MEMORANDUM
FROM:
Sid Hemsley, Senior Law Consultant
DATE:
January 31, 2007
RE:
In Lieu of Tax Payment-Municipal Gas System
You have the following question regarding tax equivalents paid by the City under the
Municipal Gas System Tax Equivalent Law of 1987: Can the city refuse to share the in lieu of
tax paid by the city’s gas system to the city?
In my opinion, under the Municipal Gas System Tax Equivalent Law, Private Acts 1957,
Chapter 273, which contains provisions dealing with distribution of gas tax equivalents from the
City’s utility systems to the City and to County, is preserved from repeal. However, it appears to
me that Private Acts 1957, Chapter 273 is not mandatory; that is, the utility board has the option
of paying, or not paying the tax equivalents, and that option extends to paying the tax equivalents
to the city and not to the County. If the board elects to pay the tax equivalents to both the city
and to the County, one resolution covers the payments to both entities. However, if the city
should decide to pay to the County, gas tax equivalent under Private Acts 1957, Chapter 273, the
provisions of the Municipal Gas System Equivalency Law of 1987 that govern such calculations
do apply to Private Acts 1957, Chapter 273.
The answer to these questions required an analysis of: the provisions in the city charter
that govern in lieu of tax payments by the utility systems; the state’s Municipal Gas system Tax
Equivalent Law of 1987; the state’s Municipal Electric System Tax Equivalent Law of 1987; the
case of Knox County ex rel. Kessel v. Lenoir City, 837 S.W.2d 382 (Tenn. 1992); other cases
involving disputes between cities and counties in Tennessee over the sharing of electric system
tax equivalents (there are no cases involving gas system tax equivalents).
City Charter Provisions Governing Utility System In Lieu of Taxes
The source of the City Charter provisions on in lieu of tax payments by the city’s utility
systems is Article XXI, ' 8(e), entitled Payments in Lieu of Taxes on Electric Water and Gas
Properties. Those charter provisions are made in an attachment to this memorandum. Those
provisions, except for the last sentence in the first paragraph, are a product of Private Acts 1957,
Chapter 273, ' 2. The last sentence in the first paragraph, “Payments made to the city...,” is the
product of Private Acts 2004, Chapter 92, ' 11.
The analysis of whether the tax equivalents are required to be paid to the county will be
discussed in Private Acts 1957, Chapter 273 analyzed, below.
Knox County ex rel. Kessel v. Lenoir City
The facts in that case were that Private Acts 1970, Chapter 205, provided that the entire
amount of the tax equivalent payments assessed to Lenoir City’s electric system were to be paid
to Lenoir City, even though some of the city’s electric utility infrastructure was located in Knox
County. Knox County sought a share in the distribution of those in lieu of tax payments, arguing
that the Municipal Electric System Tax Equivalent Tax Law of 1987 was a general law, and that
under that general law all of the taxing jurisdictions in which a city’s electric system
infrastructure were located were entitled to a share of the in lieu of tax payments, and that
Private Acts 1970, Chapter 205 was in derogation of the general law in violation of Article XI, '
8, of the Tennessee Constitution.
The Court rejected Knox County’s argument, pointing to the language in Tennessee
Code Annotated, ' 7-52-302:
The purpose of this part is to provide the complete law of this State
with respect to payments in lieu of taxes on the property and
operations of all electric systems owned and operated by
incorporated cities and towns, by counties, and by metropolitan
governments, and to repeal the specific provisions of any private
act or home rule charter or metropolitan government charter, or any
part thereof, related to payments in lieu of taxes including certain
provisions relating to the distribution of any such payments but not
to repeal any other provisions of such private acts or charters or
parts thereof. [Emphasis is the Court’s.] [At 384]
The statutory provisions that followed Tennessee Code Annotated, ' 7-52-302, said the
Court:
address two questions: how much is to be paid in lieu of taxes
(calculation of payments) and to whom the payments must be
distributed when more than one taxing jurisdiction is involved
(allocation of payments). [At 384]
Looking at the Municipal Electric System Tax Equivalency Law, the Court determined
that Tennessee Code Annotated, ' 7-52-304, and a provision of Tennessee Code Annotated, ' 752-305, contained the calculation of payments provisions, but that the remainder of the statute
contained the allocation (or distribution) of payments. The remainder of those statutes the Court
analyzed included:
- Tennessee Code Annotated, ' 7-52-306, said the Court:
permits competing taxing jurisdictions ‘to make any contracts for
distribution among them of the aforementioned tax equivalent
amounts.’ The parties to such contracts “may provide for ...
distribution on any basis which is satisfactory to the contracting
parties,” but the contract must be consistent in all respects with the
[calculation] provisions of ... ' 7-52-304. This section also
validates all contracts and “established arrangements” for
distribution that were in existence on the effective date of the 1987
Act.
- Tennessee Code Annotated, ' 7-52-307, said the Court, sets out the prescribed statutory
method for allocating payments between or among taxing jurisdictions in which the electric
system provides electric service, but it applies only to the extent that there is no pre-existing
“contract, established arrangement aphorized or validated under ' 7-52-306, or distribution
provisions of any private act or home rule or metropolitan government charter ...” [emphasis is
the Court’s.]
- Tennessee Code Annotated, ' 7-52-309, said the Court, “addresses specifically the
question of ‘distribution by private act or home rule or metropolitan government charter...’”:
This section does have the effect of repealing the allocations
provisions in private acts and charter provisions, but only those
which Adirect that the tax equivalent amount to be distributed to
each taxing district is to be an amount arrived at by applying the
current ad valorem tax rate in that district to the depreciated
original cost of the electric system’s tangible property... [At 385]
That provision, concluded the Court, was the Aqualified repealer provision to which the
legislature had reference in ' 7-52-302 when it stated an intent to repeal “certain provisions” of
private acts affecting distribution, “but not to repeal any other provisions of such private acts.”
Private Acts 1970, Chapter 205 did not use the formula proscribed in Tennessee Code
Annotated, ' 7-52-309. For that reason, its validity was not affected by the repealer provision of
that statute, said the Court.
Moreover, reasoned the Court, nothing in Private Acts 1970, Chapter 205 conflicted with
the Municipal Electric System Tax Equivalent Law of 1987. For that reason it was not affected
by Tennessee Code Annotated, ' 7-52-310, which repeals “parts of any private act...in conflict
herewith...to the extent of such conflict....” Indeed, this statute, said the Court, reflected an
intent on the part of the General Assembly that while it intended to bring some uniformity to the
tax equivalent payment schemes, especially in the calculation or amounts to be paid, there was
no intent to create a general law creating a mandatory, statewide method of distribution. [My
emphasis.]
In summary, notwithstanding all the language of Tennessee Code Annotated, ' 7-52-302
that speaks of the Municipal Electric System Tax Equivalent Law of 1987 being the “complete
law of the state” on the subject of payment in lieu of taxes by municipal electric systems, and all
the language that speaks of the repeal of private acts, and home rule and metropolitan
government charters on that subject, only private acts that dealt with the calculation of the in lieu
of taxes, and only private acts that dealt with one specific form of distribution of the in lieu of
taxes outlined in Tennessee Code Annotated, ' 7-52-309, were repealed by the Municipal
Electric Tax Equivalency Law of 1987; all other private acts that dealt with the distribution of the
tax equivalencies were preserved.
But as a reading of the Municipal Gas and Electric System Tax Equivalency Laws of
1987 indicate, and as the dissent by O’Brien in Knox County ex rel Kessel points out, those two
laws differ in some respects, even though they were introduced at the same time as being
identical, except that one obviously applied to gas systems and the other to electric systems.
Chairman Bragg said before the House State and Local Government Subcommittee on March 10,
1987, that: :
I have two bills that are identical, except one deals with gas and the
other deals with electricity. The gas, the one dealing with gas,
number 151, I believe is on the gas. The situation is, this basically
began, was stated because of the situation of electricity. I
explained that there are different formulas across Tennessee for
payment in lieu of taxes on municipal owned systems. This has
been worked out with the Municipal League, Tn. Valley
AuthorityBand with work by the Advisory Commission on
Intergovernmental Relations and think that, I know that, we’re in
agreement that it’s a system uniform across Tennessee for payment
in lieu of taxes by local municipal, locally owned, gas systems.
But it leaves to the local entity to determine the amount of money.
It just passes the payments of the years... [At 390]
It is obvious that the Municipal Electric System Tax Equivalent Law and the Municipal
Gas System Tax Equivalent Law are not identical, at least in language. The question at this point
in light of Knox County ex rel. Kessel, is: What do the similarities and differences in the two
laws means in connection with your question.
Similarities and Differences in the Municipal Gas and
Electric System Tax Equivalent Laws of 1987
The Municipal Gas System Tax Equivalent Law of 1987 is codified at Tennessee Code
Annotated, ' 7-39-401 et seq. The Municipal Electric System Tax Equivalent Law of 1987 is
codified at Tennessee Code Annotated, ' 7-52-301.
The pertinent differences between the two laws are set off in bold letters.
Purpose of the MGasSTEL of 1987:
Tennessee Code Annotated, ' 7-39-401, provides that:
The purpose of this part is to provide the complete law of this state
with respect to payments in lieu of taxes on the property and
operations of all gas systems owned and operated by incorporated
cities or town, by counties, and by metropolitan governments, and
to repeal the specific provisions of any private act, home rule
charter or metropolitan government charter, or any part of any
private act, home rule charter or metropolitan government charter,
relating to payments in lieu of taxes, except for provisions relating
to the distribution of any such payment, but not to repeal any other
provision of such private acts or charter or parts of the private acts
or charter. This part is remedial in nature and shall be liberally
construed to effectuate the purpose of this part.
Purpose of MElectricSTEL of 1987:
Its purpose is stated in Tennessee Code Annotated, ' 7-52-302:
(a) The purpose of this part is to provide the complete law of this
state with respect to payments in lieu of taxes on the property and
operation of all electric systems owned and operated by
incorporated cities or towns, by counties, and by metropolitan
governments, and to repeal the specific provisions of any private
act, home rule charter or metropolitan government charter, or any
part thereof, relating to payments in lieu of taxes, including
certain provisions relating to the distribution of any such
payments, but not to repeal any other provisions of such private
acts or charters or parts of private acts or charters.
(b) This part is remedial in nature and the provisions of this part
shall be liberally construed to effectuate the purpose of this part.
As pointed out above, Knox County ex rel. Kessel declared that the “certain provisions”
repealer in Tennessee Code Annotated, ' 7-52-302 had a limited application: It repealed only
those private acts dealing with the calculation of the in lieu of tax, and only private acts that
contained the formula for the distribution of the in lieu of tax formula contained in Tennessee
Code Annotated, ' 7-52-309:
[Those]Awhich direct that the tax equivalent amount to be
distributed to each taxing district is to be an amount arrived at by
applying the current ad valorem tax rate in that district to the
depreciated original cost of the Electric system’s tangible
property...
But bolded language in Tennessee Code Annotated, ' 7-39-401 says “except for certain
provisions relating to the distribution of any such payments....” That provision appears to save
from repeal any private act related to the distribution of in lieu of tax payments with respect to
municipal gas systems.
Tax equivalents authorized under MGasSTEL of 1987:
The first paragraph of Tennessee Code Annotated, ' 7-39-404 provides that:
Notwithstanding any provision of law to the contrary in this code
or in the provisions of any private act, every municipality may pay
or cause to be paid from its gas system revenues for each fiscal
year an amount for payments in lieu of taxes, referred to as “tax
equivalents”, on its gas system and gas operation, which in the
judgement of the municipality’s governing body shall represent the
fair share cost of government property to be borne by the
municipality [subject to the conditions and limitations laid out in
that section].
Tax equivalents authorized under MElectricSTEL of 1987:
Tennessee Code Annotated, ' 7-52-304, provides that:
Notwithstanding any provision to the contrary appearing in ' 734-115 or in the provision of any private act, home rule or
metropolitan government charter, every municipality may pay or
cause to be paid from its electric system revenues for each fiscal
year an amount for payments in lieu of taxes, called “tax
equivalents” in this part, on its electric system and electric
operations, which, in the judgment of the municipality’s governing
body after consultation with the supervisory body shall represent
the fair share of the costs of government property to be borne by
the municipality, subject, however to the following conditions and
limitations....
There are no substantive differences between the first paragraphs of those statutes, which
provide authority to municipalities to pay gas system and electric system in lieu of taxes. The
mention of ' 7-34-115 has reference to subsection (a)(9), which generally authorizes the payment
by utility systems of in lieu of taxes, and ensures that the specific provisions of the Municipal
Electric Tax Equivalent Law of 1987 control over ' 7-34-115. That would have been true in all
events.
“Calculation” and “distribution” statutes in the Municipal Gas and
Electric Systems Tax Equivalents Laws of 1987
I will not list the terms and conditions contained in those laws for the payment of in lieu
of taxes. However, as was pointed out above, Knox County ex rel. Kessel, characterized some of
the provisions of the Municipal Electric System Tax Equivalent Law of 1987 as calculation
provisions and some as distribution provisions, and declared that the uniformity of that law
pertained to the calculation provisions, but not to the distribution provisions, except with respect
to the distribution provision in Tennessee Code Annotated, ' 7-52-309. But as also pointed out
above, Tennessee Code Annotated, ' 7-39-402 in the Municipal Gas System Tax Equivalent
Law of 1987, expressly saves from repeal private acts relating to distribution of tax equivalents.
In Knox County ex rel. Kessel, Tennessee Code Annotated, '' 7-52-304 and 305
(governing amendatory contracts between municipalities and TVA) as containing the “formulas
for calculation” in the Municipal Electric System Tax Equivalent Law. Tennessee Code
Annotated, ' 7-39-404 is substantively similar in pertinent respects to Tennessee Code
Annotated, ' 7-52-304, and is presumably the uniform law for the calculation of gas equivalents
with respect to the Municipal Gas System Tax Equivalency Law of 1987. There is, of course, no
statute in that law comparable to Tennessee Code Annotated, ' 7-52-305.
Tennessee Code Annotated, ' 7-52-306 authorizes the taxing jurisdictions affected by the
Municipal Electric System Tax Equivalency Law of 1987 to make tax equivalency distribution
contracts among themselves on a basis satisfactory to the parties, provided the contract must be
consistent in all respects with the provisions of ' 7-52-304 [which as Knox County ex rel. Kessel
says, in a calculation statute.]. Tennessee Code Annotated, ' 7-52-307 contains a detailed
scheme governing the distribution of payments to taxing jurisdictions, but it applies only to
those cases where there is no pre-existing “contract established arrangement authorized or
validated under ' 7-52-306 ..., or distribution provisions of any private act or home rule or
metropolitan government charter...” The only counterpart in the Municipal Gas System Tax
Equivalency Law to Tennessee Code Annotated, ' 7-52-306 and 307, is Tennessee Code
Annotated, ' 7-339-405 , which provides that:
The municipality’s governing body, in the resolution provided for
in ' 6-39-404(4), shall direct payment of the amounts to be paid as
tax equivalents to the taxing jurisdiction in which its gas plant in
service is located in accordance with and subject to any terms,
contracts or agreements now in effect. [Emphasis is mine.]
Private Acts 1957, Chapter 273 analyzed
Private act preserved-general effect
Under the Municipal Gas System Gas Tax Equivalent Law of 1987, Private Acts 1957,
Chapter 273, is saved from repeal. That private act contains only general language about the
valuation of electric, water and gas properties inside and outside the city. That general language
does not rise to the level of a tax equivalent calculation formula. With respect to the city’s gas
system, the tax equivalent calculation formula contained in the Municipal Gas System Tax
Equivalent Law of 1987 applies to the Act.
Are tax equivalents required to be paid to county under the private act?
Nothing in the Act expressly requires the City to distribute tax equivalents to the county.
Indeed, the Act says, that the “Board may pay” tax equivalents to the city and to the county....
Similarly, the last paragraph of that Act says that, “Payments in lieu of taxes...may be made to the
city, county or state only so long as the governmental body to which such payment is made, does
not levy a property tax upon such ... properties. Article XXI, ' 8(d) of the city charter even
requires the utility board to charge sufficient rates to, among other things, make to the city Athe
payments in lieu of taxes as hereinafter provided” [in Article XXI, ' 8(e)]. Nothing is said about
payments to the county in that context. It is not likely that the repeated use of “may” rather than
“shall” in those statutes was a mistake.
At first glance, it can be argued that Private Acts 1957, Chapter 273, in Article XXI,
'8(e) implies that such payments to the county are required. In the second paragraph of Article
XXI, ' 8(e), which governs in lieu of payments to county, it is said that,
In order to assist counties in estimating their budget requirements,
the board shall fix the valuations upon which any amount or
amounts to be paid by the State and County is based, not later than
the time county budgets are adopted. Payments provided for in
this paragraph shall be made annually before the date upon which
State and County taxes become delinquent.
However, that argument will not survive a second glance. Read carefully, that provision
means that if the equivalents are paid to the county, those payments should mesh with the county
budget. It does not operate to imply that the county is entitled to such payments.
But more important, the argument that “may” means “shall” in Private Acts 1957,
Chapter 273, will not survive a detailed look at the history of that Act. It is true that sometimes
the word “may” in a statute is construed to mean “shall.” In Austin v. State, 796 S.W.2d 449
(Tenn. 1990), it is said that:
When construing statutory language, the fundamental rule is to
follow legislative intent, which is reflected in the entire code
section. Williams v. N.W. Ry. Co., 129 Tenn. 690, 688, 68 S.W.
160 (1914). The Williams Court held, [T]he word ‘may’ will not be
construed to mean ‘shall,’ where such a construction would tend to
defeat the objects and purposes of the legislation, although ‘may’
will be construed to means ‘shall,’ if such a construction is
necessary to uphold and effectuate the purposes of the act. 129
Tenn. At 689, 168 S.W. 160.... [At 456.]
Applying that rule, the antecedent history of Article XXI, ' 8(e) of Private Acts 1957,
Chapter 273, clearly points to the fact that there was no intention on the part of the General
Assembly that the language “may” meant “shall” with respect to the payment of in lieu of taxes
to the city and to the county. Private Acts 1957, Chapter 273, amended Private Acts 1953,
Chapter 455, which was the City Charter. Specifically, it amended what was also Article XXI, '
8(e) of that Charter. Before its amendment by Private Acts 1957, Chapter 273, Private Acts
1953, Chapter 455, Article XXI, ' 8(e) read:
From the separate revenues of the respective electric, water and gas
divisions , the board shall pay to the general funds of the city
respective sums equal in amount to that which would be the
separate respective city real and personal property taxes on the
respective electric, water and gas properties within the city limits
of the City, if such properties were privately owned.... [Emphasis is
mine.]
From the respective separate revenues of the electric, water and gas
properties, the Board may pay an amount or amounts equivalent to
the respective amounts that would be payable for State and County
real and personal property taxes in each county in which there are
electric, water or gas properties, if such properties were privately
owned.... [Emphasis is mine.]
Note that the language in Private Acts 1953, Chapter 455, Article XXI, ' 8(e) was “shall
pay” with respect to in lieu of tax payment to the City, and that it was “may pay” with respect to
in lieu of tax payments to the County, and that the “shall pay” was changed in Article XXI, '
8(e) by Private Acts 1957, Chapter 273 to “may pay....” In other words, the General Assembly
deliberately changed the mandatory requirement that the Utility Board pay to the City in lieu of
taxes, to a permissive authority to pay to the City such payments, and made that permissive
authority consistent with the permissive authority of the board to pay in lieu of taxes to the
County.
In light of the history of the amendment of Private Acts 1953, Chapter 455 by Private
Acts 1957, Chapter 273, it seems difficult to argue that payments in lieu of gas taxes to either to
the city or to the county are mandatory.
Knox County ex rel. Kessel addressed the issue of the fairness of Private Acts 1970,
Chapter 205, which allocated all of Lenoir City’s electric system tax equivalents to Lenoir City,
to the exclusion of Knox County in which much of the electric system’s infrastructure was
located:
We conclude that regardless of its stated intent to provide the
“complete law” of municipal utility tax equivalents, the 1987 Acts
specifically permits the allocation of payments among taxing
jurisdictions to be established by means of a private act such as
Chapter 205. We offer no opinion as to the fairness of the current,
obviously one-sided arrangement contained in Chapter 205. We
conclude only that if Knox County wishes to alter that
arrangement, it will have to address its case to the legislature,
rather than the courts. [At 385]
That is the position in which the County finds itself relative to the City, unless the city
voluntarily agrees to pay to the county in lieu of taxes from the city’s gas system.
Tennessee cases on disputes over who is entitled to
tax equivalent paymentsBelectric utilities
The question of whether and when a municipal electric system is obligated to pay in lieu
of taxes to the county has arisen several times. Those cases turn in part on the unique contractual
relationship between TVA and municipal electric utilities it supplies with power. As far as I can
determine, no such cases have arisen with respect to municipal gas systems. But certain
principals applied in the electric utility tax equivalent cases probably apply in all tax equivalent
cases involving Tennessee municipal utilities. One of those principles is that the General
Assembly has a broad right to legislate on the subject of what jurisdictions are entitled to receive
tax equivalents and under what conditions. Another principle is that absent legislation expressly
or impliedly directing tax equivalents be paid to a particular taxing jurisdiction, that jurisdiction
is not entitled to such payments.
In Rutherford County v. City of Murfreesboro, 304 S.W.2d 635 (Tenn. 1957), the county
urged that it was entitled to such payments from the city on the ground that under the city’s
contract with TVA for electric power the city was authorized to take from its electric department
revenues in lieu of taxes, and that it was a third part beneficiary of that contract. The Court
rejected that argument declaring that, “The contract nowhere expressly says that the county is to
receive any benefits thereunder. The contract nowhere expressly obligates the city to pay over to
the county the county tax equivalents taken from the electric department revenues.” [At 637] The
Court also looked at the question of whether the county was entitled to a share of the in lieu of
taxes by implication. In answering that question the Court looked at the city-TVA contract,
which obligated the city to spend electric department revenues according to a list of authorized
expenditures. One of the authorized expenditures on the list was a transfer to the general fund
“to be used for any permissible municipal purpose...an amount in lieu of taxes, representing a fair
share of the cost of government properly to be borne by such system.” Any payment of such an
amount to the county was not for a “permissible municipal purpose,” said the Court. [At 638]
A short time later, Rutherford County made the same claim against the City of
Murfreesboro, this time alleging that an amendment to the TVA act, and the city’s execution of a
new contract with TVA reflected a change in the law favorable to the county. However, in
Rutherford County v. City of Murfreesboro, 326 S.W.2d 653 (Tenn. 1959), this time the county
won. The reason was that a 1940 amendment to '13 of the TVA Act of 1933 provided that with
respect to TVA-municipal power contracts:
Nothing herein shall be construed to limit the authority of the
Corporation [TVA] in its contracts for the sale of power to
municipalities, to permit or provide for the resale of power at rates
which may include an amount to cover tax-equivalent payment to
the municipality in lieu of State, county and municipal taxes upon
any distribution system or property owned by the municipality or
any agency thereof, conditioned upon a proper distribution by the
municipality of any amounts collected by it in lieu of State or
county taxes on any such distribution system or property it being
the intention of Congress that either the municipality or the State in
which the municipality is situated shall provide for the proper
distribution to the State and county of any portion of tax
equivalents so collected by the municipality in lieu of state or
county taxes upon such distribution system or property. [At 65455] [Emphasis is the Court’s]
That provision, said the Court, gave TVA the discretion to make power contracts with or
without a tax equivalents provision, but that if it made a contract with such a provision, but “As
we see it, the only discretion is that which is vested in TVA whether to include the provision of
payment of tax equivalents, but if such provision is included, it is on condition the municipality
make proper distribution to the respective governmental units.” [At 655].
But in City of Tullahoma v. Coffee County, Tennessee, 328 F.2d 683 (6th Cir. 1964), cert.
denied, 379 U.S. 989 (1965), the U.S. Sixth Circuit overturned the U.S. District Court which had
held that (1) Coffee County was entitled a share of the in lieu of tax which had been taken from
the city’s electric department and put into the City of Tullahoma’s general fund, and (2) that
under the 1940 amendment to '13 of the TVA Act of 1933, TVA was required to include in its
contract with cities implementing that statutory obligation.
The Sixth Circuit pointed to four possible interpretations of ' 13, and after looking at the
legislative history of the 1940 Amendment, the interpretation of that Amendment by TVA, and
the Congressional acquiescence to that interpretation, adopted the fourth one, which was that:
...Congress simply expressed a general intention that there should
be a proper distribution of tax equivalents payments made to the
states and counties, but did not undertake to implement such
intention by imposing duties to that effect either upon TVA, the
state, or upon municipalities, leaving the latter exclusively to local
control or regulation. Under this view TVA would have no duty
with reference to the proper distribution of tax equivalents
payments but such distribution would be determined exclusively by
the state or by the municipality itself. In the absence of such
provisions for distribution, the municipality would be entitled to
retain the entire fund representing tax equivalent Payments and
no action would lie on the part of the County to recover any part
of such Payments. [At 687]
As to the legislative history of the 1940 Amendment to '13, the Court said:
It is clear from the record that in the TVA contracts entered into
prior to the 1940 amendment of Section 13 and resting entirely
upon the authority of Section 10 as amended in 1935 (which
section has never been subsequently amended),the distribution of
tax equivalents Payments was neither dictated, controlled, or even
provided for by TVA, being treated altogether as a matter for state
or local determination. Under the terms of the contracts the tax
equivalents were permitted to be placed in the city’s general fund,
but the determination of whether any portion of the fund should be
distributed to either the State or to the County, and if so, the
amount of such distribution, was recognized as the duty or
obligation of TVA by that of the state or municipality concerned.
[At 687]
With respect to TVA’s interpretation of the 1940 Amendment to '13, after the adoption
of that Amendment:
TVA in its negotiations with cities concerning power contracts has
advised such cities that they might retain all tax equivalents if they
so desired. Some of the cities which entered into contracts for
TVA power preciously operated their own distribution systems,
and in no case did these cities share their tax equivalents with
counties. Generally, those cities, taking all tax equivalents possible
under the TVA contract, including the so-called county tax
equivalents, would receive less than they received prior to such
contract. In Alabama and Mississippi, of 32 municipal
distributors, not one shares its tax revenues with counties. In
Tennessee, of the 57 municipal distributors, only 12 make a
distribution to counties, some of them acting under special
legislation which requires it. Only one of such distributors is
known to make a payment to the county without special legislation.
In all of its many power contracts with cities, TVA permits the city
to take the total tax equivalents and place them in the city’s general
fund without sharing the same with the county, with the sole
exception of Kentucky which has a state statute on the subject, as
above noted. [At 690]
Mentioning the contrary decision in Rutherford County v. City of Murfreesboro, above,
the Court of Appeals declared that “...we feel that the result reached in this instance by the
Supreme Court of Tennessee should not be followed.” [At 692]. The Court of Appeals also
declared that in deciding Rutherford County v. city of Murfreesboro, the Tennessee Supreme
Court did not have the facts before it, and did not refer to the legislative history of the 1940
Amendment to ' 13. [At 691]
The effect of the 1940 Amendment to ' 13 of the TVA Act of 1933 arose once more in
Tennessee in City of Shelbyville v. State, 415 S.W.2d 139 (Tenn. 1967). There the City of
Shelbyville and Bedford County had in 1963 entered into a consent decree under which the
former agreed to pay the later back and future in lieu of taxes, apparently on the basis of the
Tennessee Supreme Court’s ruling in Rutherford County v. City of Murfreesboro. Now the city
sought to repudiate the consent decree on the basis of the U.S. Sixth Circuit’s decision in City of
Tullahoma v. Coffee County. The Tennessee Supreme Court acknowledged that the law in the
U.S. Sixth Circuit on that subject was City of Tullahoma v. Coffee County, but upheld the
consent decree against various claims by the City of Shelbyville on the basic ground that consent
decrees are voluntary agreements.
As far as I know there are no federal laws governing gas purchases by municipal gas
systems that would supersede the Municipal Gas System Tax Equivalent Law of 1987, or that
would otherwise direct that gas tax equivalents be paid to all taxing jurisdictions. Under that
Law, Private Acts 1957, Chapter 273, was preserved from repeal. That Act does not provide for
the mandatory sharing of in lieu of taxes with all taxing jurisdictions in which the gas system’s
infrastructure is located.