United States v. Vermont

PETITIONER: United States
LOCATION: New York Supreme Court Appellate Division, First Department

DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 377 US 351 (1964)
ARGUED: Apr 21, 1964
DECIDED: Jun 01, 1964

Facts of the case


Media for United States v. Vermont

Audio Transcription for Oral Argument - April 21, 1964 in United States v. Vermont

Earl Warren:

Number 509 United States, Petitioner versus Vermont et al.

Mr. Friedman.

Daniel M. Friedman:

Mr. Chief Justice and may it please the Court.

This is a federal tax lien case, here on the writ certiorari to the Court of Appeals for the Second Circuit in which a tax lien of the State of Vermont has been given priority over a federal tax lien.

The question presented is whether at the time the federal tax lien arose, the general lien of the State of Vermont was not then sufficiently perfected or as the phrase is used choate because it had not attached at that time to specific property of the taxpayer so that federal lien although arising later took priority over the earlier state general lien.

Arthur J. Goldberg:

Does the federal lien any more choate than the state lien?

Daniel M. Friedman:

Well Mr. Justice we think that what -- first of my argument will be that the federal lien is presumed to be fully perfected and choate the minute it arises, but that the state lien in order to prevail against the federal lien must meet three criteria of choateness which this Court has developed and we think consistently applied, and which we think this lien did not meet because it did not attach to specific problem.

Arthur J. Goldberg:


Daniel M. Friedman:

That's correct, that's correct.

And we think if I may say Mr. Justice at first glance it might seem somewhat anomalous that you have two liens which are in substantially identical terms, we say one is sufficiently perfected, the other isn't.

We think this basically, basically rests on the whole policy which underlines choate lien doctrine, the need to protect federal revenues as this Court has recognized in Gainy as I shall --that's our basic position in the case.

The facts --


Daniel M. Friedman:

Well of course the states do have need for revenue Mr. Justice but I think this is an area where the federal power and the federal interest is paramount and if I may just say that the whole thrust of all the decisions of this Court which dealt with this problem we think have recognized that a state lien, state created liens and the federal liens do have different standards and different tests applied.

The basic facts in this case are very simple, not in dispute.

The taxpayer is a firm named Cutting & Trimming and the dispute between us and the State of Vermont is over some $1800 which the taxpayer had on deposit in a bank in Vermont.

The State of Vermont has an income tax system which is patterned on and is very similar to the federal income tax system, was done explicitly in fact.

One of its provisions is the requirement similar to the federal system that an employer withhold taxes on his employees' wages.

And the Vermont statute provides that in the event an employer fails to withhold and pay over the tax to the state, the amount of the tax shall be a lien upon all property and rights to property of the taxpayer arising upon the assessment of the tax and demand and again this is basically the same provision as the federal provision.

The dates with respect to the assessment and the perfection of these liens are as follows.

The State of Vermont's lien arose first.

It aroused on October 28th, -- sorry October 21st, 1958 and that was occasioned by the fact that the Cutting & Trimming firm had filed a tax return for the third quarter of 1958 filling a substantial indebtednesses to the state in withholding taxes that it failed to pay those taxes.

So the state on the 21st of the October assessed the taxes and made a demand and under state law its lien arose at that point.

Seven months later on the 21st of May 1959, the State of Vermont took its next step toward enforcing its lien when it brought a suit in the state court against Cutting & Trimming and the bank in which the Cutting & Trimming had funds on deposit and four days later after the seven months it served a writ of attachment on the bank and I just may interpolate to say in the government's view at that point, and at that point only that the lien of the State of Vermont acquired a sufficient degree of perfection that it would come ahead of the federal lien.

But the federal lien had arisen in the interval about three-and-a-half months later, I mean, three-and-a-half months after the state lien has arisen.

In February 1959, the Commissioner of Internal Revenue assessed against Cutting & Trimming taxes under the federal Unemployment Tax Act.

This is a statute which requires an employer to pay a tax of 3% of his payroll.

Unlike the state tax which was due quarterly this tax is due annually on the 31st day of January for the preceding year.

The government in turn, a few days thereafter, also served a notice of levy upon the bank and this suit was instituted approximately two years after we had filed our notice of levy.

Now before coming to the merits of the case, I just like to refer very briefly to a contention of the State of Vermont that the answer to this question whether the state lien outranks the federal lien should be decided not by federal law but by state law.