* 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 SHA W, * District Judge.

GARWOOD, Circuit Judge:

Midland Central Appraisa l District (MCAD) appeals the lower

courts' decisions denying its post-petition administrative expense1 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

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

claim against Appellee's bankru ptcy 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

o n 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. I n re Consolidated Bancshares, Inc.

, 785 F.2d4 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 allow ed, administrative expenses, . . . including SQ

* * *

(B) any tax SQ

(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 petiti on. See, e.g.

, I n 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 aga inst the

debtor and a post-petition administr ative 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. I n re Columbia Gas System, In c. , 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 owns5 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. T EX

. T AX C ODE A NN . § 23.01 et seq . By July 25 of any given year, MCAD certifies the appraisal rolls to the taxing jurisdictions. T EX

. T AX C ODE A NN . § 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. T EX

. T AX C ODE A NN . § 26.05(a). The tax rate is usually finalized and then assessed to the applicable properties by October 1. T EX

. T AX
C ODE A NN . § 31.01(a).

4 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." T E X

. T AX C ODE A NN

. § 32.07.

Texas law also provides that "[o]n Ja nuary 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." T EX

. T AX C ODE A NN

. § 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 the6 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 unemploymentbenefits 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.

5 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 th e 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 l aw [or to] become liable or

subject to." B L ACK ' S L AW D ICTIONARY 691 (5th. ed. 1979). "[A] tax

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

assessed or becomes payable." I n 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 has8 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 th at year

regardless of when the tax is assessed. T E XAS T AX C ODE A NN

. § 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.