If somebody owes personal property taxes in Arkansas and then sells the property, does the tax lien follow the property to the new owner?

Plain-English summary

State Senator John Cooper asked the same three questions Representative Brandt Smith had just asked in Op. Att'y Gen. 2019-015 (issued the same day, October 18, 2019), and the AG answered Cooper by reference to that companion opinion. The substance, drawn from 2019-015, was:

1. Does § 26-34-101 create a tax lien that survives subsequent sales of personal property? Yes. Once a taxpayer assesses tangible personal property each year (under § 26-26-1408, by May 31), the lien attaches and "shall bind" the property and "be entitled to preference over all judgments, executions, encumbrances, or liens whensoever created." The Arkansas Supreme Court confirmed in Bridewell v. Morton and Worthen v. Quinn that the lien is "paramount and remains a charge without regard to change of ownership."

2. Must county collectors file delinquent vehicle tax liens with a "central registry," and does that include FAA filing for aircraft? The AG could not answer the central-registry part because the question did not specify which registry. As to aircraft: federal law (49 U.S.C. § 44107) does not require county collectors to file aircraft tax liens with the FAA, but as a practical matter the lien must be recorded with the FAA's civil aircraft registration system to keep its priority over later innocent buyers (49 U.S.C. § 44108).

3. Do buyers in the ordinary course of business take personal property free of the lien? Likely no, but the answer is not crystal clear. The UCC's "buyer in ordinary course" rule (Ark. Code Ann. § 4-9-320) wipes out security interests. A statutory tax lien is probably not a "security interest" as defined by Ark. Code Ann. § 4-1-201(35) and is not addressed in § 4-9-109 either way. The AG read § 26-34-101 as reaching the buyer regardless. Even if a buyer did somehow take free, the collector could still distrain other goods of the delinquent taxpayer under § 26-36-206(a). Legislative or judicial clarification was suggested.

The AG explicitly carved out registered motor vehicles, which are subject to a separate scheme under §§ 27-14-801 through -807 and earlier Op. Att'y Gen. 2004-347.

Currency note

This opinion was issued in 2019. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: When does the tax lien attach?
A: Under § 26-34-101(b), at assessment. Taxpayers assess their tangible personal property annually no later than May 31, valued as of January 1 of the year of assessment. The lien attaches at that point and runs against the property itself.

Q: What about a sale between the assessment and the time the tax books are delivered to the collector?
A: Section 26-34-101(b) has a special rule: as between grantor and grantee, the lien does not attach until the last date fixed by law for the county clerk to deliver the tax books to the county collector each year. So the timing of intra-year sales matters between the parties to the sale, but the public lien still binds the property.

Q: Why did the AG carve out registered motor vehicles?
A: Because Title 27 has a separate lien-on-vehicle scheme. Op. Att'y Gen. 2004-347 had already drawn that line.

Q: What about an aircraft buyer who looks at the FAA records and sees no lien?
A: That is exactly the situation 49 U.S.C. § 44108 addresses. The buyer would take free of unrecorded interests. So even though state law does not require the collector to file, the practical answer is that an unfiled lien is unenforceable against an innocent aircraft buyer.

Q: Is a tax lien a "security interest" under the UCC?
A: The AG said probably not. UCC security interests arise from agreement to secure performance of an obligation. A statutory tax lien arises by operation of law. Section 4-9-109's coverage list does not pull tax liens in.

Background and statutory framework

The text of Ark. Code Ann. § 26-34-101(a) is unambiguous: "Taxes assessed upon real and personal property shall bind them and be entitled to preference over all judgments, executions, encumbrances, or liens whensoever created." The Arkansas Supreme Court applied that text in Bridewell v. Morton, 46 Ark. 73 (1885), and Worthen v. Quinn, 52 Ark. 82, 12 S.W. 156 (1889), holding that the lien follows the property through subsequent transfers.

The federal aviation framework supplies a separate but parallel question. Congress designed 49 U.S.C. §§ 44101-44113 as a single national filing system for documents evidencing title and security interests in civil aircraft. The Act does not legislate substantive priority among holders. State law sets priority; § 44108 conditions priority against innocent third-party buyers on having recorded with the FAA system.

The opinion's UCC analysis pulls in two authorities. Edwards v. State, 347 Ark. 364, 64 S.W.3d 706 (2002), and Weiss v. McFadden, 353 Ark. 868, 120 S.W.3d 545 (2003), supply the plain-meaning canon. In re Wrigley, 195 B.R. 914 (E.D. Ark. 1996), recognizes the assessing county as a secured creditor without further action.

The fallback for buyers who do take free is § 26-36-206(a)'s distress-sale remedy: the collector "may distrain sufficient goods and chattels belonging to a person who owes taxes upon the person's personal property," and the goods distrained do not have to be the same goods sold to the buyer.

Citations

• Ark. Code Ann. § 26-34-101 (a), (b) (personal property tax lien and timing)
• Ark. Code Ann. § 26-26-1408 (annual assessment)
• Ark. Code Ann. § 26-36-206(a) (collector's distress remedy)
• Ark. Code Ann. §§ 27-14-801 to -807 (registered vehicles, separate scheme)
• Ark. Code Ann. § 4-1-201(35) (definition of security interest)
• Ark. Code Ann. § 4-9-320(a), (b) (buyer in ordinary course)
• Ark. Code Ann. § 4-9-109 (UCC scope)
• 49 U.S.C. §§ 44101-44113; § 44107; § 44108 (FAA recordation)
• Bridewell v. Morton, 46 Ark. 73 (1885)
• Worthen v. Quinn, 52 Ark. 82, 12 S.W. 156 (1889)
• Edwards v. State, 347 Ark. 364, 64 S.W.3d 706 (2002)
• Weiss v. McFadden, 353 Ark. 868, 120 S.W.3d 545 (2003)
• In re Wrigley, 195 B.R. 914 (E.D. Ark. 1996)

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2019-016
October 18, 2019

The Honorable John Cooper
State Senator
62 CR 396
Jonesboro, AR 72401

Dear Senator Cooper:

This is in response to your request for an opinion on the following questions:

1. Does Arkansas Code Annotated § 26-34-101 provide a lien for ad valorem taxes that transfers with all conveyances of personal property?
2. Do buyers in the ordinary course of business take the personal property free of the lien referenced in Question One?
3. Are county collectors required to file delinquent tax liens with the central registry for all forms of vehicles for the State of Arkansas? If so, does this include the filing of the delinquent personal property taxes with the Federal Aviation Commission pursuant to 49 U.S.C. § 44107?

RESPONSE

Your questions are identical to the questions I responded to in Op. Att'y Gen. 2019-015, released on this date. I have enclosed a copy of that opinion for your review.

Sincerely,

LESLIE RUTLEDGE
Attorney General

Enclosure

Opinion No. 2019-015
October 18, 2019

The Honorable Brandt Smith
State Representative
3501 Ridgeway Circle
Jonesboro, AR 72404-5005

Dear Representative Smith:

This is in response to your request for an opinion on behalf of the Craighead County Collector. In this regard, you have asked the following questions:

1. Does Arkansas Code Annotated § 26-34-101 provide a lien for ad valorem taxes that transfers with all conveyances of personal property?
2. Are county collectors required to file delinquent tax liens with the central registry for all forms of vehicles for the State of Arkansas? And, if so, does this include filing of the delinquent personal property taxes with the Federal Aviation Commission pursuant to 49 U.S.C.A. Section 44107?
3. Do buyers in the ordinary course of business take the personal property free of the lien referenced in Question No. 1?

RESPONSE

As to your first question, in my opinion, the answer is "yes." Arkansas law provides that taxes assessed upon personal property create a lien against that property and that the lien remains attached irrespective of subsequent conveyances. With respect to the first part of your second question, I am unclear as to the meaning of your reference to a "central registry." Regarding whether a county collector is required to file a tax lien against civil aircraft with the FAA, the answer is "no." However, recording such liens with the FAA is necessary in order to maintain their priority over other third-party interests. The answer to your third question is likely "no," but the issue would benefit from legislative or judicial clarification.

DISCUSSION

Question 1: Does Arkansas Code Annotated § 26-34-101 provide a lien for ad valorem taxes that transfers with all conveyances of personal property?

I understand your question to ask whether a lien issued under Ark. Code Ann. § 26-34-101 (Repl. 2012) for unpaid ad valorem taxes on an item of taxable personal property remains irrespective of subsequent conveyances. In my opinion and as a general rule, the answer to this question is "yes."

A statute is construed just as it reads, giving the words their ordinary and usually accepted meaning in common language. When the language of the statute is plain and unambiguous, there is no need to resort to rules of statutory construction. It has been long-standing law in Arkansas that "[t]axes assessed upon real and personal property shall bind them and be entitled to preference over all judgments, executions, encumbrances, or liens whensoever created." When taxpayers assess their tangible personal property each year, that assessment creates the liens encumbering the property for the tax due. No action is needed to make the assessing county a secured creditor with respect to the property.

There are scant Arkansas appellate cases addressing the substance of your question. However, what case law there is holds that tax liens against taxable personal property remain attached to the property (and thus liable to seizure to secure payment) even in the face of a sale or subsequent sales. For instance, Bridewell v. Morton, explains that if the legislature had intended to exempt a subsequent buyer from the tax lien, it could have made that a part of the law. Indeed, as the court stressed, "[i]t is apparent that when the lien attaches it is paramount and remains a charge without regard to change of ownership."

In light of the foregoing, it is my opinion that a lien for taxes due on tangible personal property remains attached to the property despite any subsequent sale or sales.

Question 2: Are county collectors required to file delinquent tax liens with the central registry for all forms of vehicles for the State of Arkansas? And, if so, does this include filing of the delinquent personal property taxes with the Federal Aviation Commission pursuant to 49 U.S.C.A. Section 44107?

I am unable to provide an answer to the first part of this question because it is unclear what you mean by "the central registry." Your request contains no background or other information regarding what "central registry" you may be referring to, and it would be improvident for me to guess as to your meaning in the issuance of an official opinion.

Regarding the second part of your question (which, by its context, I take to be referring only to aircraft in Arkansas) it is my opinion that county collectors are not required by law to record delinquent tax liens on aircraft with the Federal Aviation Administration (FAA). However, such liens must be recorded with the FAA's civil aircraft registration and recording system for the tax lien to be valid against an innocent aircraft buyer.

My discussion on this question must necessarily be limited as matters concerning the interpretation of federal laws are typically outside of the scope of opinions from this office except to the extent that they involve the interpretation of Arkansas law.

As stated above, the assessment of personal property creates a lien against that property that takes priority over other encumbrance. With respect to the FAA's registration and recording system, it is my understanding that the Congress' purpose in including such a provision as part of the Federal Aviation Act was to establish a single national filing system for the recordation of documents evidencing title, security interests, liens, and other clouds to title in civil aircraft. That act, however, does not purport to legislate the priorities among holders of those various interests in aircraft.

State law determines priority of interests, and as discussed, in Arkansas, state tax liens take priority over all other interests. However, each interest must be recorded with the FAA's system before it can obtain whatever priority to which it is entitled under state law. With respect to conveyances of aircraft, I believe that this would also apply to a tax lien against aircraft.

Accordingly, while it does not appear that a county recorder is required to file liens on aircraft with the FAA to comply with federal law, it seems clear that, as a practical matter, recording such liens with the FAA is necessary in order to maintain their state-law priority over other interests.

Question 3: Do buyers in the ordinary course of business take the personal property free of the lien referenced in Question No. 1?

In my opinion, the answer to this question is likely "no," although that is far from clear. The answer turns on whether the tax lien referenced in your first question is considered a "security interest" under the Uniform Commercial Code (UCC). This question would benefit from legislative or judicial clarification.

In the typical commercial context, a buyer in the ordinary course of business of goods takes his purchase free of any security interest that was created by the seller, even if the security interest is perfected and the buyer knows of its existence. Even in a non-commercial transaction, a buyer of goods from a person who used or bought the goods for primarily personal, family, or household use takes free of a security interest, even if perfected, if the buyer buys (1) without knowledge of the security interest; (2) for value; (3) primarily for the buyer's personal, family, or household purposes; and (4) before the filing of a financing statement covering the goods.

The UCC defines a security interest in pertinent part as "an interest in personal property or fixtures which secures payment or performance of an obligation." And section 4-9-109 (which sets out the kinds of third-party interests that the UCC is intended to apply and not apply to) is silent with respect to statutory tax liens like the one authorized in section 26-34-101. In my view, it seems unlikely that the payment of personal property taxes, while obligatory, is "performance of an obligation" that the UCC contemplates.

In light of the language of section 26-34-101, I believe that a buyer in the ordinary course of business would not take his purchase free of the lien for the personal property tax owed. Legislative or judicial clarification on this question would be helpful.

Sincerely,

LESLIE RUTLEDGE
Attorney General