STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 6528

June 29, 1988

TAX LIENS: Imposition on lands acquired by Small Business Administration

Interest and penalties on taxes on lands acquired by Small Business Administration

The Small Business Administration, an agency of the United States, is not subject to liens imposed upon lands for ad valorem property taxes arising after the date of acquisition of fee title by the agency.

The lien imposed upon lands for ad valorem property taxes arising prior to the date the Small Business Administration acquires a security interest in the lands is superior to the interest of the Small Business Administration, and the lien for interest and penalties associated with late payment of the taxes enjoys that same superiority.

The lien imposed upon lands for ad valorem property taxes arising subsequent to the time the Small Business Administration acquires a security interest in the lands is superior to the interest of the Small Business Administration, but the lien for interest and penalties associated with the late payment of taxes is subordinate to the interest of the Small Business Administration in such lands.

Honorable Lana Pollack

State Senate

465 Farnum Building

Lansing, MI 48909

You have requested my opinion concerning ad valorem real property taxes, as well as interest and fees associated therewith imposed upon property with respect to which the United States Small Business Administration (SBA) holds fee title or a mortgage interest.

Your first question may be stated as follows:

Taxes are levied for a calendar year and are collected for the calendar year in which the taxes are assessed and the levy is made. Pere MR Co v Kalamazoo, LS & CR Co, 158 Mich 40, 42; 122 NW 356 (1909); OAG, 1965-1966, No 4463, p 207 (February 21, 1966). "Tax day," which is the 31st of December, is the day on which the taxable status of all lands for the ensuing calendar year is determined. General Property Tax Act, 1893 PA 206, Sec. 2, MCL 211.2; MSA 7.2.

The General Property Tax Act, Sec. 7, MCL 211.7; MSA 7.7, provides:

Should the SBA, an instrumentality of the United States hold title to lands on December 31, the lands are exempt from ad valorem real property taxes for the ensuing calendar year.

There is no federal legislation or federal administrative rule, regulation or lease subjecting lands, fee title to which is held by the SBA, to a state or local unit's jurisdiction to tax. ⁽¹⁾

It is my opinion, in answer to your first question, that the Small Business Administration, an agency of the United States, is not subject to liens imposed upon lands for ad valorem property taxes arising after the date of acquisition of fee title by the agency.

Your second question is:

A different result applies with respect to interest and charges that may be imposed upon taxes levied on lands in which the SBA has a security interest. 15 USC 646 provides:

Under provisions of the General Property Tax Act, Sec. 40, MCL 211.40; MSA 7.81, the obligation to respond to annual taxation becomes a lien upon the lands on December 1, for state, county, village and township taxes, or upon such other day as provided in the charter of a city or village (commonly July 1 for most cities). The lien date for school district or intermediate school district taxes in the case of lands of the district located in a city is the same as that of the city, and in the case of a township, is July 1. School Code of 1976, Secs. 1611 and 1612; MCL 380.1611 and 380.1612; MSA 15.41611 and 15.41612. In the absence of any other date specified by law or charter, real property tax obligation becomes a lien against the property on December 1. General Property Tax Act, Sec. 40, MCL 211.40; MSA 7.81, US v Michigan, 429 F Supp 8, 10 (ED Mich, 1977); cf City of Gaylord v. Gaylord City Clerk, 378 Mich 273, 301; 144 NW2d 460, 471 (1966). This lien is for the taxes "and for all interest and charges thereon [and] shall continue until payment thereof." General Property Tax Act, Sec. 40, supra.

With respect to those taxes which became a lien upon lands prior to the acquisition of a security interest by the SBA, there can be no doubt as to the priority to be assigned the lien for taxes and the interest and charges associated therewith. The tax lien takes precedence. Should the SBA be desirous of improving its subordinate position or removing the lien, it must pay all taxes, interest and charges.

In those instances in which the lien for taxes (interest and charges) arises after the date the SBA acquires a security interest in the affected lands, a diverse result obtains.

In US v. Consumers Scrap Iron Corp, 384 F2d 62 (CA 6 1967), the Small Business Administration and the City of Detroit were involved in a dispute over the relative priority to be assigned their respective claims to the proceeds of a foreclosure sale where the SBA acquired the security interest prior to the date of the tax lien on the lands. The court held:

Research reveals the decision of the federal district court in US v. Cambria County, 532 F Supp 634 (WD Pa, 1982), a case virtually indistinguishable from Consumers Scrap Iron, reaching the opposite result. ⁽²⁾ The court relied on US v. Kimbell Foods, Inc, 440 US 715; 99 S Ct 1448; 59 L Ed 2d 711 (1979), for the proposition that "where Congress has not addressed the specific issue involved, established non-discriminatory state law could be utilized in defining the rights of quasi-commercial agencies like the SBA which voluntarily expose themselves to the risks associated with commercial enterprise." Cambria County, supra, 532 F Supp at 635.

The court quoted from Kimbell Foods, supra, 440 US at 734:

The court concluded Pennsylvania law should be applied and, therefore, the lien for taxes due correctly included interest, fee, penalty and cost assessments. In so concluding, the court expressly reviewed the decision of the Sixth Circuit in US v. Consumers Scrap Iron Corp, supra, and rejected that decision as being inconsistent with the subsequent opinion of the United States Supreme Court in Kimbell Foods, supra. Nevertheless, because Michigan is located within the Sixth Circuit, we are constrained to follow the opinion of that circuit until such time as it may be overruled by either the United States Supreme Court or the Sixth Circuit itself.

It is my opinion, in answer to your second question, that the lien imposed upon lands for ad valorem property taxes arising prior to the date the Small Business Administration acquires a security interest in the lands is superior to the interest of the Small Business Administration, and the lien for interest and penalties associated with late payment of the taxes enjoys that same superiority. It is my further opinion that the lien imposed upon lands for ad valorem property taxes arising subsequent to the time the Small Business Administration acquires a security interest in the lands is superior to the interest of the Small Business Administration, but the lien for interest and penalties associated with the late payment of taxes is subordinate to the interest of the Small Business Administration in such lands.

Frank J. Kelley

Attorney General