Knowledgebase-Entitlement of the City to In Lieu Of Taxes from an Electric System


Information Product

Title:Entitlement of the City to In Lieu Of Taxes from an Electric System
Summary:MTAS was asked whether the city is entitled to in lieu of taxes from an electric system with respect to the system's property in the city.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:06/06/95
Last Reviewed on::10/26/2016
Subject:Taxes--Payment in lieu of taxes; Tax collection
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: June 6, 1995

You have the following question: Is the city entitled to in lieu of taxes from an electric system with respect to the system's property in your city?

In my opinion, the answer is yes, but only if the city owning the electric system has passed the resolution authorizing the payment of in lieu of taxes to municipalities and other taxing jurisdictions in which the electric system owns property under Tennessee Code Annotated, sections 7-52-304 and 7-52-307.

In 1987 the General Assembly passed the Municipal Electric System Tax Equivalent Law of 1987 (codified as Tennessee Code Annotated, sections 7-52-301--310). That law provides that municipalities owning electrical systems "may" pay in lieu of taxes after allowance for operating expenses, interest payments, contingencies, and cash working capital adequate to cover operating expenses for a reasonable number of weeks. The total amount of in lieu of taxes to be paid is to be set out in a resolution adopted by the municipality's governing body after consultation with the electric system's supervisory body. The "may" in that statute appears to be permissive rather than mandatory.
There is a provision in that Law for a municipality owning an electric system to make and perform contracts for the distribution of an in lieu of tax. [Tennessee Code Annotated, section 7-52-306.] In addition, the in lieu of tax may also be distributed according to private acts. [See Knox County v. Lenoir City, 837 S.W.2d 382 (1992).] However, no such contract is at issue with respect to your question, and I can find no private acts that provide for the payment to your city of in lieu of taxes by the electric system.

Where there is no contract or private act providing for the distribution of the in lieu of tax, the distribution is in the manner set out in the Law. [Tennessee Code Annotated, section 7-52-307.] However, that manner of distribution does not kick in until the municipality which owns the electric system passes the resolution authorizing the payment of in lieu of taxes. [Tennessee Code Annotated, section 7-52-307.] If such a resolution is passed, it appears that all the municipalities and taxing jurisdictions in which the electric system has property are entitled to the in lieu of tax in accordance with that Law.

In summary, whether your city is entitled to any in lieu of tax from the electrical system, to the extent that system has utility property inside the city, depends upon whether the city of that owns the electric system has passed the resolution provided for in Tennessee Code Annotated, sections 7-52-304(4) and 7-52-307.

Let me know if I can help you further in this or any other matter.

Sincerely,

Sidney D. Hemsley
Senior Law Consultant

SDH/

Please remember that these legal opinions were written based on the facts of a given city at a certain time. The laws referenced in any opinion may have changed or may not be applicable to your city or circumstances.

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