TCA § 7-52-304 — Tax equivalents authorized — Conditions and limitations

Notwithstanding any provision to the contrary appearing in § 7-34-115 or in the provisions 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 cost of government properly to be borne by the municipality, subject, however, to the following conditions and limitations: The total amount so paid as tax equivalents for each fiscal year shall not exceed a maximum amount equal to the sum of the following: With respect to each of the respective taxing jurisdictions in which the municipality's electric system is located, the equalized property tax rate, determined as provided in this part, for the taxing jurisdiction as of the beginning of such fiscal year, multiplied by the net plant value of the electric plant and the book value of materials and supplies within the taxing jurisdiction as of the beginning of such fiscal year, multiplied by the assessment ratio in effect as of the beginning of such fiscal year; and Four percent (4%) of the average of revenue less power costs from electric operations for the preceding three (3) fiscal years; Such tax equivalent payments shall be made only from electric system revenues remaining after payment of, or making reasonable provision for payment of: Current electric system operating expenses, including salaries, wages, cost of materials and supplies, power at wholesale and insurance; Current payments of interest on indebtedness incurred or assumed by the municipality for the acquisition, extension, or improvement of the electric system, and the payment of principal amounts of such indebtedness, including sinking fund payments, when due; Reasonable reserves for renewals, replacements and contingencies; and Cash working capital adequate to cover operating expenses for a reasonable number of weeks; The total amount to be paid as tax equivalents for each fiscal year shall be in lieu of all state, county, city and other local taxes or charges on the municipality's electric system and electric operations, except as provided in subdivision (6). Accordingly, after initial determination of such total tax equivalent amount to be paid in the absence of any such taxes or charges, such total tax equivalent amount shall be reduced by the aggregate amount of any such taxes or charges imposed for such fiscal year on the municipality's electric system or electric operations by or for the benefit of the respective taxing jurisdictions, including the municipality, in which the municipality's electric system is located and in which such electric operations are conducted, whether or not such taxes or other charges were imposed by the respective taxing jurisdictions receiving the benefit of such taxes or charges. Any amount allocated to any such taxing jurisdiction other than a municipality, as provided in § 7-52-306 or § 7-52-307, shall be reduced by the aggregate amount of any such taxes or charges imposed for that fiscal year for the benefit of that taxing jurisdiction. Only the respective amounts remaining after the allocated amounts provided for in this subdivision (3) have been so reduced shall be actually paid to the municipality and to such respective taxing jurisdictions; The total amount to be paid as tax equivalents, including that to be paid for a municipality and any other taxing jurisdiction, for each fiscal year, determined in accordance with and subject to this part, shall be set forth in a resolution adopted by the municipality's governing body after consultation with the supervisory body, and the municipality's electric system shall pay to the municipality and any other taxing jurisdictions the amounts as provided in the resolution. Such determination shall be made as early in such fiscal year as possible and shall become final at the end of such fiscal year; provided, that if no such determination is made by the municipality by the end of such fiscal year, the total amount actually expensed, consistent with this part, by the electric system as of the end of such fiscal year shall constitute a final determination; provided, further, that any reductions in such amount required by subdivision (3), to the extent not made during such fiscal year, shall be made as early as possible in the succeeding fiscal year until the full adjustments are completed; Notwithstanding subdivisions (1)-(4), until the first fiscal year in which the aforementioned maximum amount for equivalents, calculated as provided in subdivision (1), exceeds the tax equivalent amount for the twelve (12) months ended June 30, 1987: The maximum tax equivalent amount that may be paid for any fiscal year shall not be less than the tax equivalent amount for the twelve (12) months ended June 30, 1987; and Notwithstanding any provision to the contrary in any private act, home rule or metropolitan government charter, or in the provisions of § 7-52-309, any distribution payment to a taxing jurisdiction for any fiscal year shall not be greater than the amount paid to such taxing jurisdiction for the twelve (12) months ended June 30, 1987; For purposes of subdivision (5)(A), “tax equivalent amount for the twelve (12) months ended June 30, 1987” means the tax equivalent amount actually expensed for, and applicable to such twelve (12) months, consistent with the power contract, in effect during such twelve (12) months, between the municipality and the Tennessee Valley authority. Thereafter, such maximum amount for any fiscal year shall not exceed the maximum amount calculated as provided in subdivision (1). All such maximum amounts shall be subject to the conditions and limitations of subdivisions (2), (3) and (4); and Notwithstanding anything in subdivisions (1)-(5) that might be construed to the contrary, properly authorized retail sales or use taxes on electric power or energy at the same rates applicable generally to sales or use of personal property or services, including natural or artificial gas, coal, and fuel oil, as well as electric power or energy, imposed upon the vendees or users of electric power or energy by the state, a county, or a city, including a municipality, on a statewide, countywide, or citywide basis, respectively, shall not be considered a tax or charge on the municipality's electric system or its electric operations or properties for purposes of this part. Acts 1987, ch. 84, § 5. Compiler's Notes. Former part 3, §§ 7-52-301 – 7-52-306 (Acts 1969, ch. 237, §§ 1-6; T.C.A., §§ 6-1538–6-1543; Acts 1981, ch. 457 § 1), which concerned tax equivalent payments for municipal electric plants, was repealed by Acts 1987, ch. 84, § 1. NOTES TO DECISIONS 1. Generally. 1. Generally. Trial court properly held that Memphis, Tenn., City Charter § 693(4), was repealed by T.C.A. § 7-52-304 to the extent it applied to the calculation of electric tax equivalents where § 693(4) mandated a certain tax equivalent payment to the city without regard to the calculation provision of the Municipal Electric System Tax Equivalent Law of 1987, T.C.A. § 7-52-301 et seq.City of Memphis v. Shelby County, 469 S.W.3d 531, 2015 Tenn. App. LEXIS 77 (Tenn. Ct. App. Feb. 20, 2015), appeal denied, City of Memphis v. Shelby Cnty., — S.W.3d —, 2015 Tenn. LEXIS 634 (Tenn. Aug. 14, 2015). Court of Appeals of Tennessee agrees that T.C.A. § 7-52-304 permits a municipality to pay (or cause to be paid) tax equivalents for each fiscal year in an amount determined by the municipality's governing body after consultation with the supervisory body, notwithstanding (or despite) any provision to the contrary in a home rule charter or in T.C.A. § 7-34-115 , provided that the tax equivalent amount does not exceed the cap set forth in T.C.A. § 7-52-304 (1) or conflict with the other conditions in the following subsections. City of Memphis v. Shelby County, 469 S.W.3d 531, 2015 Tenn. App. LEXIS 77 (Tenn. Ct. App. Feb. 20, 2015), appeal denied, City of Memphis v. Shelby Cnty., — S.W.3d —, 2015 Tenn. LEXIS 634 (Tenn. Aug. 14, 2015). Court of Appeals of Tennessee agrees that the calculation provision in T.C.A. § 7-52-304 would allow the governing body of the municipality to establish for each fiscal year the amount of payments in lieu of taxes which, in the judgment of the municipality's governing body after consultation with the supervisory body, shall represent the fair share of the cost of government properly to be borne by the municipality. City of Memphis v. Shelby County, 469 S.W.3d 531, 2015 Tenn. App. LEXIS 77 (Tenn. Ct. App. Feb. 20, 2015), appeal denied, City of Memphis v. Shelby Cnty., — S.W.3d —, 2015 Tenn. LEXIS 634 (Tenn. Aug. 14, 2015).