Taxation; Ad Valorem Taxes; Personal Property; Tax Liens, Priority; Motor Vehicles

Subject:

Taxation; Ad Valorem Taxes; Personal Property; Tax Liens, Priority; Motor Vehicles; G.S. 105-355(b); G.S. 105-366(b)(1); G.S.105-356(b), G.S. 105-367

Requested By:

Mr. Edgar L. Lowers Tax Collector Hertford County

Question:

Where title to a motor vehicle is encumbered by a tax lien, to what priority is the tax lien entitled when the vehicle is sold under execution?

Conclusion:

The tax lien is entitled to priority only to the extent it represents taxes imposed upon the vehicle being sold.

G.S. 105-355(b) provides that taxes imposed on real and personal property "shall be a lien on personal property from and after levy . . ." G.S. 105-366(b)(1) provides that personal property may be levied upon and sold under execution to enforce the collection of taxes.

To determine how the proceeds of the sale are to be distributed, we must look to G.S. 105-356, Priority of Tax Liens. Subsection (b) of that statute governs liens on personal property:

(1)

The tax lien, when it attaches to personal property shall, insofar as it represents taxes imposed upon the property to which the lien attaches, be superior to all other liens and rights whether such other liens and rights are prior or subsequent to the tax lien in point of time.

(2)

The tax lien, when it attaches to personal property, shall insofar as it represents taxes imposed upon property other than that to which the lien attaches, be inferior to prior valid liens and perfected security interests and superior to all subsequent liens and security interests.

As a practical matter, a lien on a given article of personal property ordinarily represents taxes imposed on that article and on other property as well. Under these circumstances, G.S. 105-356(b) requires that the proceeds of the sale of a motor vehicle be applied first to satisfy the tax lien to the extent it represents taxes imposed on the vehicle. Since G.S. 105-367 permits expenses incurred in advertising and conducting the sale to be "added to an collected in the same manner as taxes," such costs are also entitled to priority. The balance of the proceeds should be applied next to other encumbrances on the title in order of priority and finally to the remainder of the tax lien.

Furthermore, since all encumbrances other than the lien for taxes on the vehicle are inferior, they are extinguished by the execution sale. Thus the purchaser at the sale acquires a clear title

even where the proceeds of sale are insufficient to satisfy all the encumbrances. This opinion is intended to clarify a prior opinion dated December 21, 1971.

Rufus L. Edmisten Attorney General

Marilyn R. Rich Associate Attorney