Legislation approved in 2010 session of General Assembly addresses chilling effect of court decision on equipment lenders in Tennessee

 (NASHVILLE, TN), July 8, 2010  — The Tennessee General Assembly approved legislation in the recently-adjourned 2010 legislative session that addresses a problem that has arisen between the rights of purchase money security interest (PMSI) holders and the rights of city and county governments with tax liens on property.  The bill, sponsored by Senate Majority Leader Mark Norris (R-Collierville), stems from a Tennessee Court of Appeals decision arising out of Williamson County which threatened to have a chilling effect on companies extending credit for equipment purchases to Tennessee businesses.

“Historically, lenders had considered purchase money security lenders to have a super priority as is the case in federal and state tax liens,” said Leader Norris.  “The Williamson County case determined that this was not the situation as it relates to personal property tax liens due to an ambiguity in Tennessee law.   This legislation makes the law clear so credit is not unnecessarily restricted to entrepreneurs and small businesses.”

A purchase money security interest (PMSI) is a property interest created by operation of law, by a filing with the Secretary of State. The interest is over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets. Such as a holder of the security interest is entitled to seize, and usually sell, the property to discharge the debt that the security interest secures.

The legislation, Senate Bill 2809, requires secured parties to withhold the amount of taxes due when property is repossessed and sold.  The new law also requires local governments to notify secured parties of their responsibility to pay past-due taxes on the secured equipment.  In addition a secured party’s liability is limited to four tax years.  A county official or assessor is required to respond to a secured party’s request for information within 15 days via certified mail.  These protections remove uncertainty for lenders so they know their tax liability when a business defaults.
 
“The objective is to keep open lines of credit that are being made to businesses in Tennessee, particularly in the construction industry which has been hit very hard during the recession,” added Norris.  “We were faced with the challenge of setting forth the means by which these liens could be enforced in such a way that would not be unfair to the lenders.  In order to do this, concerned parties sat down for almost two months to facilitate a fair solution to the problem.  I commend the lenders, the equipment leasers and sellers, and the county tax assessors who worked for two months to come up with a fair solution to this problem,” Norris concluded.

###

Posted in News, Sen. Mark Norris
Tags:

Leadership