(A) For purposes of this section, the term:
(1) "Security interest" means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists if the property is in existence, the interest is protected under the laws of this State against a subsequent judgment lien arising out of an unsecured obligation, and the holder of the interest has parted with money or money's worth.
(2) "Mechanic's lienor" means a person who under the laws of this State has a lien on real property, or on the proceeds of a contract relating to real property, for services, labor, or materials furnished in connection with the construction or improvement of the property. For purposes of this item, a person has a mechanic's lien on the earliest date the lien becomes valid under the laws of this State as against subsequent purchasers without actual notice, but not before he begins to furnish the services, labor, or materials.
(3) "Motor vehicle" means a self-propelled vehicle which is registered for highway use under the laws of any state or foreign country.
(4) "Security" means:
(a) bond, debenture, note, certificate, or other evidence of indebtedness issued by a corporation or a government or its political subdivision with interest coupons or in registered form;
(b) share of stock;
(c) voting trust certificate;
(d) a certificate of interest or participation in, certificate of deposit or receipt for, temporary or interim certificate for, or warrant or right to subscribe to or purchase any of the instruments set forth in subitems (a) through (c);
(e) negotiable instrument; or
(f) money.
(5) "Tax lien filing" means the filing of notice of the tax lien imposed by Section 12-54-120.
(6) "Purchaser" means a person who, for adequate and full consideration in money or money's worth, acquires an interest other than a lien or security interest in property and the interest is valid under the laws of this State as against subsequent purchasers without actual notice. An interest in property includes a lease of property, a written executory contract to purchase or lease property, an option to purchase or lease property or an interest in it, or an option to renew or extend a lease of property which is not a lien or security interest.
(7) "Notice of lien" and "warrant for distraint", as used throughout Title 12, have the same legal effect and both mean the notice of tax lien filing.
(B) The tax lien is not valid against a purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice, as prescribed by subsection (G), is filed by the Department of Revenue.
(C) The tax lien is not valid even though notice, as prescribed by subsection (G), is filed by the department with respect to:
(1) a security as defined in subsection (A)(4):
(a) as against a purchaser of the security who, at the time of purchase, did not have actual notice or knowledge of the existence of the lien; and
(b) as against a holder of a security interest in the security who, at the time the interest came into existence, did not have actual notice or knowledge of the existence of the lien;
(2) a motor vehicle as defined in subsection (A)(3), as against a purchaser of the motor vehicle if:
(a) at the time of the purchase, the purchaser did not have actual notice or knowledge of the existence of the lien; and
(b) before the purchaser obtains actual notice or knowledge of the existence of the lien, he has acquired possession of the motor vehicle and has not relinquished possession of the motor vehicle to the seller or his agent;
(3) tangible personal property purchased at retail, as against a purchaser in the ordinary course of the seller's trade or business, unless at the time of the purchase the purchaser intends the purchase to, or knows the purchase will, hinder, evade, or defeat the collection of any tax under this title;
(4) household goods, personal effects, or other tangible personal property purchased, not for resale, in a casual sale for less than two hundred fifty dollars, as against the purchaser, but only if the purchaser does not have actual notice or knowledge of the existence of the lien or that the sale is one of a series of sales;
(5) tangible personal property subject to a lien under the laws of this State securing the reasonable price of the repair or improvement of the property, as against a holder of that lien, if the holder has been continuously in possession of the property from the time that lien arose;
(6) real property, as against a holder of a lien upon real property, if the real property lien has priority over security interests in the property which are prior in time, and that lien secures payment of:
(a) a tax of general application levied by a taxing authority based upon the value of the property;
(b) a special assessment imposed directly upon the property by a taxing authority, if the assessment is imposed for the purpose of defraying the cost of a public improvement; or
(c) charges for utilities or public services furnished to the property by this State or its political subdivision or an instrumentality of either of them;
(7) a judgment or other amount in settlement of a claim or of a cause of action, as against an attorney who, under the laws of this State, holds a lien upon or a contract enforceable against the judgment or settlement amount, to the extent of his reasonable compensation for obtaining the judgment or procuring the settlement. This item does not apply to a judgment or an amount in settlement of a claim or of a cause of action against this State to the extent that this State offsets the judgment or settlement amount against any liability of the taxpayer to this State;
(8) a life insurance, endowment, or annuity contract, as against the organization which is the insurer under the contract, at any time:
(a) before the organization had actual notice or knowledge of the existence of the lien; or
(b) after the organization had notice or knowledge of the existence of the lien, with respect to advances required to maintain the contract in force under an agreement entered into before the organization had notice or knowledge of the existence of the lien;
(9) a savings deposit, share, or other account, evidenced by a passbook, with an institution described in 26 U.S.C. Section 581 or 591, to the extent of a loan made by the institution without actual notice or knowledge of the existence of the lien, as against the institution, if the loan is secured by the account and if the institution has been continuously in possession of the passbook from the time the loan was made.
(D)(1) To the extent provided in this subsection, even though notice of a tax lien has been filed, the tax lien is not valid with respect to a security interest which came into existence after the tax lien filing but which is:
(a) in qualified property covered by the terms of a written agreement entered into before the tax lien filing and constituting:
(i) a commercial transaction financing agreement;
(ii) a real property construction or improvement financing agreement; or
(iii) an obligatory disbursement agreement; and
(b) is protected as of the time of the tax lien filing, under the laws of this State, against a judgment lien arising out of an unsecured obligation.
(2) For purposes of this subsection, the term:
(a) "Commercial transaction financing agreement" means an agreement entered into by a person in the course of his trade of business:
(i) to make loans to the taxpayer secured by commercial financing security acquired by the taxpayer in the ordinary course of his trade or business; or
(ii) to purchase commercial financing security other than inventory acquired by the taxpayer in the ordinary course of his trade or business, but only to the extent that the loan or purchase is made before the forty-sixth day after the date of the tax lien filing or, if earlier, before the lender or purchaser had actual notice or knowledge of the tax lien filing.
(b) "Commercial financing security" means:
(i) paper of a kind ordinarily arising in commercial transactions;
(ii) accounts receivable;
(iii) mortgages on real property; and
(iv) inventory.
(c) "Real property construction or improvement financing agreement" means an agreement to make cash disbursements to finance:
(i) the construction or improvement of real property;
(ii) a contract to construct or improve real property; or
(iii) the raising or harvesting of a farm crop or the raising of livestock or other animals. For purposes of this subsubitem, the furnishing of goods and services is treated as the disbursement of cash.
(d) "Obligatory disbursement agreement" means an agreement entered into by a person in the course of his trade or business to make disbursements, but only to the extent of disbursements required to be made by reason of the intervention of the rights of a person other than the taxpayer.
(e) "Qualified property", when used with respect to a commercial transaction financing agreement, means only commercial financing security acquired by the taxpayer before day forty-six after the date of the tax lien filing.
(f) "Qualified property", when used with respect to a real property construction or improvement financing agreement, means only:
(i) the real property with respect to which construction or improvement has been or will be made;
(ii) the proceeds of a contract to construct or improve real property; and
(iii) property subject to the tax lien at the time of the tax lien filing and the crop or the livestock or other animals referred to in item (2)(c)(iii).
(g)(i) "Qualified property", when used with respect to an obligatory disbursement agreement, means property subject to the tax lien imposed by Section 12-54-120 at the time of the tax lien filing and, to the extent the acquisition is directly traceable to the disbursements referred to in subitem (d), property acquired by the taxpayer after the tax lien filing.
(ii) When the obligatory disbursement agreement is an agreement ensuring the performance of a contract between the taxpayer and another person, the term "qualified property" also includes the proceeds of the surety contract.
(iii) If the surety contract ensured performance of a contract to construct or improve real property, to produce goods, or to furnish services, the term "qualified property" also includes any tangible personal property used by the taxpayer in the performance of the ensured contract.
(E) Even though notice of a tax lien is filed, the lien is not valid with respect to a security interest arising out of disbursements made before the forty-sixth day after the date the tax lien was filed or before the person making the disbursement had actual notice or knowledge of the tax lien filing, whichever is earlier, but only if the security interest is:
(1) in property subject to the tax lien at the time it is filed and covered by the terms of a written agreement entered into before the filing; and
(2) protected under the laws of this State against a judgment lien arising out of an unsecured obligation.
(F) If the tax lien is not valid as against another lien or security interest, the priority of the other lien or security interest extends to:
(1) any interest or carrying charges upon the secured obligation;
(2) the reasonable charges and expenses of a trustee or agent holding the security interest for the benefit of the holder of the security interest;
(3) the reasonable expenses, including reasonable attorney's fee, actually incurred in collecting or enforcing the secured obligation;
(4) the reasonable costs of insuring, preserving, or repairing the property to which the lien or security interest relates;
(5) the reasonable costs of insuring payment of the secured obligation; and
(6) amounts paid to satisfy a lien on the property to which the other lien or security interest relates, but only if the satisfied lien has priority over the tax lien to the extent that, under the laws of this State, any such item has the same priority as the lien or security interest to which it relates.
(G)(1) The tax lien notice must be filed with the clerk of court or, where appropriate, the register of mesne conveyances. The appropriate official shall enter the name of the taxpayer in the judgment docket in the column for judgment debtors and, in appropriate columns, the amount of tax, penalties, and the date of filing, and shall index the tax lien on the index of judgment.
(2) The form and content of the notice of tax lien must be prescribed by the department, and the notice, as prescribed, is valid notwithstanding another provision of law regarding the form or content of a notice of lien.
(3) The notice of tax lien may be filed by the department or its authorized agent at any time and in any county the department finds appropriate.
(4)(a) Instead of filing a tax lien notice pursuant to item (1), the department may implement a statewide system of filing and indexing liens which must be accessible to the public over the Internet. The department shall notify all clerks of court and registers of deeds upon the implementation of a statewide system. Upon implementation, the clerk of courts and register of deeds are relieved of any statutory obligations for filing and maintaining newly filed tax liens.
(b) A lien filed pursuant to item (1) has an affixed permanent date and time stamp reflecting the date and time the lien is available to the public on the Internet, the name of the taxpayer, and the amount of tax and penalties and remains effective from the date and time it was recorded. A lien filed pursuant to this item is effective statewide from the date and time it is recorded and available to the public over the Internet and encumbers all the taxpayer's property and rights to property as provided in Section 12-54-120, regardless of the property's location. Nothing in this item may be construed so as to extend the effectiveness of a lien beyond ten years from the date of filing, as provided in Section 12-54-120.
(c) A notice must be posted in each county where liens are generally filed providing instructions on how to access the department's tax lien database.
(H)(1) For purposes of this section, an organization has actual notice or knowledge of a fact about a particular transaction from the time the fact is brought to the attention of the individual conducting the transaction or from the time the fact would have been brought to his attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routine. Due diligence does not require an individual acting for the organization to communicate information unless the communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.
(2) When a person is subrogated to the rights of another with respect to a lien or interest under the laws of this State, that person is subrogated to those rights for purposes of the tax lien imposed by Section 12-54-120.
HISTORY: 1998 Act No. 345, Section 2; 2019 Act No. 13 (S.160), Section 1, eff July 1, 2019.
Effect of Amendment
2019 Act No. 13, Section 1, in (G), inserted (4), allowing the Department of Revenue to implement a system of filing and indexing liens that is accessible to the public over the internet.