Merv E. Hilpipre Auction Co. v. Solon State Bank, Solon, Iowa

• Decision Date: 18 January 1984
• Docket Number: No. 69585,69585
• Citation: 343 N.W.2d 452
• Parties: MERV E. HILPIPRE AUCTION CO., Plaintiff, v. SOLON STATE BANK, SOLON, IOWA, Appellant, Wayden's Heavy Haulers, Inc., Iowa Department of Job Service, and Carl McClain, Defendants, Johnson County, Iowa, Appellee.
• Court: Iowa Supreme Court

Page 452

343 N.W.2d 452

MERV E. HILPIPRE AUCTION CO., Plaintiff, v. SOLON STATE BANK, SOLON, IOWA, Appellant Wayden's Heavy Haulers, Inc., Iowa Department of Job Service, and Carl McClain, Defendants Johnson County, Iowa, Appellee.

No. 69585.

Supreme Court of Iowa.

Jan. 18, 1984.

Marion R. Neely of Neely Law Offices, Iowa City, for appellant.

J. Patrick White, Johnson County Atty., for appellee.

Considered by McGIVERIN, P.J., and LARSON, SCHULTZ, CARTER and WOLLE, JJ.

SCHULTZ, Justice.

Solon State Bank, a perfected secured creditor, appeals from a district court ruling giving Johnson County priority to auction proceeds for taxes assessed on manufacturing equipment for fiscal years 1980-81 and 1981-82. We hold that the county has priority to the proceeds in the amount of its taxes for fiscal year 1980-81 while the bank has priority to the remaining proceeds.

Long Metal Products, Inc., was a manufacturing concern operating in Johnson County, Iowa. As shown by a deed recorded on April 2, 1981, Long sold the land and buildings where the firm was located to 218 Associates. Despite this transfer, the firm retained ownership of its manufacturing equipment and continued its operation at this location until approximately one week before the equipment was sold at an auction.

Since 1975, Solon State Bank has provided financing for Long. In return, Long executed several security agreements giving the bank a security interest in, among other things, Long's machinery and equipment used for manufacturing. All of these security interests were properly perfected, and continuation statements were filed when necessary.

The firm apparently ran into financial difficulties, and Long contacted Hilpipre Auction Company sometime in August to arrange a public auction on September 9, 1981. The bank was notified and consented to the sale.

On September 4, 1981, the Johnson County Attorney's Office sent Hilpipre a letter informing him that county taxes were owing on the property and that he should take appropriate action to ensure payment of the taxes or inform prospective purchasers of the tax lien. On the day of auction, three garnishments by other creditors of Long were also served on Hilpipre. The auction was held, and the proceeds were distributed to Solon State Bank except for some $12,631.36 which was withheld and deposited into an escrow account. Hilpipre then filed an interpleader action against the bank, Johnson County and the three garnishers to determine the priority of their claims to the escrow funds.

The action in equity was tried to the court. The court found that Solon Bank had a properly perfected security interest, antedating the other creditor's liens, which continued in the cash proceeds obtained from the sale. Iowa Code § 554.9306(3)(b). It concluded that the bank's security interest was superior to all claimants except the county. The court, on the authority of Iowa Code sections 427A.1(1)(e) and 445.28, held that Johnson County had a superior lien for the two tax years in question and that the lien attached to the proceeds.

Although machinery normally would be characterized as personal property, Iowa Code section 427A.1(1) provides that "for purposes of property taxation only, the following shall be assessed and taxed ... as real property: .... e. Machinery used in manufacturing establishment." Since machinery is legislatively treated as real estate, the court found section 445.28 applicable. This statute provides in relevant part that: "Taxes upon real estate shall be lien on the real estate against all persons except the state." Id. Thus, the court reasoned the county had a superior lien on the property and even though the legislature had not expressly provided that the lien attached to the proceeds, such an implication was necessary to give effect to the legislature's intent that the county's claim for taxes should be satisfied before all other claimants except the state.

Only the bank appealed from the ruling affording the county priority to the proceeds in the amount of its taxes. On appeal, it claims that (1) no effective tax lien is created on machinery not being used in manufacturing that is sold prior to the date the tax is actually levied; (2) no valid tax lien attaches to machinery assessed as real estate in the name of one owner when a different owner is shown on the assessor's records and the tax list in the office of the county auditor prior to July 1, the date the lien attaches; (3) when machinery used in manufacturing establishments is sold, the tax lien remains with the property rather than attaching to the proceeds.

Pursuant to Iowa Rule of Appellate Procedure 4, our review is de novo. We give weight to the trial court's findings but are not bound by them. Iowa R.App. P. 14(f)(7).

I. The bank's first attack on the validity of the ruling giving the county priority is principally directed at the court's award for the 1981-82 taxes. Essentially, it contends no lien for these taxes had attached at the time of sale since the machinery was sold in September of 1981 before the 81-82 taxes were actually levied. We must agree.

The claims accorded priority were based on taxes for the fiscal years running from July 1, 1980, to June 30, 1981, and July 1, 1981, to June 30, 1982. The assessed value of the property for these two years was determined on January 1, 1980, and January 1, 1981, respectively. The 1980-81 taxes were levied in March of 1981 while the 1981-82 taxes were not levied until the following year. The first half of the taxes for 1980-81 became delinquent on October 1, 1981, and the second half on April 1, 1982. Similarly taxes for 1981-82 would not become delinquent until October 1, 1982, and April 1, 1983.

Although the assessment for the 1981-82 taxes was made in 1981 before the sale, the levy and lien did not come into being until 1982. Iowa Code § 444.9 (1979) as amended by Acts 1980 (68 G.A.) Ch. 1136, sec. 16 and repealed by Acts 1981 (69 G.A.) Ch. 117, sec. 1097. Assessment merely enters the property subject to taxes and its taxable valuation on the tax rolls. Levy creates the obligation. No lien arises until the tax is actually levied. See e.g., Gates v. Wirth, 181 Iowa 19, 23, 163 N.W. 215, 218 (1917); In re Estate of Luke, 184 N.W.2d 42, 48 (Iowa 1971). Consequently, at the time of sale, no tax lien for the 1981-82 taxes had attached to the property.

The county treasurer does have statutory authority to collect personal property taxes in advance of levy whenever property is about to be removed from the county. Iowa Code § 445.6. No similar authority is available for the collection of real estate taxes. In sum, the county has no claim to the sale proceeds for payment of the 1981-82 tax lien which came into being after the sale. Since we have negatively disposed of the county's claim for the 1981-82 taxes, our discussion of the bank's remaining assignments of error will be limited to the county's claim for the 1980-81 taxes.

II. The bank next attacks the propriety of the levy for the 1980-81 taxes. It contends no lien attached to the machinery since the property was assessed in Long's name but 218 Associates was listed as the owner on both the assessor's records and county auditor's tax list as of July 1, 1981, the date the lien attached.

The machinery was properly valued and assessed against Long as of January 1, 1980. However, after notice of assessment had been mailed to Long, the assessor, and subsequently the county auditor and treasurer erroneously listed the machinery under the name of 218 Associates. This occurred because of the property transfer from Long to 218 Associates which included the land and buildings but not the machinery. The assessor's record was maintained on a card containing all of Long's property assessed as real estate with a breakdown of each valuation. When the land was sold and record of transfer was made on April 2, 1981, the assessor changed the name of the card from Long to 218 Associates. The assessor did not remove the machinery from the old card nor prepare a separate card for the machinery listing Long as owner. Therefore, at the time the levy was made in March of 1981, the property was listed in all of the county offices under Long; however, when the lien attached on July 1, 1981, Iowa Code section 445.30, the property was listed under 218 Associates. Thus the tax statement prepared by the treasurer for the first half of the taxes due on September 30, 1981, listed 218 Associates as the taxpayer.

The trial court took the position that even though there was a title change, taxes are levied on the property rather than upon the titleholder; thus, Johnson County had a valid tax lien on the industrial equipment sold at the auction. We agree.

Real estate taxes constitute a lien upon the property. Iowa Code § 445.28. A tax upon real property is a charge upon the real estate and not a personal obligation of any person. Laubersheimer v. Huiskamp, 260 Iowa 1340, 1344, 152 N.W.2d 625, 627 (1967); In Re McMahon's Estate, 237 Iowa 236,...