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UNITED STATES v. VERMONT ET AL.

decided: June 1, 1964.

UNITED STATES
v.
VERMONT ET AL.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.

Warren, Black, Douglas, Clark, Harlan, Brennan, Stewart, White, Goldberg

Author: Stewart

[ 377 U.S. Page 352]

 MR. JUSTICE STEWART delivered the opinion of the Court.

This case involves a conflict between two liens upon the property of a solvent Vermont taxpayer -- a federal tax lien arising under the provisions of 26 U. S. C. §§ 6321 and 6322*fn1 and an antecedent state tax lien based on a Vermont law worded in terms virtually identical to the provisions of those federal statutes.

On October 21, 1958, the State of Vermont made an assessment and demand on Cutting & Trimming, Inc., for withheld state income taxes of $1,628.15. The applicable Vermont statute, modeled on the comparable federal enactments, provides that if an employer required to withhold a tax fails to pay the same after demand, "the amount, including interest after such demand, together with any costs that may accrue in addition thereto, shall be a lien in favor of the state of Vermont upon all property and rights to property, whether real or personal, belonging to such employer," and that "such lien shall arise at the time the assessment and demand is made by the commissioner of taxes and shall continue until the liability for such sum, with interest and costs, is satisfied or becomes unenforceable."*fn2

[ 377 U.S. Page 353]

     More than three months later, on February 9, 1959, the Commissioner of Internal Revenue made an assessment against Cutting & Trimming of $5,365.96 for taxes due under the Federal Unemployment Tax Act. Under §§ 6321 and 6322, this amount became "a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person," which arose "at the time the assessment is made and shall continue until the liability for the amount so assessed is satisfied or becomes unenforceable by reason of lapse of time."*fn3

On May 21, 1959, the State instituted suit in a state court against Cutting & Trimming, joining as a defendant Chittenden Trust Company, a Burlington bank which, as the result of a writ served on May 25, disclosed that it had in hand sums owing to Cutting & Trimming. On October 23, 1959, judgment was entered against Cutting & Trimming and against Chittenden Trust Company.

In 1961, the United States brought the present action in the Federal District Court for Vermont to foreclose the federal lien against the property of Cutting & Trimming

[ 377 U.S. Page 354]

     held by the Trust Company. Vermont's answer alleged that the state assessment of October 21, 1958, gave its lien priority over the federal lien. On cross-motions for judgment on the pleadings, the District Court held that the state lien had priority, and directed the Trust Company to apply the moneys which it held first to the payment of principal and interest on that lien, and to pay any balance to the United States. 206 F.Supp. 951.

The Court of Appeals affirmed, reasoning that, under this Court's decision in United States v. New Britain, 347 U.S. 81, "it would seem that if the general federal tax lien under §§ 6321 and 6322 is thus sufficiently 'choate' to prevail over a later specific local tax lien, a general state tax lien under an almost identically worded statute must also be 'choate' enough to prime a later and equally general federal tax lien," 317 F.2d 446, 452. Accordingly, the appellate court applied "the 'cardinal rule' laid down by Chief Justice Marshall in Rankin & Schatzell v. Scott, 12 Wheat. (25 U.S.) 177, 179 (1827): 'The principle is believed to be universal that a prior lien gives a prior claim, which is entitled to prior satisfaction, out of the subject it binds . . . .'" Id., at 450. Because of the importance of the question in the administration of the state and federal revenue laws, we granted certiorari. 375 U.S. 940. For the reasons which follow, we affirm the judgment of the Court of Appeals.

Both parties urge that decision here is governed by United States v. New Britain, 347 U.S. 81. In that case, involving conflicting municipal and federal statutory liens, the Court held that "the priority of each statutory lien contested here must depend on the time it attached to the property in question and became choate." Id., at 86. In determining the choateness of the liens involved, the Court "accept[ed] the [state court's] holding as to the ...


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