Unnoticed for 70 years, state property tax break for electric coops now expected to wind up in court

The State Board of Equalization, which hears property tax disputes, ruled against the rural electric coops' taking advantage of the years-old but never-noticed provision, relying on a recent legal opinion from Tennessee Attorney General Herbert Slatery III, pictured above

NASHVILLE - After going unnoticed for some 70 years, the recent discovery of a Tennessee law granting state rural electric cooperatives a four-year property tax break on new investments is likely to erupt in a court battle over its constitutionality.

The State Board of Equalization, which hears property tax disputes, last week ruled against recent efforts by five nonprofit electric cooperative membership corporations to use the temporary exemption.

As near as anyone can figure, the provision became part of the state law on the co-ops back in a 1945 change to a 1939 law. But co-ops say they didn't discover its existence until recently.

The board members' decision was based on an October legal opinion issued by Tennessee Attorney General Herbert Slatery. The state's chief lawyer said the provision violated the state Constitution, noted Hamilton County Property Assessor Bill Bennett, vice chairman of the equalization panel.

"They can still go on ahead and appeal it," Bennett said of the co-ops, which distribute power to many rural areas of the state.

Kelsie Jones, the state board's executive secretary, said the panel "decided to follow the advice of its attorney [Slatery] and direct the Office of State Assessed Properties to revise those assessments to remove the effect of the four-year exemption currently presently authorized by statute."

He said the "practical effect is the assessments will go up for those companies, subject to their further legal action."

Mike Knotts, director of government affairs for the Tennessee Electric Cooperative Association, said the co-ops intend to go to Davidson County Chancery Court for a resolution to the issue.

"We disagree with the decision that the board made as a matter of law but are happy that there is an avenue of judicial review to look at it further," Knotts said.

He indicated that the attorney general's opinion is just that, an opinion.

"We contend that only the courts have the ability to interpret what is constitutional and what is not," Knotts said. "The board decided to do something different."

The provision was discovered by the new head of a West Tennessee rural electric co-op who read through the entire statute and began raising questions about what was clearly a four-year property tax exemption for co-ops on new facilities and major equipment purchases.

As several co-ops began invoking the provision, county property assessors and other local officials became alarmed over loss of tax revenue. Acting on requests from Rutherford County's mayor and property assessor, Sen. Bill Ketron, R-Murfreesboro, sought Slatery's legal opinion.

The attorney general said the provision violated the state Constitution because the document declares all property is subject to taxation with the General Assembly's hands tied except for specifically designated areas.

These include property owned by state and local governments, property held for "purely" religious, charitable, scientific or educational purposes and residential property owned by elderly or disabled taxpayers, Slatery opined.

In his memorandum to the State Board of Equalization, Dick Lodge, an attorney representing the five co-ops, argued the state board, the executive branch and Slatery can't make the ultimate decision on what meets constitutional muster and urged the board to instead follow the law.

The electric co-ops were established in state law during the 1930s in the wake of the federally created Tennessee Valley Authority.

Lodge says the nonprofit co-ops' missions to provide reasonably priced access to electricity, act as a single electric system within their geographic areas and improve conditions to "meet established definitions of 'charitable' activities.'"

He notes the state defines charitable institution" for purposes of the property tax exemption to include "any nonprofit organization or association devoting its efforts and property, or any portion thereof, exclusively to the improvement of human rights and/or conditions in the community."

The U.S. Treasury, Lodge notes, defines the term "charitable" to include "promotion of social welfare" as well as "lessening the burdens of government."

"By providing access to electricity, Tennessee electric cooperatives plainly improve conditions within the community and promote social welfare, and access to electricity has been considered by some to be a human right," Lodge also argues.

The five co-ops seeking the exemptions are Upper Cumberland Electric Membership Corp., Pickwick Electric Cooperative, Duck River Electric Corp., Volunteer Energy Cooperative and Caney For Electric Cooperative.

Contact Andy Sher at asher@timesfreepress.com, 615-255-0550 or via twitter @AndySher1.