* Chief Judge of the Western District of Louisiana, sitting by

designation.

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________

No. 93-8067

__________________

IN THE MATTER OF: MIDLAND INDUSTRIAL SERVICE CORPORATION,

Debtor.

MIDLAND CENTRAL APPRAISAL DISTRICT,

Representing the City of Midland,

Midland Independent School District,

Midland County Hospital District

and Midland College,

Appellant,

versus

MIDLAND INDUSTRIAL SERVICE

CORPORATION, ET AL.,

Appellees.

______________________________________________

Appeal from the United States District Court for the

Western District of Texas

______________________________________________

(September 30, 1994)

Before GARWOOD and BARKSDALE, Circuit Judges, and SHAW,* District

Judge.

GARWOOD, Circuit Judge:

Midland Central Appraisal District (MCAD) appeals the lower

courts' decisions denying its post-petition administrative expense
1 On appeal, Appellee alleged that MCAD's appeal was moot

because no remedy or relief could be fashioned by this Court. As

the parties, pursuant to a March 31, 1992, settlement agreement,

agreed to have the trustee put the amount in controversy in an

escrow account pending the outcome of MCAD's appeal, we find no

merit to this argument. See In re Commonwealth Oil Refining Co.,

805 F.2d 1175, 1181 (5th Cir. 1986) ("A case is not moot so long

as any claim for relief remains viable . . . .").

2 The proceedings were subsequently converted to a Chapter 7

petition because of Appellees' inability to pay worker's

compensation. 

3 MCAD represents the taxing entities of the City of Midland,

the Midland Independent School District, the Midland County

Hospital District, and the Midland College District.

2

claim for ad valorem taxes against Midland Industrial Service

Corporation (Appellee).1 We affirm.

Facts and Proceedings Below

On January 14, 1988, Appellee, a Texas corporation, filed for

Chapter 11 bankruptcy.2 Prior to its bankruptcy petition,

Appellee owned personal property within the taxing jurisdiction of

MCAD.3 On December 1, 1988, MCAD filed an administrative expense

claim against Appellee's bankruptcy estate for 1988 ad valorem

taxes on personal property of Appellee (the Taxes). Appellee

objected to MCAD's claim, and the bankruptcy court held a hearing

on the matter. On October 25, 1991, the bankruptcy court ruled

that the Taxes were pre-petition expenses and denied MCAD's claim.

On January 19, 1993, the district court issued an order affirming

the bankruptcy court's decision. MCAD now appeals.

Discussion

The bankruptcy court's findings of fact are reviewed under the

clearly erroneous standard, while conclusions of law are subject to

de novo review. In re Consolidated Bancshares, Inc., 785 F.2d
4 Section 507(a) deals with the priority of expenses and

claims. The applicable part of section 507(a)(7) is clause (B),

which applies to property taxes "assessed before the commencement

of the case and last payable without penalty after one year

before the date of the filing of the petition." 11 U.S.C. §

507(a)(7)(B). Since the Taxes were not assessed before the

commencement of the case, section 507(a)(7) is not applicable. 

3

1249, 1252 (5th Cir. 1986).

I. Administrative Expenses 

Section 503 of the Bankruptcy Code provides: 

"After notice and a hearing, there shall be allowed,

administrative expenses, . . . includingSQ

* * *

(B) any taxSQ

(i) incurred by the estate, except a tax

of a kind specified in section

507(a)(7)[4] of this title . . . ." 11

U.S.C. § 503(b)(1)(B)(i) (emphasis

added). 

A bankruptcy estate comes into existence upon the filing of 

a bankruptcy petition. See, e.g., In re Anderson, 132 B.R. 657,

659 (Bankr. M.D. Fla. 1991). In accordance with section 503(b), a

claim cannot be both a pre-petition secured claim against the

debtor and a post-petition administrative claim against the

bankruptcy estate. Therefore, the sole issue is whether the Taxes

were "incurred" before or after Appellee's January 14, 1988,

bankruptcy petition.

II. Tax Liability Under Texas Law

The question of when a tax obligation arises is determined by

state law. In re Columbia Gas System, Inc., 146 B.R. 114, 116

(Bankr. D. Del. 1992). Under section 32.07 of the Texas Tax Code,

"property taxes are the personal obligation of the person who owns
5 In accordance with Texas law, on or before July 25 of any

given year, MCAD compiles lists reflecting the ownership and

value on January 1 of that year of the property which on January

1 of that year was within MCAD and subject to taxes for that

year. TEX. TAX CODE ANN. § 23.01 et seq. By July 25 of any given

year, MCAD certifies the appraisal rolls to the taxing

jurisdictions. TEX. TAX CODE ANN. § 26.01. Around September 1 of

any given year, MCAD calculates the tax rate necessary to obtain

funding for the budgets of its constituent jurisdictions. TEX.

TAX CODE ANN. § 26.05(a). The tax rate is usually finalized and

then assessed to the applicable properties by October 1. TEX. TAX

CODE ANN. § 31.01(a).

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or acquires the property on January 1 of the year for which the tax

is imposed. [Such] person is not relieved of the obligation

because he no longer owns the property." TEX. TAX CODE ANN. § 32.07.

Texas law also provides that "[o]n January 1 of each year, a tax

lien attaches to property to secure the payment of all taxes,

penalties, and interest ultimately imposed for the year on the

property, whether or not the taxes are imposed in the year the lien

attaches. The lien exists in favor of each taxing unit having

power to tax the property." TEX. TAX CODE ANN. § 32.01 (a). Under

Texas law, taxes for a particular year generally are not assessed

against the taxpayer until approximately October 1 of that year.5

See, e.g., Shaw v. Phillips Crane & Rigging, Inc., 636 S.W.2d 186,

188 (Tex. 1982) (noting tax rolls are required to be filed no later

than October 1).

III. Parties' Arguments 

MCAD argues that a tax is incurred on the date it is assessed.

MCAD asserts that taxes are not incurred until the tax rate is set

and the taxes are payable. As a result, MCAD contends that

liability for the Taxes was incurred post-petition since the date

of assessment occurred after January 14, 1988, the date the
6 MCAD asserts that this Court in In re Stanford, 826 F.2d 353

(5th Cir. 1987), implicitly ruled for its position. In Stanford,

this Court, in a footnote, stated that the debtors "assert[ed] or

conced[ed] that taxes falling due during the administration of

the estate . . . are payable as expenses of the estate under 11

U.S.C. § 503(b)(1)(B)(i)." Id. at 354 n.1. The footnote simply

observed that the parties did not argue the issue; it does not,

however, reflect this Court's position.

7 In Northeastern, the debtor, an employer, was required by

state law to pay a tax to fund the cost of providing unemployment

benefits to its former employees. Employees of the debtor had

been terminated prior to the bankruptcy petition, but benefits

were not paid them until after the petition, and the amount

debtor was to pay to fund those benefits likewise was not

determined or payable until after the petition was filed. At

issue was whether the obligation to fund those unemployment

benefits paid to the former employees was a pre-petition or postpetition claim against the debtor. The court ruled that because

the event that under local law triggered the liability, i.e. the

termination of the employees, occurred pre-petition, the claim

was not a post-petition administrative expense. Id. at 515.

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petition was filed.6

Counter to MCAD's position, Appellee asserts that a tax is

incurred on the date tax liability accrues or attaches. Appellee

contends that in accordance with Texas law, January 1, 1988, was

the date when the obligation for the Taxes was incurred, as this

was the date MCAD's personal liability for the tax accrued and a

lien for the tax attached to the property.

IV. Resolution of the Conflict 

The term "incur" is defined as "[t]o have liabilities cast

upon one by act or operation of law [or to] become liable or

subject to." BLACK'S LAW DICTIONARY 691 (5th. ed. 1979). "[A] tax

claim is incurred on the date it accrues rather than the date it is

assessed or becomes payable." In re Northeastern Ohio General

Hosp. Assn, 126 B.R. 513, 515 (Bankr. N.D. Ohio 1991).7 A tax

obligation accrues when the event that triggers liability has
8 See, e.g., Columbia Gas System, 146 B.R. at 118 (ruling that

under local law debtor obligation to pay taxes arose not when it

was assessed but "when it owned and operated property within the

prior calendar year"); Northeastern Ohio, 126 B.R. at 515

(holding unemployment taxes accrued when employees were

terminated, not when the amount of compensation taxes are

determinable); In re Brent Explorations, Inc., 91 B.R. 104, 107

(Bankr. D. Colo 1988) (stating that liability for oil production

taxes was incurred as of date of production, rather than date of

the tax assessment).

9 MCAD did not pursue its tax lien on the property.

6

occurred.8

Under Texas law, a property owner's liability for ad valorem

taxes for any given year arises as of January 1 of that year

regardless of when the tax is assessed. TEXAS TAX CODE ANN. § 32.01.

Therefore, under state law, even if the amount of MCAD's claim was

undetermined, its right to payment from Appellee accrued on January

1, 1988. Appellee's liability for the Taxes was "incurred" on

January 1, 1988, and therefore is a pre-petition expense. 

The Taxes are not administrative expenses of the estate

because the events which triggered the tax liability, ownership of

the property and attachment of the tax lien, occurred pre-petition.

MCAD is not entitled to assert both a pre-petition secured tax lien

and a post-petition administrative expense for the same tax.9

For the foregoing reasons, the district court's order denying

MCAD's claim for the Taxes as an administrative expense is 

 AFFIRMED.