So, the Texas Comptroller of Public Accounts (“Comptroller”) says you owe state tax. If the deficiency determination hasn’t yet become final, you still may be able to challenge the underlying tax liability (for more on that, read this post). But say you don’t do that (or say the say the Comptroller has made a jeopardy determination and can begin collection action immediately)? What happens then?
At that point, the Comptroller, acting independently or with the Attorney General of the State of Texas (“Attorney General”), may try to collect the taxes claimed to be due. Here are some of the tools they have at their disposal.
State Tax Liens
One item in the Comptroller’s arsenal is the state tax lien. Automatically arising when a taxpayer owes tax, penalties, or interest to the state, a state tax lien attaches to all of the taxpayer’s property that is subject to execution. But, it only becomes effective against a bona fide purchaser once a notice of state tax lien is filed with the county clerk in the appropriate county.
A notice of state tax lien must include the name of the taxpayer, the type of tax owed, each period for which the tax is claimed, the tax due for each period (excluding penalties, interest, and other costs), and any other relevant information. The Texas Tax Code provides that a single notice of state tax lien “is sufficient to cover all taxes administered by the Comptroller, including penalty and interest computed by reference to the amount of tax, that may have accrued before or after the filing of the notice.” Meaning that the notice may cover taxes that the notice doesn’t even mention.
State tax liens remain in effect until the taxpayer fully pays the taxes, interests, penalties, and fees that the taxpayer owes the state. Nevertheless, the Comptroller and Attorney General may agree to a partial release of a state tax lien on specific real or personal property if the taxpayer pays the Comptroller the “reasonable cash market value” of the property (such “reasonable cash market value” being determined as prescribed by the Comptroller).
In order to challenge the validity of a state tax lien, a taxpayer (or any other person) must file suit in Travis County district court within 10 years of the date when the lien is filed. However, this limitations period won’t apply only if a taxpayer provides “substantive evidence” that the Comptroller “considers satisfactory” that rebuts the presumption that the taxpayer received proper notice of the taxpayer’s tax liability (so probably almost never). As result of a suit challenging the validity of a state tax, the lien will either be 1) perpetuated and foreclosed or 2) nullified.