August 13, 2001
Dear Sir:
You have what is essentially the following question: Can the City exempt a certain
person’s property from taxation for 99 years, in consideration of his gift to the city of property
worth approximately $500,000? (The value of the tax exemption would be worth approximately
$1,000,000).
The answer is clearly no.
Abundant case law in Tennessee stands for the proposition that the unequal taxation of
property within municipal boundaries is not permissible, even in consideration of a valuable gift
of property to a city. Two of those cases deal directly with differential tax rates in annexed
areas, but patently apply to unequal taxation for any reason. In Jones v. Memphis, 47 S.W. 138
(1898), the Tennessee Supreme Court struck down a statute exempting newly annexed territory
from taxation for police, fire and lighting for ten years (although the annexed area was not to
receive those services during that period). Citing Article II, Section 28, of the Tennessee
Constitution, the Court declared that:
The Court is of the opinion that taxation must always be uniform
and equal throughout the extent of the same jurisdiction; that State
taxes must be equal and uniform throughout the State; that county
taxes must be equal and uniform throughout the county; and that a
city tax must be equal and uniform throughout the city, so far as
revenues for current expenses of the future are concerned....
[Citing earlier Tennessee cases].
So also, if a portion of a territory is annexed to and becomes a part
of a city it is entitled to all of the benefits extended by the city to
any other portion and while it may not, in all instances, be
necessary to furnish at once the same advantages and
conveniences in each and every locality of the city, still an act
which prescribes that it shall not have such advantages at all, or
for a given time is not valid and cannot be sustained.
The logical result of the contrary holding as to taxation would be
that in every city taxes might be different in different wards and on
different streets; in every county taxes might be different in every
civil district; in the State taxes might be different in every county
and in each divisionBall clearly in violation of the Constitution and
our whole theory of equal and uniform taxation.
The Tennessee Supreme Court reached the same result in American Bemberg
Corporation v. City of Elizabethton, 175 S.W.2d 535 (1943). There the Court threw out contracts
the city had made with certain corporations not to annex property without their consent, and
even if their consent was obtained, to remit to the corporations all city taxes for ten years. Jones
v. Memphis was still the law, reasoned the Court.
It has been repeatedly held that within the various tax classifications established under
Article II, Section 28, of the Tennessee Constitution, property taxes must be equal and uniform
within governmental units. Those cases have rejected a number of schemes of taxation or tax
relief under which a certain class of property owners would receive tax relief of one kind or
another. [Bell v. Town of Pulaski, 184 S.W.2d 384 (1945); Corporation of Sevierville v. King, 184
Tenn. 535 (1939); Graham v. Spivey, 133 S.W.2d 469 (1939); American National Bank and
Trust Co. of Chattanooga v. McFarland, 352 S.W.2d 441; City of Nashville and Davidson County
v. State Board of Equalization, 360 S.W.2d 458 (1962); Metropolitan Government of Nashville
and Davidson County v. Nashville Pi Peta Phi House Corp., 407 S.W.2d 179 (1966);
Metropolitan Government of Nashville and Davidson County v. Hillsboro Land Co., 436 S.W.2d
850 (1958); Federal Express Corp. v. Tenn. State Board of Equalization, 717 S.W.2d 873 (Tenn.
1986); Albert v. Williamson County, 798 S.W.2d 758 (Tenn. 1990).]
The 1973 amendment to Article II, Section 28, permitted property to be differentially
assessed according to several classifications (public utility property, industrial and commercial
property, residential property, etc.), but both the cases pre-dating and post-dating, 1973, stand
for the proposition that within those classifications taxes must still be equal and uniform within
the taxing jurisdiction. Indeed, Article II, Section 28, presently provides that:
The ratio of assessment to value of property in each class or
subclass shall be equal and uniform throughout the State, the
value of and definition of property in each class or subclass to be
ascertained in such manner as the Legislature shall direct. Each
respective taxing authority shall apply the same tax rate to all
property within its jurisdiction.
Let me know if I can help you further in this or any other matter.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant