Colorado § 39-26-117 - Tax lien - exemption from lien.

§ 39-26-117. Tax lien - exemption from lien.

(1) (a) Except as provided in paragraphs (b) and (f) of this subsection (1), the tax imposed by this part 1 shall be a first and prior lien upon the goods and business fixtures of or used by any retailer or qualified purchaser under lease, title retaining contract, or other contract arrangement, excepting stock of goods sold or for sale in the ordinary course of business, and shall take precedence on all such property over other liens or claims of whatsoever kind or nature.

(b) Any retailer or person in possession shall provide a copy of any lease pertaining to the assets and property described in paragraph (a) of this subsection (1) to the department of revenue within ten days after seizure by the department of such assets and property. The department shall verify that such lease is bona fide and notify the owner that such lease has been received by the department. The department shall use its best efforts to notify the owner of the real or personal property which might be subject to the lien created in paragraph (a) of this subsection (1). The real or personal property of an owner who has made a bona fide lease to a retailer shall be exempt from the lien created in paragraph (a) of this subsection (1) if such property can reasonably be identified from the lease description or if the lessee is given an option to purchase in such lease and has not exercised such option to become the owner of the property leased. This exemption shall be effective from the date of the execution of the lease. Such exemption shall also apply if the lease is recorded with the county clerk and recorder of the county where the property is located or based or a memorandum of the lease is filed with the department of revenue on such forms as may be prescribed by said department after the execution of the lease at a cost for such filing of two dollars and fifty cents per document. Motor vehicles which are properly registered in this state, showing the lessor as owner thereof, shall be exempt from the lien created in paragraph (a) of this subsection (1); except that said lien shall apply to the extent that the lessee has an earned reserve, allowance for depreciation not to exceed fair market value, or similar interest which is or may be credited to the lessee. Where the lessor and lessee are blood relatives or relatives by law or have twenty-five percent or more common ownership, a lease between such lessee and such lessor shall not be considered as bona fide for purposes of this section.

(b.5) Any coin-operated vending machine or video or other game machine shall be exempt from the lien created in paragraph (a) of this subsection (1) if:

(I) The machine is placed on the retailer's premises under the terms of a lease or other agreement under which the retailer is given no right to become the owner of the machine;

(II) The machine is plainly marked in a location accessible to agents of the department of revenue with information sufficient to permit identification of the owner of said property; and

(III) The owner of the machine has filed with the department of revenue a schedule listing the machine by serial number and including thereon the owner's full name and the address of his business and such other information as the executive director of the department of revenue may require. To protect the anonymity of owners of property, the executive director of the department of revenue may permit property covered by this paragraph (b.5) to be marked using numbers or other coded identification.

(c) Any retailer who is in possession of property under the terms of a lease, which property is exempt from lien as provided in this section, may be required by the executive director of the department of revenue to remit taxes collected at more frequent intervals than monthly, but no more frequently than semimonthly, or may be required to furnish security for the proper payment of taxes whenever the collection of taxes appears to be in jeopardy.

(d) Any retailer who sells out his business or stock of goods, or quits business, shall be required to make out the return as provided in this part 1, within ten days after the date he sold his business or stock of goods or quit business, and his successor in business shall be required to withhold sufficient purchase money to cover the amount of said taxes due and unpaid until such time as the former owner produces a receipt from the executive director of the department of revenue showing that the taxes have been paid or a certificate that no taxes are due.

(e) If the purchaser of a business or stock of goods fails to withhold the purchase money as provided in paragraph (d) of this subsection (1), and the taxes are due and unpaid after the ten-day period allowed, he, as well as the vendor, shall be personally liable for the payment of the taxes unpaid by the former owner. Likewise, anyone who takes any stock of goods or business fixtures of or used by any retailer under lease, title retaining contract, or other contract arrangement, by purchase, foreclosure sale, or otherwise, takes same subject to the lien for any delinquent sales taxes owed by such retailer and shall be liable for the payment of all delinquent sales taxes of such prior owner, not, however, exceeding the value of property so taken or acquired.

(f) Any qualified purchaser that provides a direct payment permit number issued pursuant to section 39-26-103.5 to a vendor or retailer shall be subject to the lien created in paragraph (a) of this subsection (1) to the extent of any tax owed as a result of purchases made by the qualified purchaser plus any penalty and interest assessed pursuant to this article or article 21 of this title.

(2) Whenever the business or property of any taxpayer subject to this part 1 shall be placed in receivership, bankruptcy, or assignment for the benefit of creditors, or seized under distraint for property taxes, all taxes, penalties, and interest imposed by this part 1, and for which said retailer is in any way liable under the terms of this part 1, shall be a prior and preferred claim against all the property of said taxpayer, except as to preexisting claims or liens of a bona fide mortgagee, pledgee, judgment creditor, or purchaser whose rights shall have attached prior to the filing of the notice as provided in section 39-26-118 on the property of the taxpayer, other than the goods, stock in trade, and business fixtures of such taxpayer. No sheriff, receiver, assignee, or other officer shall sell the property of any person subject to this part 1 under process or order of any court without first ascertaining from the executive director the amount of any taxes due and payable under this part 1, and, if there are any such taxes due, owing, or unpaid, it is the duty of such officer to first pay the amount of said taxes out of the proceeds of said sale before making payment of any moneys to any judgment creditor or other claims of whatsoever kind or nature, except the costs of the proceedings and other preexisting claims or liens as provided in this section. For the purposes of this part 1, "taxpayer" includes "retailer".

Source: L. 35: p. 1014, § 10. CSA: C. 144, § 24. L. 37: p. 1093, § 1. L. 39: p. 503, § 2. CRS 53: § 138-6-23. C.R.S. 1963: § 138-5-23. L. 69: p. 1137, § 2. L. 77: (1)(b) amended, p. 1803, § 2, effective June 19. L. 89: (1)(b.5) added, p. 1509, § 2, effective April 6. L. 92: (1)(a) and (1)(b) amended, p. 2201, § 4, effective April 16. L. 99: (1)(a) amended and (1)(f) added, p. 13, § 4, effective January 1, 2000.

ANNOTATION

Law reviews. For article, "The Perennial Problem of Security Priority and Recordation", see 24 Rocky Mt. L. Rev. 180 (1952). For article, "Colorado Sales and Use Tax Consequences in Sales of Businesses", see 11 Colo. Law. 679 (1982). For article, "An Introduction to Tax Liens", see 13 Colo. Law. 399 (1984). For article, "A Practical Checklist for Buying or Selling a Small Business in Colorado", see 15 Colo. Law. 2171 (1986).

Constitutionality. This section does not create separate classes of persons in violation of the equal protection clause of the fourteenth amendment. ITT Diversified Credit Corp. v. Couch, 669 P.2d 1355 (Colo. 1983).

This section, as used to seize property of lessor due to lessee's violation, does not violate due process nor does it effect a taking. This section represents a valid exercise of the sovereign power to assess and collect taxes, which is distinguishable from the taking of private property for a public purpose. Burtkin Associates v. Tipton, 845 P.2d 525 (Colo. 1993).

This section does not violate the equal protection and due process rights of a consignor when a rational basis exists for exempting leased property from the tax lien while enforcing the tax lien against consigned property. Van Dorn Retail Mgt., Inc. v. City & County of Denver, 902 P.2d 383 (Colo. App. 1994).

Lien imposed by section valid. In an action involving the priority of liens of a chattel mortgage and that of sales taxes under this section, the statutory lien cannot be considered "secret" and thus without validity. Sweeney Elec. Co. v. Poston, 110 Colo. 139, 132 P.2d 443 (1942).

Any lien for general taxes on personal property is inferior to the lien under this section. City & County of Denver v. Armstrong, 105 Colo. 290, 97 P.2d 448 (1939); Sweeney Elec. Co. v. Poston, 110 Colo. 139, 132 P.2d 443 (1942).

Lien takes priority over security interest. A lien for sales and service taxes takes priority over a security interest which has previously attached. Young v. Golden State Bank, 632 P.2d 1053 (Colo. App. 1981).

A lien for state sales taxes is a first and prior lien on goods and business fixtures and has priority over a prior perfected security interest. ITT Diversified Credit Corp. v. Couch, 669 P.2d 1355 (Colo. 1983); Wimmer v. Jenkins, 703 P.2d 1326 (Colo. App. 1985).

There is a statutory priority for tax liens over any interest a third party might have in the goods, stock in trade, and business fixtures of a delinquent taxpayer. ITT Diversified Credit Corp. v. Couch, 669 P.2d 1355 (Colo. 1983).

Statutory priority for tax liens over perfected security interests in goods and business fixtures is not limited to the period when the goods are in the control of the delinquent taxpayer and to permit such priority to be terminated upon repossession of the goods by a secured party would defeat the public policy and legislative intent of tax lien priority statutes. ITT Diversified Credit Corp. v. Couch, 669 P.2d 1355 (Colo. 1983).

Under this section, mere use of personal property subjects it to a lien, notwithstanding the lack of ownership in the using party. Horacek v. Cherry Creek Corp., 28 Colo. App. 258, 472 P.2d 158 (1970).

Subsection (1)(a) exemption limited. The exemption created in subsection (1)(a) protects only the retail customers of the taxpayer who purchased goods from the retailer's inventory in the ordinary course of business. The exception does not apply to persons who obtain the retailer's goods and fixtures by foreclosure, bulk sale of inventory, or repossession. ITT Diversified Credit Corp. v. Couch, 669 P.2d 1355 (Colo. 1983).

Strict compliance with recording requirements in subsection (1)(b) is required in order to qualify for tax lien exemption. Charnes v. Norwest Leasing, Inc., 787 P.2d 145 (Colo. 1990).

Under this section, liens for sales and use taxes are entitled to priority over all other liens, including liens of the FDIC. Pima Financial Serv. v. Intermountain Home Sys., 786 F. Supp. 1551 (D. Colo. 1992).