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IN RE REGAL PETROLEUM PRODS. CO.

July 17, 1968

In the Matter of REGAL PETROLEUM PRODUCTS COMPANY, Bankrupt


The opinion of the court was delivered by: KRAFT

 The Trustee in bankruptcy has petitioned herein for review of an order *fn1" of the Referee in Bankruptcy. The questions presented for determination are whether the Commonwealth acquired a valid statutory tax lien on the personal property of the bankrupt upon the assessment and settlement of state corporate taxes by the Auditor General of Pennsylvania in Harrisburg under 72 P.S. § 1401, and, if so, to what extent such lien was enforceable or postponed in order of payment.

 Under the provisions of the Bankruptcy Act the Trustee in bankruptcy, on the date of bankruptcy, possesses the rights of a bona fide purchaser, Section 67(c)(1)(B), 11 U.S.C.A. § 107(c)(1)(B) and an execution judgment creditor, who, on the date of bankruptcy, obtained an execution returned unsatisfied against the bankrupt. Section 70(c)(2), (11 U.S.C.A. § 110(c)(2)).

 The Trustee, possessed of such rights, contends that the corporate tax claims of the Commonwealth for the years 1961 and 1962, *fn2" totaling $723.98, are not statutory liens against personal property under Pennsylvania law, and having been due and owing for more than three years preceding the date of bankruptcy are released by a discharge in bankruptcy. Section 64(a)(4), as amended in 1966, (11 U.S.C.A. § 104(a)(4)); Section 17(a)(1), as amended in 1966, (11 U.S.C.A. § 35(a)(1)).

 As a result of an amendment to the Bankruptcy Act in 1966 at Section 1(29a), (11 U.S.C.A. § 1(29a)) the definition of statutory liens is now as follows:

 The relevant provision of the Pennsylvania Fiscal Code here involved (72 P.S. § 1401) provides, in pertinent part, as follows:

 
"All State taxes imposed under the authority of any law of this Commonwealth, * * * hereafter * * * settled, assessed or determined against any corporation * * * shall be a first lien upon the franchises and property, both real and personal, of such corporation * * * from the date of settlement, assessment or determination * * * all taxes * * * shall first be allowed and paid * * * before any judgment, mortgage, or any other claim or lien against such corporation * * *."

 The Pennsylvania Supreme Court, in construing that statute, has held, in Commonwealth v. Central Realty Co., 338 Pa. 172, 12 A.2d 312 (1940), that under § 1401, a state tax imposed against a corporation is a first lien upon both the real and personal property of such corporation from the date on which the tax is settled by the Auditor General; that it is not necessary for the lien to be filed or recorded in the prothonotary's office of the particular county. The Court said at p. 179, 12 A.2d at p. 315:

 
"It was thenceforth sufficient, in order to establish the lien, for the Commonwealth to settle the tax in the auditorgeneral's office in Harrisburg. The judgment creditor of or bona fide purchaser from the party against whom the taxes were assessed was thereafter required for his own protection to consult the auditor-general's records or indices in the State Capitol * * *."

 See also Commonwealth v. Hoffman-Henon Co., 382 Pa. 213, 217, 114 A.2d 92, 94 (1955) wherein the Court stated: "Section 1401 of the Fiscal Code of 1929, as originally enacted, provided that all State taxes * * * settled against any corporation should be a first lien upon the property and franchises of such corporation from the date of settlement * * *."

 In an earlier case, *fn3" Traction Materials Co. v. Pittsburgh, McKeesport & Westmoreland Ry. Co., 261 Pa. 153, 159, 104 A. 552 (1918), involving the activities of a receiver of an insolvent corporation, the Supreme Court recognized that the Act of 1911 changed the prior requirement of filing a tax lien by " dispensing with such filing."

 Section 1404 *fn6" of the Fiscal Code, dealing with entry of tax liens and scire facias, by reason of its use of the discretionary language "may at any time", has been held to be permissive and not mandatory. Commonwealth v. Central Realty Co. supra, 338 Pa. at 172, 177, 178, 179, 12 A.2d 312; Goodwin Gas ...


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