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Holder of Certificate of Delinquency Entitled to Impose Reasonable Amount of Fees for Collecting Unpaid Tax

10.13.2010

In Maynard v. Groome, No. 2009-CA-000835-MR (Ky. App. May 28, 2010), the Kentucky Court of Appeals (“Court”) affirmed the Pike County Circuit Court’s grant of summary judgment and held that the holder of certain certificates of delinquency was permitted to charge interest and collect fees for collecting the unpaid tax from the delinquent taxpayer. 

In 2006, William Groome (“Groome”) purchased all of the delinquent natural gas certificates sold at the Pike County Sheriff’s tax sale and recorded a real property tax lien against each delinquent taxpayer.  He mailed each delinquent taxpayer a notice stating that interest would bear at the rate of twelve percent (12%) per year until paid and that the amounts on the notice did not include “interest, penalties, costs, or fees.”

In addition to collecting the unpaid tax from William Maynard (“Maynard”) for a certificate of delinquency, Groome sought interest and various fees related to the collection of the tax, including a $50 fee for recording the lien, a $50 fee for release of certificate and a $100 processing fee.  Maynard argued that Groome was not permitted to collect such fees.

The Court stated that third-party purchases of certificates of delinquency and their enforcement is now governed by KRS 134.452.  KRS 134.452 limits the amount of fees collected by third-party purchasers to the amount actually paid for the certificate of delinquency, interest at a rate of 12% per year, certain attorney fees, and administrative fees incurred for preparing, recording, and releasing an assignment of the certification of delinquency, not to exceed $100.

However, Groome purchased the certificates before the enactment of KRS 134.452, so the Court focused on the law in effect at the time of purchase.  The Court looked to KRS 134.420, in effect at the time of purchase, which provided that a lien for taxes “shall include all interest, penalties, fees, commission, charges, costs, attorney fees, and other expenses” which have been incurred in the process of collecting on a certificate of delinquency.  Accordingly, the Court held that Groome was permitted to obtain a reasonable amount of fees.  The Court further held that the fees imposed by Groome were reasonable and he was therefore entitled to recover same.

No appeal was filed and this case became final on July 7, 2010.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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