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Original Author: Hemsley, Sid
Date of Material: 07/21/2000

Taxes--Real property
Taxes--Real property--Tennessee

Deferring Property Taxes

Reviewed Date: 07/21/2021
MTAS was asked whether it is legal for the city to defer taxes on property annexed into the city but not yet receiving all city services.

July 21, 2000

As I read your letter of July 19 to me, you have the following question: Is it legal for the city to defer taxes on property annexed into the city but not yet receiving all city services?

Under the facts you related the city annexed three areas, and in those areas “deferred” property taxes until all city services are provided in those areas. However, your letter appears to say that the residents in all three annexed areas receive all city services except sewer service.

The answer is that the city cannot defer, waive, forgive or otherwise fail to impose property taxes on the citizens of the three annexed areas.

The case law in Tennessee makes it clear that the unequal taxation of property within municipal boundaries is not permissible. Two of those cases deal directly with differential tax rates in annexed areas. In Jones v. Memphis, 47 S.W. 138 (1898), the Tennessee Supreme Court struck down a statute exempting newly annexed territory from taxation for police, fire and lighting for ten years (although the annexed area was not to receive those services during that period). Citing Article II, Section 28, of the Tennessee Constitution, the Court declared that:

The Court is of the opinion that taxation must always be uniform and equal throughout the extent of the same jurisdiction; that State taxes must be equal and uniform throughout the State; that county taxes must be equal and uniform throughout the county; and that a city tax must be equal and uniform throughout the city, so far as revenues for current expenses of the future are concerned.... [Citing earlier Tennessee cases].

So also, if a portion of a territory is annexed to and becomes a part of a city it is entitled to all of the benefits extended by the city to any other portion and while it may not, in all instances, be necessary to furnish at once the same advantages and conveniences in each and every locality of the city, still an act which prescribes that it shall not have such advantages at all, or for a given time is not valid and cannot be sustained.

The logical result of the contrary holding as to taxation would be that in every city taxes might be different in different wards and on different streets; in every county taxes might be different in every civil district; in the State taxes might be different in every county and in each division–all clearly in violation of the Constitution and our whole theory of equal and uniform taxation.

The Tennessee Supreme Court reached the same result in American Bemberg Corporation v. City of Elizabethton, 175 S.W.2d 535 (1943). There the Court threw out contracts the city had made with certain corporations not to annex property without their consent, and even if their consent was obtained, to remit to the corporations all city taxes for ten years. Jones v. Memphis was still the law, reasoned the Court.

It has been repeatedly held that within the various tax classifications established under Article II, Section 28, of the Tennessee Constitution, property taxes must be equal and uniform within governmental units. Those cases have rejected a number of schemes of taxation or tax relief under which a certain class of property owners would receive tax relief of one kind or another. [Bell v. Town of Pulaski, 184 S.W.2d 384 (1945); Corporation of Sevierville v. King, 184 Tenn. 535 (1939); Graham v. Spivey, 133 S.W.2d 469 (1939); American National Bank and Trust Co. of Chattanooga v. McFarland, 352 S.W.2d 441; City of Nashville and Davidson County v. State Board of Equalization, 360 S.W.2d 458 (1962); Metropolitan Government of Nashville and Davidson County v. Nashville Pi Peta Phi House Corp., 407 S.W.2d 179 (1966); Metropolitan Government of Nashville and Davidson County v. Hillsboro Land Co., 436 S.W.2d 850 (1958); Federal Express Corp. v. Tenn. State Board of Equalization, 717 S.W.2d 873 (Tenn. 1986); Albert v. Williamson County, 798 S.W.2d 758 (Tenn. 1990).]

The 1973 amendment to Article II, Section 28, permitted property to be differentially assessed according to several classifications (public utility property, industrial and commercial property, residential property, etc.), but both the cases pre-dating and post-dating, 1973, stand for the proposition that within those classifications taxes must still be equal and uniform within the taxing jurisdiction. Indeed, Article II, Section 28, presently provides that:

The ratio of assessment to value of property in each class or subclass shall be equal and uniform throughout the State, the value of and definition of property in each class or subclass to be ascertained in such manner as the Legislature shall direct. Each respective taxing authority shall apply the same tax rate to all property within its jurisdiction.

No taxpayer in the annexed territory who has paid property taxes in spite of the tax deferral enacted by the board is not entitled to a refund of taxes. In addition, because the tax deferral was and is unconstitutional and beyond the authority of the city, all property owners within the annexed territory are subject to the same property tax that applies to other property owners in the city. With respect to how far back the city should go to collect such property taxes, Tennessee Code Annotated, section 67-5-1806, provides that:

All taxes assessed against real and personal property in this state shall be barred, discharged and uncollectible after the lapse of ten (10) years from April 1 of the year following the year in which such taxes become delinquent, whether suit be brought within that time or not to collect the same, and whether this statute be pleaded in bar of such collection or not, unless the property in question be struck off and sold within such period of ten (10) years as aforementioned.

Holloway v. Putnam County, 534 S.W.2d 292 (1976), might give property owners an argument that the city’s promise not to impose property taxes in the annexed areas until complete city services are delivered, and its delay in collecting such taxes, operates as a bar to their collection even where less than ten years has passed. However, all the taxes due on the property in that case were 10 to 30 years delinquent (1936-1961), and were paid under protest in 1972. The county’s delay in collecting the taxes under those circumstances was “inexcusable,” declared the court, and barred by Tennessee Code Annotated, section 67-1326 [now 67-5-1806]. I suspect that in cases where ten years has not passed, the courts will not support the property owners. They are probably are bound to know that taxes were due on their property notwithstanding the city’s deferral of such taxes.


Sidney D. Hemsley
Senior Law Consultant