Original Author: Hemsley, Sid
Date of Material: 01/15/2003
Taxes--Payment in lieu of taxes
Utilities--Laws and regulations
Water--Laws and regulations
Reviewed Date: 07/29/2021
MTAS was asked whether a municipal water system can pay in lieu of taxes.
You have the following question: Can a municipal water system pay to the municipality in lieu of taxes under Tennessee Code Annotated, § 7-34-115(a)(9)?
The answer appears to be yes. Tennessee Code Annotated, § 7-34-115(a) contains a list of expenditures municipal utilities are authorized to make. Included in that list is:
(9) If the governing body of the municipality by resolution so requests, payments to the municipality in lieu of ad valorem tax on the property of the public works within the corporate limits of the municipality not to exceed the amount of taxes payable on privately owned property of a similar nature.
Tennessee Attorney General’s Opinion 80-549 (November 14, 1980) addresses the question of “Whether or not Clarksville’s Water, Gas and Sewer Department, which is wholly owned by the municipality may make payments in lieu of taxes to the City of Clarksville.” In concluding that the answer was yes, that opinion points to Tennessee Code Annotated, § 7-34-115(a) as general authority for such payments on the part of water, gas and sewer systems.
The same opinion opines that while there is no priority of the authorized expenditures listed in Tennessee Code Annotated, § 7-35-115(a), “it is the express statutory policy that no municipality is to ‘operate such public works for gain or profit or primarily as a source of revenue to the municipality’ T.C.A. 7-34-103.” [The same statutory command is contained in Tennessee Code Annotated, § 7-35-115(a).] For that reason, “it appears that payment in lieu of ad valorem taxes should be instituted only after the other items in T.C.A. § 7-34-115(a) are adequately funded.”
I have previously pointed out to a number of municipalities that it was held in Nashville Electric Service v. Luna, 204 S.W.2d 529 )(1947), that Tennessee Code Annotated, § 7-34-101 et seq. applied only to utility systems established under that statute, but that it was the probable intent of the Tennessee General Assembly to extend the application of Tennessee Code Annotated, § 7-34-115 to all municipal utilities.
Let me know if I can help you further in this or any other matter.
Sidney D. Hemsley
Senior Law Consultant
Payment of In Lieu of Taxes by a Municipal Water System public.doc