APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY. (D.C. Civil No. 91-cv-00748).
Before: Sloviter, Chief Judge, Lewis and Weis, Circuit Judges.
This case presents a single issue of law: the relative priority of Internal Revenue Service ("IRS") liens, which arise upon assessment under 26 U.S.C. §§ 6321 and 6322,*fn1 versus New Jersey motor fuels tax liens, which arise under New Jersey's State Tax Uniform Procedure Law. At summary judgment, the United States District Court for the District of New Jersey found the federal liens to be superior. Because we believe the state liens were choate before the liens of the IRS arose and were, therefore, entitled to priority, we will reverse the district court's judgment.
The material facts of this case are generally undisputed. The necessary factual background concerns New Jersey's uniform procedures for assessing and collecting taxes and the State of New Jersey, Division of Taxation's ("Division") activities with respect to Monica Fuel, Inc. ("Monica Fuel").
The state liens involved in this case arose under N.J. Stat. Ann. § 54:49-1, which provides in pertinent part:
The taxes fees, interest and penalties imposed by any such State tax law . . . from the time the same shall be due, shall be a personal debt of the taxpayer to the State, recoverable in any court of competent jurisdiction in an action in debt in the name of the State. Such debt, whether sued upon or not, shall be a lien on all the property of the debtor except as against an innocent purchaser for value in the usual course of business and without notice thereof, and except as may be provided to the contrary in any other law . . . .
The Division is authorized to make an assessment after a report is filed and it is determined that there is a deficiency in payment. Notice of such a deficiency assessment is then given to the taxpayer and demand for payment is made. N.J. Stat. Ann. § 54:49-6. The taxpayer must remit to the Division the assessed amount within fifteen days after the notice and demand are mailed. N.J. Stat. Ann. § 54:49-8. Non-payment within the 15-day period results in the imposition of an additional penalty of five percent. N.J. Stat. Ann. § 54:49-9.
The Division is not limited to demand and imposition of penalties as the only tools for effectuating collection of unpaid taxes. The Division may, as an alternative remedy, issue a certificate of debt to the Clerk of the New Jersey Superior Court. The clerk immediately enters upon the record of docketed judgments the name and business address of the debtor, the certified amount of the debt and the name of the tax. N.J. Stat. Ann. § 54:49-12. The entries are given the same force and effect as any entry of a docketed judgment, and provide the Division with all of the remedies available for recovery of a judgment in action. We note that this alternative remedy creates no additional rights nor additional liabilities; rather "it is a device for collecting taxes[.]" C.J. Kowasaki, Inc. v. New Jersey, 13 N.J. Tax 160, 168-169 (N.J. Tax Ct. 1993).
The New Jersey statute provides an additional remedy to enforce collection of taxes. The Division may issue a warrant of execution to the sheriff of any county who, in turn, files the warrant with the county clerk.*fn2 The clerk then enters in the judgment docket the name of the taxpayer and the amount the taxpayer owes to the State. As with the certificate of debt, the warrant does not create the lien; instead the warrant ...