In re Africo Explorations, Inc.
| Decision Date | 07 October 1992 |
| Docket Number | Bankruptcy No. 86-10946-7 to 86-10948-7. |
| Citation | 146 BR 280 |
| Parties | In re AFRICO EXPLORATIONS, INC., Debtor. In re WOCO, INC., Debtor. In re MIDWEST DIVERSIFIED INVESTMENT, INC., Debtor. |
| Court | U.S. Bankruptcy Court — District of Kansas |
Edward J. Nazar, Redmond, Redmond & Nazar, Wichita, Kan., for debtors.
Joseph L. McCarville III, Rauh, Thorne, Childs, O'Sullivan, McCarville & Brown, Hutchinson, Kan., for Bd. of County Com'rs of Reno County, Kan.
Robin B. Moore, Asst. U.S. Atty., for U.S., on behalf of its agency, the Small Business Admin Susan G. Saidian, Morrison, Hecker, Curtis, Kuder & Parrish, Wichita, Kan., for F.D.I.C.
William F. Bradley, Hinkle, Eberhart & Elkouri, Wichita, Kan., for Opportunity Capital Corp.
D. Michael Case, trustee for debtors.
John E. Foulston, Wichita, Kan., U.S. Trustee.
The debtors, Woco, Inc. ("Woco"), Africo Explorations, Ltd. ("Africo"), and Midwest Diversified Investment, Inc.1 originally filed Chapter 11 petitions on April 16, 1986. When the Court converted the three cases from Chapter 11 to Chapter 7 on February 17, 1989, it appointed D. Michael Case as trustee in each case. The bankruptcy estates contained oil and gas leases that were collateral on secured claims held by the Small Business Administration ("SBA") and the Federal Deposit Insurance Corporation ("FDIC"). The trustee sold the oil and gas leases with all liens transferring to the sale proceeds. He then filed an "Application for an Order Approving and Confirming Sale Free and Clear of Liens and Encumbrances of Record and Dispersal of Proceeds." The trustee's application proposed to distribute $465,081.54 to Reno County, Kansas ("Reno County") to satisfy its personal property tax claim which it maintains was secured by a first lien on the sale proceeds under Kansas Statutes Annotated § 79-2020. Reno County has filed a brief in support of the distribution. Secured claim holders, SBA and FDIC, have objected to the trustee's application and to Reno County's claim. Each has filed a brief in opposition to the Reno County position. Another secured claim holder, Opportunity Capital Corporation, has joined in the briefs of the SBA and the FDIC opposing the distribution, but it is not otherwise mentioned in the briefs. The trustee and Sedgwick County, Kansas, have not filed briefs.
The debtors appear by their attorney, Edward J. Nazar of Redmond, Redmond & Nazar, Wichita, Kansas. The Board of County Commissioners of Reno County, Kansas, appears by its attorney, Joseph L. McCarville III of Rauh, Thorne, Childs, O'Sullivan, McCarville & Brown, Hutchinson, Kansas. The United States, on behalf of its agency, the Small Business Administration, appears by Robin B. Moore, Assistant United States Attorney. The Federal Deposit Insurance Corporation appears by its attorney, Susan G. Saidian of Morrison, Hecker, Curtis, Kuder & Parrish, Wichita, Kansas. Opportunity Capital Corporation appears by its attorney, William F. Bradley of Hinkle, Eberhart & Elkouri, Wichita, Kansas. The common trustee of all the debtors, D. Michael Case, also appears.
The Court finds that this proceeding is core under 28 U.S.C. § 157(b)(2)(A), (B), (K), (N), and (O).
The Court has jurisdiction under 28 U.S.C. § 1334 and the general reference order of the District Court effective July 10, 1984.
The parties agree that the meaning and effect of K.S.A. 79-2020 is central to their controversy. It provides:
Voluntary transfer of personal property before tax paid; lien; exception; collection. If any owner of personal property surrenders or transfers such property to another after the date such property is assessed and before the tax thereon is paid, whether by voluntary repossession or any other voluntary act in reduction or satisfaction of indebtedness, then the taxes on the personal property of such taxpayer shall fall due immediately, and a lien shall attach to the property so surrendered or transferred, and shall become due and payable immediately. Such lien shall be in preference to all other claims against such property. The county treasurer, after receiving knowledge of any such surrender or transfer, shall issue immediately a tax warrant for the collection thereof and the sheriff shall collect it as in other cases. The lien shall remain on the property and any person taking possession of the property does so subject to the lien. The one owing such tax shall be liable civilly to any person taking possession of such property for any taxes owing thereon, but the property shall be liable in the hands of the person taking possession thereof for such tax. If the property is sold in the ordinary course of retail trade it shall not be liable in the hands of the purchasers. No personal property which has been transferred in any manner after it has been assessed shall be liable for the tax in the hands of the transferee after the expiration of three years from the time such tax originally became due and payable. (Emphasis added.)
L.1985, ch. 184, § 1; July 1.
The question presented is whether this statute gives Reno County a personal property tax lien on debtors' oil and gas leases superior to the liens of the SBA and the FDIC. Reno County argues that when the debtors filed their bankruptcy petitions, they transferred their oil and gas leases to the bankruptcy estate by operation of law. Reno County says that under the state statute, K.S.A. 79-2020, these transfers of leases to the bankruptcy estate were also voluntary "surrenders or transfers" of personal property that had been assessed for taxes that remained unpaid. Reno County claims that if this is so, the terms of the state statute create a tax lien on the transferred leases to aid its collection of debtors' previously due and payable personal property taxes. Under the terms of the state statute, the tax lien was "in preference to all other claims against such property," and, therefore, prior in right to the pre-existing liens of the SBA and the FDIC on the leases, so the argument goes.
The SBA and the FDIC counter: (1) that the statute is unconstitutional or, in the alternative, should operate only prospectively; (2) that the filing of a bankruptcy petition does not constitute a "surrender or transfer" of personal property to the bankruptcy estate; (3) that the lien created by the statute upon the transfer of the leases to the bankruptcy estate does not attach in violation of the automatic stay; and (4) that Reno County is time barred from collecting the taxes by the terms of the statute itself.
The Court finds that K.S.A. 79-2020 was not intended to be applied retroactively to affect liens created before its enactment and that Reno County is not entitled to a lien for unpaid personal property taxes by virtue of the statute; therefore, the objections to the lien status of Reno County's claim are sustained for the reasons set out below.
Kansas classifies oil and gas leases and wells as personal property for purposes of valuation and taxation.2 Taxpayers must list their personal property on the county tax rolls by January 1 each year and the county assesses the tax on that date.3 The taxes become due on November 1.4 Taxpayers have until the end of business on December 20 to pay either one-half of their personal property taxes or the full amount.5 If they pay one-half of the tax liability on or before December 20, they can defer payment of the other one-half until June 20 of the following year, but they must pay interest on the full amount of the unpaid taxes.6 If a taxpayer fails to pay at least one-half of the amount of assessed taxes on or before December 20, the full amount becomes immediately due and payable.7
If the first half of the taxes due are not paid by February 16 of the next year, or by July 1 of the next year in the case of second half taxes, the county treasurer must mail notice to the assessed taxpayer between certain dates specified in the statute.8 If the taxes remain unpaid 30 days after mailing of the notice, the county treasurer must issue a warrant directed to the sheriff of the county commanding him to levy upon the personal property of the assessed taxpayer for the amount of unpaid taxes and interest plus collection fees.9
A sheriff who collects a tax warrant must make immediate return thereon. If there are outstanding tax warrants, the sheriff must make return on all of them on or before October 1 of the year following the year in which the tax was levied. If the sheriff's return shows that a tax was not collected, the county treasurer must file with the clerk of the district court of the treasurer's county an abstract of the total amount of unpaid taxes and interest due plus penalties and costs. The clerk must enter the total amount of unpaid taxes on the appearance docket and note the entry in the general index.10
The total amount of taxes due becomes a judgment in the same manner and to the same extent as any other judgment under the code of civil procedure and becomes a judgment lien on real estate (only) from and after the time of filing of the abstract. Officials can file a transcript of the judgment in any other county and it becomes a lien upon real estate in that county. Execution, garnishment, and other proceedings in aid of execution on the judgment may be issued within the county or to any other county in the same manner as other judgments under the code of civil procedure.11
Upon filing the abstract with the clerk of the district court, the county treasurer must serve written notice of the filing on the county attorney. The county attorney's duty is to commence such proceedings as are necessary for the collection of the judgment.12
Purchasers of production from oil and gas leases are subject to a special notice procedure. If the taxes to be collected are upon oil and gas leases, the sheriff must notify the oil and gas lease production purchasers by registered mail of the...
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