County of Spokane v. United States

Background

A receiver was appointed for an insolvent auto company on August 28, 1922, who sold the company’s personal property and kept the cash in court. Spokane and Whitman Counties had assessed county taxes against the company in 1921 and 1922 that were unpaid. The federal government later assessed income taxes and penalties for 1917–1920 in 1923. Spokane also assessed taxes directly on the money held by the receiver in 1924 and 1926. The receiver’s funds were insufficient to pay all claims, so the courts had to decide who gets paid first.

Reasoning

The Court relied on a long-standing federal law (now called §3466) that gives the United States a first claim on a debtor’s assets when the debtor is insolvent. The Court explained that the government’s priority attaches once a receiver or similar trustee is appointed and that later assessments against funds in the receiver’s hands cannot outrank the earlier federal claim. Because the receiver was appointed in 1922 and the federal taxes were assessed in 1923, the federal claims had priority over the county assessments made on the funds in 1924 and 1926. The Washington Supreme Court’s earlier reversal awarding priority to the United States was therefore affirmed.

Real world impact

The ruling means federal tax claims can exhaust the limited proceeds of an insolvent company before counties collect taxes later assessed on money in a receiver’s hands. State procedures for making a tax a specific lien might change outcomes, but the Court relied on the state court’s view that no such perfected lien existed here.

Dissents or concurrances

A concurring opinion noted both tax debts were treated as personal obligations (not perfected liens) and therefore decided the dispute under the federal priority statute.