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Midland Central Appraisal District v. Midland Industrial Service Corp.
Citation: 35 F.3d 164Docket: 93-08067
Court: Court of Appeals for the Fifth Circuit; September 28, 1994; Federal Appellate Court
Original Court Document: View Document
Midland Central Appraisal District (MCAD) appeals a lower court ruling that denied its claim for administrative expenses related to ad valorem taxes against Midland Industrial Service Corporation (Appellee) in the context of the latter's Chapter 11 bankruptcy. The bankruptcy court had previously determined that the taxes in question were incurred before the bankruptcy filing on January 14, 1988, categorizing them as pre-petition expenses. This ruling was upheld by the district court on January 19, 1993. On appeal, the court reviewed the bankruptcy court's findings under a "clearly erroneous" standard for factual determinations and a "de novo" standard for legal conclusions. Appellee argued that MCAD's appeal was moot due to a prior settlement agreement that put the disputed amount into escrow, but the court found that the case remained viable. The proceedings eventually shifted to a Chapter 7 bankruptcy due to Appellee's inability to meet worker's compensation obligations. The court discussed Section 503 of the Bankruptcy Code, which allows for administrative expenses, including certain taxes incurred by the estate, but specifies that a claim cannot be both a pre-petition secured claim and a post-petition administrative claim. Thus, the decisive issue was whether the taxes were incurred before or after the bankruptcy petition was filed. The court affirmed the lower court's decision, concluding that the taxes were indeed pre-petition. Tax liability in Texas arises under state law, specifically section 32.07 of the Texas Tax Code, which states that property taxes become the personal obligation of the property owner as of January 1 of the tax year. This obligation persists even if the owner no longer holds the property. A tax lien attaches to the property on January 1, securing payment for all taxes, penalties, and interest imposed that year. While taxes are generally assessed around October 1, the obligation for ad valorem taxes accrues as of January 1. In the dispute, MCAD argues that tax liability is incurred only when taxes are assessed, claiming liability arose after the petition was filed on January 14, 1988. Conversely, Appellee contends that the tax obligation attaches on January 1, 1988, when liability for the taxes accrued and the lien attached. The resolution clarifies that "incur" means to become liable by law. Tax claims are incurred on the date they accrue, not when assessed. Under Texas law, a property owner's liability for taxes arises on January 1, regardless of assessment timing. Thus, MCAD's claim for payment accrued on January 1, 1988, qualifying as a pre-petition expense. Consequently, the taxes cannot be classified as administrative expenses since the triggering events occurred before the petition. MCAD is barred from asserting both a pre-petition secured tax lien and a post-petition administrative expense for the same tax. The district court's order denying MCAD's claim for administrative expense is affirmed.