filed:
a. Real property. In the case of real property, in the probate office of the county in which the property subject to the lien is situated; and
b. Personal property. In the case of personal property, whether tangible or intangible, in the office (i) in which a financing statement would be filed to perfect a security interest with respect to such property pursuant to the Alabama Uniform Commercial Code, or (ii) of the Secretary of State, if a financing statement would not be required to be filed to perfect a security interest with respect to such property; provided, however, if the property is a motor vehicle (as defined under subdivision (g)(3) of this section), the tax lien shall be perfected in the same manner as a security interest is required to be perfected with respect to such motor vehicle. Such notice shall be effective as to any third party only when properly included by name in the index of such financing statements available for public inspection, and shall not be effective against a third party who relies upon a certification of such filings obtained in the manner provided in Section 7-9A-523 if such notice is omitted from the certification. Each filing officer shall reflect such notices in any certificate provided pursuant to Section 7-9A-523.
(2) FORM. The form and content of the notice referred to in subsection (a) shall be prescribed by the Commissioner of Revenue or his delegate. Such notice shall be valid notwithstanding any other provision of law regarding the form or content of a notice of lien.
(g) Definitions. For purposes of this section, the following terms shall have the following meanings, respectively, unless the context clearly indicates otherwise:
(1) SECURITY INTEREST. Any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time, the property is in existence and the interest has become protected against a subsequent judgment lien arising out of an unsecured obligation, and (B) to the extent that, at such time, the holder has parted with money or money’s worth.
(2) MECHANIC’S LIENOR. Any person who has a lien on real property (or on the proceeds of a contract relating to real property) for services, labor, or materials furnished in connection with the construction or improvement of such property. For purposes of the preceding sentence, a person has a lien on the earliest date such lien becomes valid against subsequent purchasers without actual notice, but not before he begins to furnish the services, labor, or materials.
(3) MOTOR VEHICLE. A self-propelled vehicle which is registered for highway use under the laws of any state or foreign country.
(4) SECURITY. Any bond, debenture, note, or certificate or other evidence of indebtedness, issued by a corporation or a government or political subdivision thereof, with interest coupons or in registered form, share of stock, voting trust certificate, or any certificate of interest or participation in, certificate of deposit or receipt for, temporary or interim certificate for, or warrant or right to subscribe to or purchase, any of the foregoing; negotiable instrument; or money.
(5) TAX LIEN FILING. The filing of notice (referred to in subsection (a)) of the lien imposed by Section 40-29-20.
(6) PURCHASER. A person who, for adequate and full consideration in money or money’s worth, acquires an interest (other than a lien or security interest) in property which is valid against subsequent purchasers without actual notice. In applying the preceding sentence for purposes of subsection (a) of this section:
a. A lease of property;
b. A written executory contract to purchase or lease property;
c. An option to purchase or lease property or any interest therein; or
d. An option to renew or extend a lease of property, which is not a lien or security interest shall be treated as an interest in property.
(h) Special rules.
(1) ACTUAL NOTICE OR KNOWLEDGE. For purposes of this article, an organization shall be deemed for purposes of a particular transaction to have actual notice or knowledge of any fact from the time such fact is brought to the attention of the individual conducting such transaction, and in any event for the time such fact would have been brought to such individual’s attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routine. Due diligence does not require an individual acting for the organization to communicate information unless such communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.
(2) SUBROGATION. Where one person is subrogated to the rights of another with respect to a lien or interest, such person shall be subrogated to such rights for purposes of any lien imposed by Section 40-29-20.
(3) DISCLOSURE OF AMOUNT OF OUTSTANDING LIEN. If a notice of lien has been filed pursuant to subsection (f), the commissioner or his delegate is authorized to provide by regulations the extent to which, and the conditions under which, information as to the amount of the outstanding obligation secured by the lien may be disclosed.

Legislative History

(Acts 1983, 4th Ex. Sess., No. 83-891, p. 128, §5; Act 2001-481, p. 64, §2.)