6 Tax Levy Q&A’s to Keep Your Enforced Collections on Track

6 tax levy

Personal property tax levy is one of the most complicated delinquent tax remedies. Identifying and locating the taxpayer’s eligible property is often one of the biggest challenges of this delinquent property tax remedy.

The tips below will help you determine whether a delinquent taxpayer’s property is eligible for a property tax levy.

Q:  What can you levy against?

A:  Tax collectors may issue a tax levy against any personal property currently owned by the delinquent taxpayer, regardless of when they acquired it or whether there are mortgages or other liens on it.

Q: What if the taxpayer transferred ownership?

A:  You have the authority to use the tax levy remedy against any personal property transferred by the delinquent taxpayer to:

  • Any relative of the taxpayer
  • The spouse of a relative of the taxpayer
  • A relative of the taxpayer’s spouse
  • A spouse of the relative of the taxpayer’s spouse
  • Any non-relative as long as the levy is made within six months of the transfer and the transfer was not the result of a bona fide sale for value.

Q:  What if the taxpayer is deceased?

A: You may pursue a tax levy against any personal property in a deceased person’s estate as long as you make the levy before the final settlement of the estate.

Q:  What if the delinquent taxpayer is a wholesale merchant or retailer?

A:   You may pursue a personal property levy against:

  • Any goods or fixtures, even if those goods or fixtures have been sold to another person or entity.
  • The personal property of the purchaser if taxes are unpaid 30 days after the date of sale or transfer. Bewareyou only have a 6-month window after the date of sale to pursue this option. After that, you may only pursue a tax levy against the original goods or fixtures that the purchaser bought.

Q:  What if the property has been repossessed?

A:   Let’s say, for instance, that the property owner is buying a vehicle, misses some payments, and it is repossessed. G.S. 105-366 states that you may still issue a tax levy against that vehicle until or unless it is sold for cash value.

Q:  What if the property tax is due on a partnership property?

A:  In this case, you may purse levy on any personal property of either partner. But first, you must meet these criteria:

  • You must have sold your taxing unit’s (county/municipality) lien for taxes against the partnership real property, if any exists
  • Exhausted both the attachment and garnishment and levy remedies on the partnership’s personal property
  • Exercised your taxing unit’s authority under S. 105-364. This statute grants tax collectors the authority to work with other taxing units to collect delinquent taxes in cases where the taxpayer has moved and his whereabouts are known.

Attachment and Garnishment: Who, What and When

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Attachment and Garnishment is an effective and often-used method of enforced tax collection.  But, the statutes that govern it and the process of enforcing it are anything but easy.

Below are a few basic pointers to keep in mind when it comes to determining when to pursue this enforced collections remedy and against what type of personal property to attach.

When 

General Statute 105-368 gives NC local government taxing authorities the right to pursue Attachment and Garnishment against a delinquent taxpayer’s intangible personal property on the first day that the tax is considered delinquent (January 6th).


What Can Be Attached and Garnished

Intangible personal property is defined as any personal property that can’t be seen or felt and which legally belongs to the taxpayer. Examples of intangible personal property that are available to the Attachment and Garnishment remedy are:

  • Wages or other compensation
  • Rental fees on property owned by the taxpayer
  • Bank deposits
  • Owned by the taxpayer
  • Owned jointly by the taxpayer and a spouse
  • Proceeds subject to levy (such as proceeds from a real estate sell)
  • Property held in an Escheat Fund (unclaimed property)

What Can Not be Attached or Garnished

There are a few forms of intangible personal property that are exempt from the Attachment and Garnishment remedy due to federal and state laws which prohibit their attachment.  These are:

  • Most retirement benefits
  • Military benefits
  • Unemployment compensation
  • Social Security benefits
  • NC public assistance payments (Medicaid, payment for adoption assistance, food and nutrition service benefits)
  • Corporate assets for which the delinquent taxpayer is a shareholder

Who is Subject to Attachment and Garnishment?

Any person or entity who owes intangible personal property subject to G.S. 105-368 to a delinquent taxpayer can be subject to Attachment and Garnishment.  This includes:

  • Employers
  • Up to 10% of gross wages (before deductions for taxes, retirement plans, or other voluntary withholdings) due to the delinquent taxpayer
  • This includes the Federal Government, though the required time allowed for a response is lengthened.
  • Tenants
  • Rents would be paid in their entirety to the taxing authority
  • Other County or City Governments in the possession of funds belonging to the delinquent taxpayer
  • Banks
  • Eligible deposits or balances would be paid to the taxing authority until the tax debt is satisfied

 

Brush Up Your Forced Collections Skills with this Debt Setoff Primer

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In FY ending June 30, 2010, more than $58 million in NC property taxes went uncollected. With counties and municipalities around North Carolina struggling to maintain a proper fund balance, now is the prime time to review your forced collections strategies.

One remedy that many NC counties have found useful is the NC Local Government Debt Setoff Clearinghouse. This program boasts debt setoff collections of more than $27 million in 2011 with 35 counties already reaching the $1 million mark in collected revenues since their date of joining the program. It basically allows your agency to intercept any payments (such as a state tax refund or lottery winnings) owed to the taxpayer.

Whether you are among the local governments who have already taken advantage of this delinquent tax collection remedy or whether you are just now considering it, the tips below will help you ensure that you follow the rules governing this method of collection.

As set forth in General Statute Chapter 105A, a local government agency may pursue the debt setoff remedy for any delinquent property taxes owed by a debtor, but there are some critical steps to follow to ensure that you don’t end up having to issue a refund out of your agency’s coffers.

  • First, verify that the property tax owed is at least $50. The NC debt setoff program requires that each debt submitted to the program be a minimum of $50.
  • Second, unlike many other remedies, the delinquent property tax must have been delinquent for at least 60 days before you can submit it to the NC debt setoff program.

Once you have met these criteria, you must notify the delinquent taxpayer, in writing, that:

  • he or she owes the debt and what property incurred the debt;
  • if he or she does not reply within 30 days of the mail date on the notice, your office may submit the debt to the North Carolina Local Government Debt Setoff Clearinghouse;
  • if the debt goes to the debt setoff program, the taxpayer will owe an additional $15 collection fee;
  • he or she may request a hearing with the governing body (or a person the governing body designates), but that the request must be filed within 30 days of the mail date on the notice and that the request must be made in writing and sent to an address specified in the notice.

If the taxpayer does not request a hearing within 30 days of the mail date on the notice, you may submit the delinquent property tax amount to the Department of Revenue, but you must first meet these criteria:

  • Notify the Department of Revenue in writing that you intend to pursue the debt setoff remedy
  • Include information that will identify the taxpayer to the Department of Revenue, such as a social security number

At this point, your work is done until an opportunity for setoff arises, for example, when the delinquent taxpayer is due for a refund.

Once such an opportunity arises, the Department of Revenue will send your agency a portion of the refund (or all of it if the refund does not cover the full amount of taxes owed). Your agency must then notify the taxpayer within 10 days that you have received the refund and that you will apply it to the debt they owe.

Again, the taxpayer may contest the debt setoff, so your letter must explain the process they must follow in order to contest the setoff.

Throughout this process, and perhaps before beginning this process, keep a couple of things in mind:

  • Your agency could owe a refund, plus interest: If the taxpayer proves that the amount you claim he/she owes is incorrect, or you fail to follow the procedures of notification, your agency will have to refund the setoff amount plus an accrual of interest on the refund amount starting on the fifth day after the Department of Revenue mails the taxpayer the notice that the debt has been set off.
  • Priority of payment: State governments take priority over local governments for any debt owed. That means that if the debtor owes the state any lottery winnings or state tax refunds will be issued to the state until that debt is satisfied. Any remaining proceeds will then filter to local governments on a first come, first served basis. So, it pays to submit delinquent property tax debts for setoff as early as legally allowed.

Need help crafting the Notice of Debt Setoff? Try this FREE Debt Setoff Notice Template.  It includes all required information as set forth in NC GS 105A as well as collection best practices to ensure a prompt response.

For more information on the North Carolina Local Government Debt Setoff Clearinghouse, check out the clearinghouse website at www.ncsetoff.org or review the Department of State Treasurer Policy Manual for Local GovernmentsSection 50: Property Tax Assessment, Billing and Collection.

 

*A special thanks to Ben Chavis, Guilford County Tax Director, for his assistance with this article.