WHEREAS, the continued expansion of the Nashville metropolitan area represents both an extraordinary economic opportunity for the State of Tennessee as well as a potential economic burden on the existing residents of the County; and

WHEREAS, due to these unique circumstances, it is necessary and appropriate that the County be given authorization to extend its taxing power to enable the county to impose a fair and reasonable share of the costs of public facilities necessitated by new development on that development so as not to create an unfair and inequitable burden on existing county residents; and

WHEREAS, the most logical and effective mechanism to accomplish the intended result would be the imposition of a new privilege tax on new development in the County and to use the revenues from such tax to provide the needed facilities in those areas of the County.....(emphasis added)

In the main body of the Act, Section 2 contains nineteen definitions of words and phrases to be used in the interpretation of this legislation and application of the tax. (Included therein is the definition of "Industrial," which is central to this analysis and which will be discussed infra in this opinion.)

Section 3 provides as follows:

It is the intent and purpose of this act to impose a tax on new development in the County payable at the time of the issuance of a building permit so as to ensure and require that all persons responsible for the new development share in the burdens of growth by paying their fair share for the cost of new and expanded public facilities made necessary by such development.

Section 4 states as follows:

Engaging in the act of development within the County, except as provided in Section 6 herein is declared to be a taxable privilege upon which the County may levy a tax at the rate set forth in Section 7.

Section 5 provides as follows:

The governing body may, by resolution, adopt administrative guidelines, procedures, regulations and forms necessary to properly implement, administer and enforce the provisions of this act.

The Act permits the County Commission to set the rate of the tax at the rate of .70 per square foot of residential development and $.40 per square foot of new industrial development . The tax is to be collected when a building permit is issued, and its proceeds are designated to the county's general fund. See Section 7. (Emphasis added). The Act also contains appropriate language requiring approval of 2/3 of the county legislative body in accordance with Article XI, ' 9 of the Tennessee Constitution.

Section 6 specifically exempts from imposition of the tax public buildings, places of worship, barns and outbuildings used for agricultural purposes, additions to existing single-family homes, structures replaced due to fires and other disasters, and structures owned by qualified 501(c)(3) organizations.

Based on reading the foregoing provisions in pari materia, it would appear at first that the Act' s intent is to levy a tax on all new residential and industrial development, though not on those items exempted by Section 6. ¹ However, it is my understanding that the policy of the county thus far has been to assess the tax against some new industrial development projects, while not levying it on others that are of the same general designation and type.

Your inquiry with respect to the County Adequate Facilities Tax is actually two-fold: (1) whether the Act' s exclusion (as opposed to exemptions) of certain types or classifications of businesses is valid under the Tennessee and United States constitutions, and/or 2) whether there are any other constitutional impediments to the Act. While both of these questions will be analyzed infra , it is my opinion that the Adequate Facilities Tax for this County is flawed in that its designation of one of the major classifications of development to be taxed, "industrial development," cannot be clearly defined or understood in accordance with any of the language contained within the legislation, and, most specifically the definition of and reference to "industrial" contained within Section 2(k) of the Act. Therefore, it is possible a court would find that the inability to determine from the language of the Act the precise subject(s) of taxation in the Act would render it "void for vagueness." And, the general rule of law with respect to this query is that the construction of a tax statute is a question of law for the courts. Beare Co. v. Tennessee Dep't of Revenue, 858 S.W.2d 906, 907 (Tenn.1993).

(1) Beginning with the first part of the two-fold inquiry, there do not appear to be any constitutional defects with the Act = s declaration that some types of development are subject to the tax, while others are not. As it has been assessed to date, the legislation does not impose the tax on retail development, even though retail development is not included in the list of exemptions in Section 6. It is therefore an A excluded @ category, rather than an exemption. A question has been posed as to whether this is constitutes an impermissible discriminatory classification. In my view it is doubtful that a court would strike down the Act on this ground alone. The rationale for this answer is that I can envision at least one rational reason for differentiating among classifications of industries to be taxed. This type of tax levy is authorized under Article II, ' 28 of the Tennessee Constitution, and it is well-settled that the Legislature is vested with plenary power to decide wh ich activities constitute taxable privileges in Tennessee. See Hooten v. Carson, 186 Tenn. 202, 209 S.W.2d 273 (1948); Trentham v. Moore , 111 Tenn. 346, 352, 76 S.W. 904 (1903). The rule of law is that if allegedly discriminatory classifications by the general assembly do not interfere with the exercise of a fundamental right or operate to the peculiar disadvantage of suspect classes, there need be only some rational basis for the legislation. City of Memphis v. International Bhd. of Elec. Workers Union, Local 1288 , 545 S.W.2d 98 (Tenn. 1976).

A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it. Id. And, it is not necessary that the reasons for the classification appear in the face of the legislation. Stalcup v. City of Gatlinburg , 577 S.W.2d 439 (Tenn. 1978). In this case, one conceivable reason for the "discrimination" might be that retail businesses are subject to the Retailers Sales Tax Act, T.C.A. ' 67-6-101 et seq. And while the sales tax is a pass-through tax, the liability for its collection and remittance falls squarely upon the dealer. T.C.A. ' 67-5-201. On the other hand, the sales tax either is greatly reduced or is not levied at all on industrial machinery and raw materials used in the manufacturing or processing of tangible person property. See e.g. , T.C.A. ' 67-6-206. Thus the exclusion of retail development from the Adequate Facilities Tax would have the effect of equalizing, to some degree, the overall tax burden on different industries within that county. In addition, it could be argued that many retail businesses do not use or burden public utilities and infrastructure to the same degree that many industrial businesses - for example, a manufacturing plant, would.

Since there is at least one rational reason justifying the classification, the exclusion of retail development from the Adequate Facilities Tax is most likely constitutionally defensible See generally Op. Tenn. Atty. Gen. No. 96-088 (July 16, 1996).

(2) The second part of your inquiry is the broader question of whether the Act contains any other problematic language that might result in a court finding the legislation invalid. To begin with, there is a strong presumption in favor of the constitutionality of acts passed by the Legislature. Dennis v. Sears, Roebuck & Co. , 446 S.W.2d 260( Tenn. 1969). However, tax statutes are to be liberally construed in favor of the taxpayer and against the taxing authority. Covington Pike Toyota, Inc. v. Cardwell, 829 S.W.2d 132 (Tenn.,1992); Sky Transpo, Inc. v. City of Knoxville , 703 S.W.2d 126, 129 (Tenn.1985).

The most basic principle of statutory construction is to ascertain and give effect to the legislative intent. Owens v. State , 908 S.W.2d 923, 926 (Tenn.1995). Legislative intent is to be ascertained whenever possible from the natural and ordinary meaning of the language used, without forced or subtle construction that would limit or extend the meaning of the language. Carson Creek Vacation Resorts, Inc. v. State Dept. of Revenue , 865 S.W.2d 1, 2 (Tenn.1993).

Courts must presume that the General Assembly intended that every word used in a statute would have a purpose and convey a meaning. Cohen v. Cohen , 937 S.W.2d 823, 827 (Tenn.1996).

In addition, statutes levying taxes will not be extended by implication beyond the clear import of the language used, nor will their operation be enlarged so as to embrace matters not specifically pointed out, although standing on a close analogy. Union Carbide Corp. v. Alexander , 679 S.W.2d 938, 942 (Tenn.1984); Tennessee Gas Co. v. McCanless , 184 Tenn. (20 Beeler) 387, 394, 199 S.W.2d 108, 111 (1947).

In this case, the Act specifically exempts from taxation public buildings, places of worship, barns and outbuildings used for agricultural purposes, additions to existing single-family homes, structures replaced due to fires and other disasters, and structures owned by 501(c)(3) organizations. The language does not include retail or other commercial businesses within its list of exempted entities. However, as noted earlier (see footnote 1 and citations to case law supporting this premise), the failure to list each and every type of business to be exempted or excluded from imposition of the tax does not necessarily mean that the Legislature intended the tax to be inclusive beyond the words contained in the Act. The Act specifically taxes residential new housing and industrial development. "Residential" is defined in Section 2(q) and does not appear to pose any problems. However, interpretation of the word "industrial" as it is used in "industrial development" in this Act does, in my view, raise some serious concerns.

In accordance with the definition in Section 2(k) of the Act:

"Industrial" means the development of a property by any person or a business classified as Industrial under the United States

Standard Industrial Classification Manual.

The Standard Industrial Classification Manual (SIC), published by the Office of Management & Budget, classifies business establishments by the type of economic activity they perform. The manual was designed specifically for census and statistical purposes, however it is also used in the field of taxation by auditors. It has been amended and revised several times since 1972 in order to reflect the economy's changing industrial organization, with the final amended version being published in 1987. During the past two years, The Office of Budget & Management has developed a new manual, the North American Industry Classification Manual. However, the SIC is still viable and continues to be used by various governmental entities.

It is noteworthy that the manual has not been amended since the County Adequate Facilities Tax was enacted. ²

The SIC of 1987 is composed of numerous Divisions representing the various sectors of the U.S. economy. They include "Agriculture, Forestry and Fishing," "Manufacturing," "Construction," "Mining," "Transportation, Communications, Electric, Gas and Sanitary Services," and many more. The Divisions are then further broken down into Major Groups which are each assigned a number, and then further into Industry Groups and finally specific industries, which are assigned a number.

For example, "Accounting, Auditing, and Bookkeeping Services, "which is industry Number 8721, is part of industry Major Group number 872 by the same name. Industry group 872 lies in Major Group 87, "Engineering, Accounting, Research, Management, and Related Services," under the Division of Services. However, and very important to the conclusion in this opinion is the fact that there is no Division, no Major Group, no Industry Group or other classification denominated simply "Industrial" ³

The rationale for the SIC classifications are based on the " primary" or "predominant" activity of the subject industries. The activity in which a particular service industry is primarily engaged in is determined by the value of the receipts or revenues generated by the various activities of the business. The activity generating the greatest relative share of "value added" is the business's primary activity. By classifying activities on this basis, a business that has revenue from some incidental activity is not classified based upon that activity. See generally AAbakus, Inc. v. Huddleston, 1996 WL 548148 (Tenn.App1996).

There are multiple places in the SIC where the word "industrial" is found. For example, under Division D, A Manufacturing, @ Major Group 35 is titled "Industrial and Commercial Machinery and Computer Equipment." Indeed, if one conducts a keyword computerized search using the word "industrial," hundreds of "hits" are generated. However, the results cover a very wide and divergent range of industries. For example, Number 2099 is "Sugar, industrial maple: made in plants producing maple syrup," while Number 2326 is "Industrial garments, men's and boy's." Then there is Number 6141: "Industrial loan banks, not engaged in deposit banking," and even Number 8999: "Psychologists, industrial."

There is no Division, Major Group, Industry Group or other classification named simply "industrial," most likely because that word- used alone- is far too broad, and thus too vague to be useful in identifying distinct industries. Clearly, industrial activities, services or products are present in many diverse industries and yet not all of those industries would be considered "industrial" in the commonly understood meaning of the word. In summary, the Standard Industrial Manual divides the various industries in a much more precise manner than that which apparently was contemplated in Section 2(k) of the County Adequate Facilities Tax Act.

Tax statutes are to be interpreted in accordance with the clear language embodied within the statute. Legislative intent is not employed unless the statute is ambiguous or its plain reasoning leads to an absurd result. Western Pipeline Constr., Inc. v. Dickinson , 203 Tenn. (7 McCanless) 248, 254, 310 S.W.2d 455, 458 (1958).

In this case, on its face, the language in the legislation is clear. However, as it can be seen, if various individuals were to consult the Standard Industrial Classification Manual (in accordance with Section 2(k)) to attempt to discern which entities should be liable for the tax, since no business activities are classified simply "industrial," it is highly improbable that those individuals' selection of taxable entities would be consistent with one another. In other words, selection requires a subjective determination with respect to deciding which industrial and industrial-related business activities should be taxed. It is very understandable, therefore, why some types of new (non-residential) development have been assessed the Adequate Facilities Tax, while others have not.

If it cannot be determined which entities should be subjected to the tax, it is conceivable that a court could find the legislation in violation of Article I, Section 8, of the Tennessee Constitution and the Fourteenth Amendment of the U.S. Constitution as being void for vagueness. In reviewing a void for vagueness claim, the key inquiry is whether the legislation is " 'so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application.' " Estrin v. Moss , 221 Tenn. 657, 672, 430 S.W.2d 345, 351 (1968) (quoting Connally v. General Constr. Co. , 269 U.S. 385, 46 S.Ct. 126, 70 L.Ed. 322 (1926)); City of Clarksville v. Moore, 688 S.W.2d 428, 429 (Tenn.1985). In this scenario, it seems likely that persons trying to determine whether a certain business should be considered "industrial" under the SIC of 1987 would be confused as to the scope of the tax, might be reduced to guessing, and almost certainly would differ as to the application of the tax.

To sum up, the validity of the County Adequate Facilities Tax Act is questionable with respect to its application to "new industrial development" as it supposed to be defined in accordance with Section 2(k) of the Act. And while the County recently (March 1, 2001) passed Resolution No. 0102-10, in which it declared that the tax applies to "all industrial construction... [and] all non-retail commercial development," this semi-clarification nearly two years after passage of the Act still does not adequately identify which industrial industries should be subject to the tax. In any event, a taxing agency's interpretation of a tax statute is persuasive, but it is certainly not conclusive. Moto-Pep, Inc. v. McGoldrick , 202 Tenn. 119, 129, 303 S.W.2d 326, 330 (1957).

Please do not hesitate to contact me if you have any further questions with respect to this matter.