Request By:
Mr. Ed W. Hancock
Deputy Secretary for Legal Affairs
Opinion
Opinion By: Steven L. Beshear, Attorney General; Carl Miller, Assistant Attorney General
You have requested an opinion of the Attorney General as to whether a lien for delinquent taxes asserted by the Department of Revenue against funds due a contractor on a contract the contractor has performed for the Department of Transportation is superior to a materialman's lien against the same funds. The stated facts are as follows:
On December 4, 1979, the Department of Transportation received a check from the Treasurer's Office issued payable to Cox Brothers Paving Company, Inc. as the final payment for work accomplished under a contract with the Department. Previously, on August 21, 1979, the Department of Revenue filed a notice of claim for unpaid taxes with the Commissioner of Finance and the State Treasurer pursuant to KRS 44.030 against any monies due Cox Brothers Paving Company, Inc. The Department of Transportation became aware of this tax claim on or about September 8, 1979. The Department of Revenue has instructed DOT to return the check to the State Treasurer to be applied on the claim for unpaid taxes. The amount of the tax claim exceeds the amount of the check.
On August 29, 1979, the Nugent Sand Company which had supplied material for the contract project to Cox Brothers Paving Company, Inc., the prime contractor, filed a materialman's lien against any funds due Cox Brothers on the contract as provided by KRS 376.230. DOT received an attested copy of the lien statement on September 13, 1979. At the time the Department received the copy of the lien statement it did not have in its possession any funds which were due Cox Brothers. The amount of the lien claim also exceeds the amount of the check now in possession of DOT as final payment on the contract. The materialman's lien of Nugent Sand Company has been perfected according to the statutory provisions.
The question for our opinion is whether DOT should return the final check on the contract to the Treasurer as instructed by the Department of Revenue, or whether the Nugent Sand Company is entitled to the proceeds of the check in partial satisfaction of its lien. The first statute to be considered is KRS 44.030 which reads as follows:
"No money shall be paid to any person on a claim against the state in his own right, or as an assignee of another, when he or his assignor is indebted to the state. The claim, to the extent that it is allowed, shall be credited to the account of the person so indebted, and if there is any balance due him after settling the whole demand of the state such balance shall be paid to him."
In applying KRS 44.030 to the facts presented, we first conclude that by virtue of its lien the Nugent Sand Company is a statutory assignee of the tax debtor, Cox Brothers Paving Company, Inc. This leaves only the question of whether delinquent taxes are a debt owed to the state by the assignor. We believe that they are and that the check should be returned to the Treasurer and the proceeds applied against the taxes owed to the state. KRS 134.420(1) gives the state a lien on the property assessed for taxes due.
KRS 134.420(2) gives the state a lien of equal rank with the lien provided in subsection (1) on all property of a taxpayer who owes any property tax, license tax, inheritence tax or estate tax, excise tax, income tax, or other tax. It also provides that this lien shall accrue at the time the liability becomes fixed. The Department of Revenue may file notice of the tax lien on property other than the property assessed for taxes but the notice becomes important only in the case of a holder in due course. In the case in question we have two competing statutory liens and we believe that the legislative intent is that the tax lien becomes perfected automatically without notice at the time the liability becomes fixed. KRS 134.420(2). We think that this intent is indicated by a statute which is parallel to KRS 44.030, that is KRS 134.170(2) which provides that the sheriff shall retain the amount of tax and other public dues against any person out of any claim allowed by the state or the fiscal court to that person. We believe that a materialman's lien does not compete with a tax lien on the basis of the time of filing notice.
We have found no cases applying KRS 44.030 to the matter of taxes due the state, however, we believe that delinquent taxes are a debt to the state and that the statute should be taken at face value and that a claim for taxes which has accrued is superior to a materialman's lien which is thereafter filed and perfected.
It is our opinion, therefore, that the Department of Transportation should comply with the instructions of the Department of Revenue and return the check in question to the State Treasurer.