Tennessee Officials Are Churlish, Utilities Cherish Newfound Tax Break

by | Nov 4, 2015

Tennessee may be called the Volunteer State, however, none of its 23 rural electric cooperatives has stepped up to say that it will not take advantage of a tax law that has been on the state’s books for years – but only was discovered a few months ago.

The tax exemption in Tenn. Code Ann. § 65-25-122(a) – which was unearthed by John Bowers of Pickwick Electric Cooperative shortly after he was named president of the utility last January – provides Tennessee’s rural electric cooperatives with a four-year, temporary property tax break for their investments in new facilities and plants.

Now that they are aware of the exemption, at least two cooperatives have announced they intend to use it, and that more are queuing up for extra savings. As David Callis, executive director of the Tennessee Electric Cooperative Association, told the Chattanooga Times Free Press last week, “Our board members have a fiduciary duty to keep the electric rates as low as possible for our members.”

However, local officials and property assessors are worried about the looming loss of income – and those concerns recently galvanized State Senator Bill Ketron (R-District 13) of Murfreesboro to ask Tennessee Attorney General Herbert Slatery III for his opinion on the law.

“Middle Tennessee Electric, I guess, is the largest electric co-op in the state, probably in the country,” Senator Ketron told the Chattanooga Times Free Press. “They’re headquartered in Murfreesboro and they have plans to build a new headquarters. It was going to be a huge chunk of money that [Property Assessor Bob Mitchell] wasn’t going to be able to collect on.” He estimated the amount of forgone taxes at $70,000.

In turn, on October 21, Slatery issued an opinion (No. 15-71) on the “Constitutionality of Property Tax Exemption for Electric Cooperatives.” Could the coops go forward? In a word, he said, “No.”

Specifically, the AG found that “The tax emption for rural electric cooperatives … is unconstitutional because it purports to grant a tax exemption that is not authorized by Article II, Section 28, of the Tennessee Constitution.”

Slatery noted that the Tennessee Constitution declares that all property is subject to taxation, and it authorizes the General Assembly to exempt only those properties that fall into specific categories – among them, property owned by state and local governments; property held and used for purely religious, charitable, scientific, literary, or educational purposes; and residential property owned by elderly and disabled taxpayers.

Therefore, Slatery found, “The rural electric cooperatives … do not fall within any of the authorized categories.”He further explained, “A rural electric cooperative is not designed to accomplish the beneficial purposes in the public interest which a charitable association in the accustomed sense, such as a church, college or hospital, is organized to serve.”

He ruled, “Inasmuch as rural electric cooperatives do not fall within any of the exemption categories authorized by Article II, Section 28, the Tennessee Constitution does not permit a four-year property tax exemption for their facilities and plants.”

In the end, the AG’s opinion may just be the first shot fired in a utility-state free-for-all. Both sides are prepared for battle: The coops have said that they will take the case to court, if necessary – and State Senator Ketron vows to sponsor legislation to strike the exemption from state code.

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