Could California record its nonmaritime sales-tax lien against a federally documented vessel with the U.S. Coast Guard?

Plain-English summary

California legal staff concluded that the Board could record its nonmaritime sales-tax lien against a federally documented vessel with the U.S. Coast Guard.

The taxpayer's correspondent argued that federal maritime law preempted state lien law, that the Coast Guard system was not meant for a state tax lien, and that the vessel was outside California when the Board filed its notice. Staff agreed that federal law displaced California's ordinary state filing methods for documented vessels, but drew the opposite practical conclusion: Coast Guard recordation was the exclusive way to give later purchasers notice of the Board's claim.

The claim arose from unpaid tax on the vessel's sale. The memorandum cited California Government Code section 7170 for attachment to the taxpayer's property in the state and said the vessel did not have to be physically in California when the notice was filed. It added that, if the vessel returned to California and federal law permitted, it would be subject to the Board's collection procedures.

Common questions

Was the Board claiming a maritime lien?

No. The memorandum described the claim as a subsequent nonmaritime lien.

Why use the Coast Guard rather than a California filing office?

Because staff said federal law preempted state title-and-lien registration for federally documented vessels.

Did the memorandum guarantee seizure or priority?

No. It addressed record notice and said later collection would remain subject to federal law.

Citations and references

• California Government Code section 7170 — state tax-lien attachment provision cited
• 46 U.S.C. sections 921 and 1012 — historical federal ship-mortgage provisions quoted through the cited case
• In re Alberto (1987) 823 F.2d 712 — quoted on perfection and priority for documented-vessel interests
• Morse Drydock & Repair Co. v. S.S. Northern Star (1926) 271 U.S. 552 — cited on recorded ship-mortgage priority
• Jackson v. Inland Oil & Transport Co. (5th Cir. 1963) 318 F.2d 802 — cited on recorded ship-mortgage priority

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/170-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/170-0008-925.pdf

Original ruling text

State of California

Board of Equalization
Legal Division-MIC: 82

Memorandum

170.0008.925

To :

Mr. Bill Ragle
Special Procedures Section

From :

Thomas J. Cooke
Tax Counsel

Subject:

[J]
Permit No. S- -- XX-XXXXXX

Date:

Telephone:

May 12, 1997

(916) 445-6496
CalNet 485-6496

In your memorandum dated May 6, 1997, you requested that the Legal Section provide thoughts and opinions on a letter from [D] concerning his request that the Board release the lien filed with the U.S. Coast Guard against the vessel owned by the above taxpayer. In his letter, Mr. [D] states that the Board’s lien is improper since tax liens are non-maritime liens and Federal Maritime Law (which pre-empts state lien laws as to vessels) is intended to provide a mechanism only for recording maritime liens. In the case of In re Alberto (1987) 823 F.2d 712, the court stated: “The SMA [the Ship Mortgage Act of 1920] envisions a two-step process for a ship mortgagee to perfect its security interest in a federally documented vessel. First, recordation of a ship mortgage is required for the mortgage to be valid against persons other than the mortgagor, his heirs or devisees, and persons with action notice of the mortgage. See 46 U.S.C. §§ 921, 1012. Prospective non-maritime creditors are put on notice of the mortgage by its recordation with the Coast Guard at the vessel’s home port. Upon recordation, the ship mortgage is valid and has priority over all subsequent non-maritime liens. See Morse Drydock & Repair Co. v. S.S. Northern Star, 271 U.S. 552, 554, 46 S. Ct. 589, 859-90, 70 L.Ed. 1082 (1926); Jackson v. Inland Oil & Transport Co., 318 F.2d 802, 810 (5th Cir. 1963).” Since recording of liens with the Coast Guard is the exclusive method of imposing a lien on a documented vessel, the Board’s “subsequent non-maritime lien” must be recorded with the Coast Guard.

Mr. Bill Ragle

-2-

May 12, 1997
170.0008.925

Mr. [D] also states in his letter that the SBE does not have authority to file any lien notice with the United States Coast Guard. Since a vessel is personal property, a lien against a vessel would normally be filed in the California Secretary of State’s office or as a lien attaching to a title certificate issued by a state agency. However, the Federal Government has pre-empted any state law providing for the registration of title to, or liens against, documented vessels. Federal law directs California to record any liens against a documented vessel with the U.S. Coast Guard rather than the procedure provided in the California Government Code. Mr. [D] also states that the vessel was not located in California when the Board filed its notice of claim. The Board’s claim against the vessel arose from the non-payment of tax due on the sale of the vessel. Under state law, the tax due became a lien on all property belonging to the taxpayer and located “in this state” (Govt. Code § 7170). Under the federal registration system for documented vessels, the recording of a Notice of Claim with the U.S. Coast Guard is the sole method of providing record notice to potential purchasers of the Board’s claim against the vessel. Any purchaser of the vessel is deemed to have notice of the Board’s lien by the recordation of the Notice of Claim with the U.S. Coast Guard. There is no requirement under California law that any personal property must be physically located in California at the time that a lien against that property is filed or recorded. If the vessel is returned to California and federal law permits, the vessel will be subject to the Board’s collection procedures.

TJC/cmm
Attachment