In re Continental Credit Corp., Bankruptcy No. 77 B 1561.

• Decision Date: 18 December 1979
• Docket Number: Bankruptcy No. 77 B 1561.
• Citation: 1 BR 680
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re CONTINENTAL CREDIT CORPORATION, Bankrupt. Donald H. GEIGER, Receiver, Plaintiff, v. CITY OF SOUTHFIELD, Michigan, Defendant.

1 B.R. 680 (1979)

In re CONTINENTAL CREDIT CORPORATION, Bankrupt.

Donald H. GEIGER, Receiver, Plaintiff, v. CITY OF SOUTHFIELD, Michigan, Defendant.

Bankruptcy No. 77 B 1561.

United States Bankruptcy Court, N.D. Illinois, E.D.

December 18, 1979.

COPYRIGHT MATERIAL OMITTED

Donald H. Geiger, Waukegan, Ill., pro se.

Milton Spokojny, Asst. City Atty. of the City of Southfield, Mich., for defendant.

ORDER

LAWRENCE FISHER, Bankruptcy Judge.

This matter coming on to be heard upon the Complaint of Donald H. Geiger, Receiver of the Debtor herein, for the entry of an Order determining that the Defendant, City of Southfield, Michigan, has no valid lien for taxes on proceeds from the sale of certain items of personal property, or for the entry of an Order determining that the value placed on the property by City of Southfield, Michigan for purposes of assessment was excessive and unconscionable and directing the City of Southfield, Michigan, to recompute its lien based upon a revaluation of the said property, and

The Court having examined the pleadings filed in this matter and having received and examined the Stipulation of Facts and having received and examined Memoranda of the parties in support of their respective positions, and the Court having heard arguments of counsel and being fully advised in the premises The Court Finds:

1. Continental Credit Corporation, Debtor herein, bought certain computers from Telex Computer Products, Inc., for $161,200.00, $6,200.00 of which was sales tax. The invoice is dated September 10, 1975, and is attached to the Stipulation of Facts as Exhibit "A".

2. Continental Credit Corporation leased this equipment to Computer Services, Inc., located at 23155 Northwestern Highway in Southfield, Michigan.

3. The City of Southfield, Michigan is authorized to assess and collect personal property taxes for all property located within the City of Southfield, Michigan, owned by domestic or foreign corporations.

4. Mich.Comp.Laws Ann. § 211.40 provides, in relevant part:

"Notwithstanding any provisions in the charter of any city or village to the contrary, all taxes shall become a debt due to the township, city, village and county from the owner or person otherwise to be assessed on the tax day provided for in sections 2 and 13 of this act . . . "

Mich.Comp.Laws Ann. § 211.2 provides in part:

". . . The taxable status of . . personal property shall be determined as of each December 31, which shall be deemed the tax day. . . . "

5. On December 31, 1975, and also on December 31, 1976, Continental Credit Corporation was the owner of certain items of personal property located within the corporate limits of the City of Southfield, Michigan, to-wit: the aforesaid computers purchased from Telex Computer Products, Inc.

6. Mich.Comp.Laws Ann. § 211.18 provides in part as follows:

"Each supervisor or other assessing officer . . . shall ascertain the taxable property of his assessing district, and the persons to whom it should be assessed and their residences. For this purpose he shall require every person of full age and sound mind who the supervisor or assessor believes has personal property in his possession to make and subscribe to a true and correct written statement, under oath, administered by such supervisor or assessing officer . . . of all the personal property of such person, firm or corporation, whether owned by him or it or held for the use of another. . . . "

Mich.Comp.Laws Ann. § 211.19 provides:

"The written statement under oath, provided for in section 18 shall be in such form and of such content as may be prescribed by the state tax commission and shall be completed and delivered to the supervisor or assessor on or before February 20 of each year."

Mich.Comp.Laws Ann. § 211.22 provides in part:

"If the . . . assessing officer . . shall be satisfied that any statement so made is incorrect, or if, by reason of absence or other cause, said sworn statement cannot be obtained . . ., said . . . assessing officer . . . shall examine, on oath, . . . any other person or persons whom he may have good reason to believe, and does believe has knowledge of the amount or value of any property owned, held or controlled by such person so neglecting or refusing or omitting to be examined or to furnish such statement, and such . . assessing officer is hereby authorized to set down and assess to such person, firm or corporation so entitled to be assessed, such amount of . . . personal property as he may deem reasonable and just. . . . "

7. The City of Southfield, Michigan, sent to Continental Credit Corporation a 1976 Personal Property Tax Statement form and a 1977 Personal Property Tax Statement form, neither of which was completed nor returned. The assessing officer, therefore, estimated the true cash value of the personal property to be $230,000.00 in 1976 and $500,000.00 in 1977. Mich.Comp. Laws Ann. § 211.27 provides that ". . . property shall be assessed at 50% of its true cash value. . . ." The assessments were therefore made based on values of $115,000.00 for 1976 and $250,000.00 for 1977.

8. For the year 1976, the City of Southfield, Michigan, levied a tax of $60.89 per $1,000.00 of assessed value of personal property, and for 1977, levied a tax of $60.99 per $1,000.00 of assessed value. The assessor applied these rates to the assessed value of $115,000.00 for 1976 and $250,000.00 for 1977, arriving at tax assessments of $7,639.39 and $16,746.15 for the years 1976 and 1977 respectively.

9. Notices of assessment were sent to Continental Credit Corporation in each of the years involved, but no protests were initiated by it.

10. On February 25, 1977, Continental Credit Corporation filed a voluntary petition in bankruptcy and subsequently converted the proceedings to Chapter XI. Donald H. Geiger was appointed Receiver on February 28, 1977.

11. The City of Southfield, Michigan, filed its claim in these proceeding for personal property taxes in the amount of $24,385.54 and asserted a lien on the subject computers for this amount, pursuant to Mich.Comp.Laws Ann. § 211.40 and § 9.18 of the Southfield City Charter. § 211.40 provides in pertinent part:

". . . all personal taxes hereafter levied or assessed shall also be a first lien, prior, superior and paramount, on all personal property of such persons so assessed from and after the first day of December in each year for state, county, village or township taxes or upon such day as may be heretofore or hereafter provided by charter of a city or village, and so remain until paid, which said tax liens shall take precedence over all other claims, encumbrances and liens upon said personal property whatsoever, whether created by chattel mortgage, title retaining contract, execution, or upon any other final process of a court, attachment, replevin, judgment or otherwise, . . . and no transfer of personal property assessed for taxes thereon shall operate to divest or destroy such lien, except where such personal property is actually sold in the regular course of retail trade. The personal property taxes hereafter levied or assessed by any city or village shall be a first lien, prior, superior and paramount to any other claims, liens and encumbrances whatsoever upon the personal property assessed as herein provided, any provisions in the charter of such cities or villages to the contrary notwithstanding."

§ 9.18 of the Southfield City Charter provides in part:

". . . All personal taxes shall also be a first lien, prior, superior and paramount, upon all personal property of the person so assessed from and after the first day of July in each year and shall so remain until paid. Such tax liens shall take precedence over all other claims, encumbrances and liens upon said personal property, whether created by Chattel Mortgage, execution, levy, judgment, or otherwise, and whether arising before or after the assessment of said personal property taxes, and no transfer of personal property assessed for taxes thereon shall operate to divest or destroy the lien, except where the personal property is actually sold in the regular course of retail trade."

12. On August 1, 1977, an appraisal made by William L. Bones, Regional Sales Manager of Telex Computer Products, Inc., was filed with this Court. Mr. Bones valued the equipment therein at $75,000.00.

13. The equipment was sold for $49,000.00 at auction held in open Court on August 11, 1977, with liens, if any, to attach to the proceeds of sale, pursuant to order of Court. This action was filed several days later challenging the extent and sufficiency of liens asserted by the City of Southfield, Michigan.

The Court Concludes and Further Finds:

1. The bankruptcy court has jurisdiction to redetermine the amount of taxes otherwise legally due and owing, even where, under state law, remedies were available for contesting the tax, which the bankrupt failed to pursue.

§ 2a(2A) of the Bankruptcy Act provides in pertinent part as follows:

" . . . a. The courts of the United States hereinbefore defined as courts of bankruptcy . . . are hereby invested . . . with such jurisdiction at law and in equity as will enable them to exercise original jurisdiction in proceedings under this Act . . . to —

. . . . .

. . . (2A) Hear and determine, or cause to be heard and determined, any question arising as to the amount or legality of any unpaid tax, whether or not previously assessed, which has not prior to bankruptcy been contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction, and in respect to any tax, whether or not paid, when any such question has been contested and adjudicated by a judicial or administrative tribunal of competent jurisdiction and the time for appeal or review has not expired, to authorize the receiver or the trustee to prosecute such appeal or review." 11 U.S.C. § 11(a)(2A) (1976)

The jurisdictional grant of § 2a(2A) was formerly contained in § 64a(4),...