Sampson County sought to collect $2.6 million from Aaron’s Rent-to-Own for personal property taxes owed for the period from 2010 through 2015 for the property which Aaron’s leased to consumers. Aaron’s argued that the property was “in the process of being sold” and qualified as inventories under N.C.G.S. § 105-275(34). The Tax Commission held that by Aaron’s renting the property to third parties, it was not entitled to the exclusion from personal property taxes.
The Court of Appeals held that because consumers are not under the rental contracts obligated to purchase the lease property, such cannot be considered a sale and the taxes were owed.
The reason that Aaron’s (and all other rent-to-own companies) place no obligation on the consumer to purchase the property is that to do so would transform the obligation from an executory contract into a purchase money security interest, which would then require perfection (often the filing of a UCC-1) and subject the claim to cram-down in bankruptcy.
This position that Aaron’s took in this case should, however, be used to judicially estop it from asserting in bankruptcy court that its claims are executory contracts. Judicial estoppel is intended to prevent parties from taking inconsistent positions in different legal proceedings, i.e. “having their cake and eating it too.”
Further, any other creditor, including the pernicious rental sheds, that asserts that its claim is an executory contract should be questioned about whether it is paying property taxes to the County in which the collateral is located.