April 30, 1993
Recently you contacted MTAS with a question concerning whether or not the City could provide tax incentives to tenants in its industrial park. In short the answer is no.
The keystone of this issue is the interpretation that is given to Article II, Section 28 of the Tennessee Constitution. This reads in pertinent part:
Each respective taxing authority shall apply the same tax rate for all property within its jurisdiction.
This principle can be shown in the old but still valid case of Jones v. Memphis, 47 S.W. 138 (Tenn. 1898):
[T]axation 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.
When we talk about giving certain parties favorable tax treatment, I believe the principle still must apply; tax rates, no matter by whom imposed, must be the same throughout a jurisdiction for all parties similarly situated. To give some industry tax breaks and others not would violate this tenet.
There is a roundabout way a municipality can extend favorable tax treatment to industrial parties. The case of Small World Inc. v. Industrial Development Board, 553 S.W.2d 596 (Tenn. App. 1976) stands for the proposition that property belonging to an industrial development board can be exempted from taxation. Of course, the problem here is that the city does not have an industrial development corporation. If it did, then I believe it could lease lands it owns to industrial prospects and pass the savings from being tax exempt on to them.
You also mentioned that you were somewhat bothered by the prospect of the city selling land in fee simple to industrial prospects. I do not believe this causes any problem as long as the land is being sold at fair market value. The Tennessee Constitution Article 2 Section 29 provides that:
the credit of no County, City or Town shall be given or loaned to or in aid of any person, company, association or corporation, except upon an election to be first held by the qualified voters of such county, city or town, and the assent of three-fourths of the votes cast at election.
If the property was being sold below market value this could very well be a prohibited loaning of credit, however, as Opinion of the Attorney General 86-61 indicates, no constitutional problem is created when a city expends accumulated revenues to construct industrial buildings and sells or leases it for fair market value. I believe this scenario can be applied to the sale of land in the industrial park.
In short I would suggest that the city form an industrial development corporation. It can take advantage of statutes and perform functions that the city is prohibited from doing and greatly increases the flexibility of the city when trying to recruit industrial prospects.
I have enclosed the OAG cited herein. Please feel free to contact me if I may be of any further assistance on this or any other matter.
Very truly yours,
MUNICIPAL TECHNICAL ADVISORY SERVICE