Commentary - November 2001

Beware the Perpetual Lien &

Other Dangerous Migratory Creatures

by Lyle Brennan

Despite the terrifying implications of the above-referenced NRS, the statutes luckily go on (in NRS 361.069) to exempt household goods and furniture, freeing Nevada residents from the chore of assessing the value of their dishes, coffee tables, Nintendo games and underwear every year. No, it is businesses that are the main target of the personal property tax, and each year they contribute $------- to the state coffers in the form of taxes on tools, slot machines, office equipment & furniture, tenant improvements, restaurant fixtures, computers and most other items necessary to keep a company operating. Each county assessor is responsible for collecting taxes so they can be turned over to the state.

Not news, you say? Each summer the Personal Property Tax Declaration form arrives, greeted with groans by the accounting staff or whatever poor soul is assigned to fill out the multi-page listing of all your firm’s worldly goods. After several days of tracking down equipment, looking up serial numbers, recording new property, trying to figure out where the stuff listed on last year’s report ended up, and depreciating the whole mess according to several different schedules, you finally arrive at a dollar figure for taxable property, multiply it by 35 percent and send off your check. You are finished for another year.

But wait – the state (and its agents, the county assessors) have a trap in store for unwary potential taxpayers. Examine the wording of this statute: "Except as provided in subsection 3 [which pertains to mobile homes], every tax levied under the provisions of or authority of this chapter is a perpetual lien against the property assessed until the tax and any penalty charges and interest which may accrue thereon are paid." (NRS 361.450)

A close examination of this clause reveals two important facts: first of all, the tax is a "perpetual lien," and secondly, it does not attach to the owner of the property, but to the property itself, much as a lien against a piece of real estate. However, a lien against real property must be recorded. To find out about a lien against a piece of real property, all you need do is ask the county recorder to look up the parcel on its tax rolls, either by address or parcel number.

But …what about what the state calls "migratory property"? You may buy a business and its associated equipment, or purchase second-hand fixtures or tools in good faith, or foreclose on the assets of a business, only to discover that the previous owner had not paid the taxes on the personal property which "migrated" into your business. And you, as the new owner, have inherited the "perpetual lien" attached to this property, about which you knew nothing at all. If you refuse to pay the taxes left unpaid by the previous owner, your new property can be seized. Should you have contacted the county recorder to check out this property before purchasing it or foreclosing on it? No. There’s no record of it there, and for good reason. Imagine the volume of work necessary to record and track the millions of pieces of taxable property in the state - it would require an entire new bureaucracy backed by a supercomputer.

What happens instead is this: the county assessor maintains a list of all individuals and businesses delinquent on their personal property tax payments. A call to the county assessor’s office should tell you if ABC Company is delinquent. However, two things must happen before you can get this valuable information: first, you must be aware of the liability involved in acquiring the equipment or fixtures, which most people are not. Secondly, you need to know the exact name, and preferably also the address, of the last person who filed a report on this list of items.

How can you protect yourself? One of my staffers spoke at length with Todd Mathison, manager of property appraisal for the Clark County Assessor’s Office, and also with Mike Davidson, Assistant District Attorney for Clark County, who acts as legal counsel for the assessor’s office. "If you are considering buying a business or foreclosing on one, check with the assessor’s office first to verify whether the owners are delinquent," suggested Davidson. "But, since businesses may have other obligations as well, it might be wise to go through a business broker or an attorney who knows how to check for all types of liens and encumbrances."

Although the advice to utilize a business broker or an attorney sounds good, I used both of them and still got stuck with an unexpected "perpetual lien". Seem fair to you? Well, let’s look at yet another scenario: You make a loan to someone or someone’s business, securing that loan with the business’s assets. You do everything right, including having all the legal documents executed to support the loan. You record the loan, placing yourself in a first-lien position. According to the county, you are still stuck with the "perpetual lien," even though your legally-recorded lien on the assets preceded the county’s delinquency date and claim. Perpetual, in this case, means the liability goes backwards in time as well as forwards.

It may be so… but it don’t make it right. So, for now, let’s say it’s just another case of Caveat Emptor, "buyer beware." From one taxpaying business owner to another, be careful out there.

Lyle Brennan Publisher
COMMENTS? email: lyle@nbj.com