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e-Li: Electronic Library

Property Taxes

The primary source of revenue in most counties is the ad valorem property tax,  an assessment based on the value of the property. Ad valorem taxes are imposed directly upon property, and the tax generally follows the property even if it is sold or transferred to a different owner.1  

Article II, Section 28 of the Tennessee Constitution is the basic constitutional authorization to tax; it provides that counties and municipalities are authorized to levy a property tax on all property---real, personal or mixed---based on the value of the property. Pursuant to this constitutional authorization, the General Assembly enacted T.C.A. § 67-5-101, which provides that all property, real and personal, shall be assessed for taxation for state, county, and municipal purposes, except for the property declared exempt. In addition, the General Assembly has enacted legislation to enforce the power to tax, to declare certain property exempt from taxation, and to determine various methods of ascertaining "fair market value."  Counties2and municipalities3are authorized by the General Assembly to levy real property,4tangible personal property,5intangible personal property,6and public utility property7taxes within their boundaries.8Taxing power is legislative and cannot be delegated except as the Constitution authorizes.9

It is essential that a valid assessment and levy of the tax occur in order to lawfully collect delinquent taxes. Assessment and levy are presumed to be properly completed even if the record does not reflect each step, unless an issue is raised as to the proper procedure.10  Statutes imposing taxes are construed in favor of a taxpayer and strictly construed against the taxing authority; in other words, ambiguities in interpretation of taxing statutes are construed against the county.11Although a taxing statute is construed strictly against the taxing authority and in favor of the taxpayer, the court must give full scope to the legislative intent and apply a rule of construction that will not defeat the plain purpose of the statute.12

While the Tennessee Constitution mandates taxation according to value, the General Assembly determines the proper method for ascertaining value to insure uniform and equal taxation.13In order to further the constitutional mandate, the legislature has defined value, for property tax purposes, to be fair market value: basically, the price the property would bring if it were voluntarily sold by an informed buyer to an informed seller, each acting sensibly and without undue pressure.14The uniformity requirement means that the tax burden is to be applied equally to nonexempt property within a constitutional classification in order to achieve uniformity in rate, valuation, and assessment.15Furthermore, “[u]niformity of taxation refers, not only to a uniform valuation and rate, but also to uniformity in dates of maturity and the time when interest, penalties, and costs may be imposed upon the taxpayer.”16Tax increment financing does not violate this uniformity provision.17Application of the uniformity provisions established by Article II, Section 28 of the Tennessee Constitution is subject to the Equal Protection Clause of the Fourteenth Amendment of the Federal Constitution.18

Article XI, Section 8 of the Tennessee Constitution prohibits the exemption of individual counties by population classification from the operation of a general law unless there is a rational basis for the exemption.  Several provisions in the tax statutes provide exemptions or special rules for counties with certain population classifications. These provisions are included in this manual without any opinion as to their constitutionality.

“Taxes are distinguished from fees by the objectives for which they are imposed.  If the imposition is primarily for the purpose of raising revenue it is a tax; if it's [sic] purpose is for the regulation of some activity under the police power of the governing authority it is a fee.”19  Taxes are also different from special assess­ments. "There is a clear and manifest distinction between a tax and a special assessment. A tax is imposed for a general or public purpose. It is levied for the purpose of carrying on the government. It is a charge on lands and other property which lessens its value, and in the proportion in which the owner is required to pay is his pecuniary ability diminished. This is the sense in which the term 'taxation' is used and understood. On the other hand, a special assessment contains none of the distinctive features of a tax. It is assessed or levied for a special purpose, and not for a general purpose. It is not a charge on property which reduces its value. The assessment is made in the ratio of advantages accruing to the property in consequence of the improvement. In no case can the assessment exceed the advantages accruing to the property assessed. It is therefore regarded but an equivalent or compensation for the increased value the property will derive from the improvement the assessment is levied to discharge."20

     1T.C.A. § 67-5-2101. See also State v. Nashville C. & St. L. Ry., 137 S.W.2d 297 (Tenn. 1938). 

     2T.C.A. § 67-5-102.

     3T.C.A. § 67-5-103.

     4T.C.A. §§ 67-5-801 et seq.

     5T.C.A. §§ 67-5-901 et seq.

     6T.C.A. §§ 67-5-1101 et seq., 67-5-1201 et seq.

     7T.C.A. §§ 67-5-1301 et seq.

     8Edmondson v. Walker, 195 S.W. 168 (Tenn. 1917).

     9Gibson County Special School District v. Palmer, 691 S.W.2d 544, 550 (Tenn. 1985); Op. Tenn. Atty. Gen. 01-172 (December 18, 2001).

     10Griffith and Stokes, Collection of Delinquent Real Property Ad Valorem Taxes in Tennessee, Revised Edition (1979) at page 7 citing East Tennessee, V. & G. Ry. Co. v. Morristown, 35 S.W. 771 (Tenn. Ct. App. 1895); Obion Valley Land and Investment Co. v. Southern Gen. Life Co., 125 S.W.2d 482 (Tenn. 1939); Nance v. Hopkins, 78 Tenn (10 Lea) 508 (1882); Grant Bond & Mortgage Co. v. Ogle, 65 S.W.2d 1091 (Tenn. Ct. App.1933).

     11See23 Tenn. Juris. "Taxation" § 3 at page 345 (1998).

     12Knox v. Emerson, 131 S.W. 972, 973 (Tenn. 1910).

     13Southern Express Co. v. Patterson, 123 S.W. 353, 357 (Tenn. 1909).

     14Tenn. Const., art. II, §§ 28 & 29; T.C.A. § 67-5-601.  See In Re All Assessments 1999 & 2000, 67 S.W.3d 805, 820-821 (Tenn.Ct.App. 2001) (“the fair market value basis is not constitutionally mandated, and the legislature is free to determine the method and means of valuing property”).

     15Tenn. Const., art. II, § 28; T.C.A. § 67-5-503; Treadwell Realty Co. v. Memphis, 116 S.W.2d 997, 999 (Tenn. 1938).

     16Shipp v. Cummings, 14 S.W.2d 747, 748 (Tenn. 1929).

     17Metropolitan Dev. & Hous. Agency v. Leech, 591 S.W.2d 427, 429-430 (Tenn. 1979). Tax increment financing refers to the allocation of property taxes attributable to an increase in a property's value after development to retire the bond issue used to develop the property.

     18Louisville & N.R.R. v. Public Serv. Comm'n, 631 F.2d 426, 432 (6th Cir. 1980), cert. denied, 450 U.S. 959, (1981).  See also the Federal "Four R" Act and the Motor Carrier Act.

     19S & P Enters, Inc. v. City of Memphis, 672 S.W.2d 213, 215 (Tenn. Ct. App. 1983), citing, Memphis Retail Liquor Dealers’ Ass’n, Inc. v. City of Memphis, 547 S.W.2d 244 (Tenn. 1977).  For a discussion of the difference between a fee and a tax, see Op. Tenn. Atty Gen. 93-57 (September 3, 1993).

     20Weakley Co. v. Odle, 654 S.W.2d 402, 405 (Tenn. Ct. App. 1983), quoting Justice Chambliss in, Obion County v. Massengill, 151 S.W.2d 156, 159 (Tenn. 1941).