## Facts

- A trucking company originally garaged its tractors and trailers in Cumberland, Rhode Island, where the vehicles were assessed and taxed.
- In 1960, the company moved the vehicles to a garage in Lincoln, Rhode Island, but did not notify the motor vehicle registry or either town’s assessor of the change in location.
- Cumberland continued to assess annual personal property taxes on the vehicles; the company paid those taxes until the first quarter of 1979.
- The company later entered receivership; the receiver sought instructions on whether to pay (1) Cumberland’s claim for unpaid personal property taxes for 1977–1981 and (2) five drivers’ claims for unpaid wages with priority status.
- The drivers had agreed, during the company’s financial distress, to accept reduced hourly rates; a written agreement characterized the difference between contract pay and reduced pay as a “loan,” the company recorded it as a loan on its books, and no payroll tax withholdings were taken on the deferred amounts.
- The trial court allowed Cumberland’s tax claim and disallowed the drivers’ wage-priority claims, treating the deferred sums as loans.

## Issues

1. Whether the trial court erred in allowing the municipality’s claim for back personal property taxes on vehicles no longer physically located in the municipality.
2. Whether the trial court erred in denying the drivers’ claims for wage priority by characterizing the deferred compensation as loans rather than unpaid wages.

## Decision

- The Supreme Court of Rhode Island affirmed the trial court’s instructions in full and remanded.
- The court upheld allowance of Cumberland’s tax claim, concluding the company was barred from denying Cumberland as the tax situs after long treating the property as taxable there and failing to give notice of relocation.
- The court upheld disallowance of the drivers’ wage-priority claims, concluding the deferred amounts were loans under the parties’ agreement and conduct and therefore not “wages” entitled to priority.

## Legal Principles

- A taxpayer that represents (expressly or by consistent conduct) a particular situs for taxable personal property and allows a municipality to rely on that representation may be equitably estopped from later denying that situs to avoid taxes, particularly where there is no showing of double taxation.
- In insolvency-related distributions, the characterization of employee compensation deferrals turns on objective indicia of intent, including written agreements, consistent accounting treatment, and tax-withholding practices.
- Amounts voluntarily deferred under an agreement labeling the deferral a loan, recorded as a loan, and not treated as payroll for withholding purposes may be treated as loans rather than “wages” and therefore do not qualify for wage-priority treatment under federal wage-priority provisions.

## Conclusion

The court affirmed payment of the municipal tax claim because the company’s long-standing representations and failure to notify authorities estopped it from disputing the tax situs, and it affirmed denial of wage-priority status because the drivers’ deferred compensation was documented and treated as a loan rather than unpaid wages.


Law v. Law Trucking Co., 488 A.2d 1225 (R.I. 1985)