Cookeville Boat Dock's claim in a Chancery Court delinquent tax lawsuit that it can't be forced to pay ad valorem (property) taxes on constitutional grounds is without merit and should be dismissed by the court, according to Tennessee Attorney General Robert E. (Bob) Cooper, Jr.
Cooper, in answer to the marina's counter complaint, states that "the Tennessee Constitution does not grant a property tax exemption to commercial taxpayers that operate a business on land owned by the state or local governments," as the owners of Cookeville Boat Dock claim.
In his answer filed Tuesday, September 24 in DeKalb County Chancery Court, Cooper further asserts that Cookeville Boat Dock's constitutional challenge is not properly before the court because the marina owners failed to first pursue other statutory remedies available to them.
Cookeville Boat Dock owns and operates a commercial boat dock and concession on land in DeKalb County that is leased from the federal government. The marina has been assessed ad valorem taxes on the boat dock property since 1998; however, it apparently has not paid these taxes and, thus, the boat dock property has been included in the delinquent tax proceedings of DeKalb County covering the tax years from 1998 through 2011. "It is the Attorney General's understanding that Cookeville Boat Dock has not been assessed for the underlying real estate that is owned by the federal government or for any leasehold interest in the real estate. Rather, Cookeville Boat Dock has been assessed only for the buildings and other structures that make up the boat dock property," wrote Attorney General Cooper in his answer.
From 1998 through the 2011 tax year, owners of Cookeville Boat Dock & Resort, Inc. have been named as defendants in DeKalb County Chancery Court lawsuits filed against delinquent taxpayers. The amount Cookeville Boat Dock & Resort, Inc. owes through 2011 in delinquent taxes comes to $156,257.12 (taxes on personal property and leased property including the base tax plus interest and penalty, attorneys fees, and court costs). Further penalties are assessed each month. Additionally for the 2012 tax year, the Trustee's Office reports that Cookeville Boat Dock & Resort Inc. owes a total of $8,504 in delinquent taxes including interest and penalty through October 1st, 2013. The Trustee's Office has just mailed a tax notice to Cookeville Boat Dock in the amount of $7,888 for the 2013 tax year, which comes due February 28, 2014.
"To the Attorney General's knowledge, Cookeville Boat Dock has not challenged the tax assessments through any of the available statutory procedures for pursuing such a challenge such as appeals to the county and state boards of equalization or a lawsuit against the collecting officer, provided the taxpayer first pays the tax under protest and files suit within six months of payment. Instead, Cookeville Boat Dock has attempted to raise this challenge as a defense to a delinquent tax proceedings", wrote AG Cooper.
The attorney for Cookeville Boat Dock, Jon E. Jones of Cookeville contends the owners of the marina are being discriminated against in that the county is trying to force them to pay ad valorem taxes on the boat dock facility which is leased from the U.S. Army Corps of Engineers (federal government property) while other properties in Tennessee leased from the state or local government entities (under Article II, Section 28 of the Tennessee Constitution) are exempt from payment of ad valorem taxes. This, he claims is a violation of the Supremacy Clause of the U.S. Constitution making the tax assessment against Cookeville Boat Dock & Resort, Inc. invalid. In June, Jones filed an amended answer to the county's Chancery Court lawsuits against delinquent taxpayers including Cookeville Boat Dock & Resort along with a counter complaint seeking a declaratory judgment for his clients.
Attorney General Cooper, who was made a party to the case to defend the constitutionality of Article II, section 28 of the Tennessee Constitution, asserts in his answer that the state constitution does not grant a property tax exemption to commercial taxpayers that operate a business on land owned by the state or local government.
"The plain language of state law makes clear two points: First the same rule that applies to state and local government property also applies to federal property. Accordingly, contrary to Cookeville Boat Dock's argument in this case, Article II, Section 28 does not create a different rule for federal property than that which applies to state and local government property. In exercising its authority under Article II, Section 28, the legislature has created a rule that applies equally to the state and federal governments," wrote Cooper.
"Second, government property is exempt from taxation only if the property is used exclusively for public purposes. If government property is leased to a business that uses the property in its commercial operations, then the business owner's interest in the property is taxable. But here, no government property is being taxed at all. The assessment is for the boat dock facility itself, not the underlying real estate, regardless of who owns it. If Cookeville Boat Dock operated a commercial boat dock and concession on property owned by DeKalb County or the State of Tennessee, the law makes clear that Cookeville Boat Dock would be assessable for and required to pay taxes on its interest in the property. This is true even if the underlying real estate upon which the boat dock sits is not assessable because it belongs to the assessing county or the state. Although the underlying real estate owned by the federal government is not taxable under federal and state law, Cookeville Boat Dock's interest in the boat dock facility is taxable. The result is consistent for both state/local and federal government property. Contrary to Cookeville Boat Dock's basic premises, Article II, Section 28 does not provide a tax exemption for commercial boat docks operated on state or county property," wrote the Attorney General.
In their Trial Brief, "Cookeville Boat Dock & Resort, Inc. is asking the Court to declare that DeKalb County's assessment of ad valorem taxes against boat dock facilities leased by Cookeville Boat Dock & Resort, Inc from the United States is a violation of the Supremacy Clause of the U.S. Constitution because Tennessee exempts boat dock facilities from taxation when the lessor is an agency of the state."
In his answer, attorney general Cooper wrote that " the Federal Supremacy Clause does not prevent DeKalb County from assessing the property of a taxpayer that operates a commercial boat dock on land leased from the federal government".
"The United States Supreme Court has made clear that a state may impose a tax on those who deal with the federal government so long as the tax is imposed equally on the other similarly situated constituents of the state. In fact, the federal Supremacy Clause does not prevent the state from imposing a tax on a corporation using government property in connection with a business conducted for its own private gain. This principal applies to businesses that operate concessions on federal property," wrote Cooper.
In this case, "Cookeville Boat Dock has been assessed for boat dock buildings and other structures that are actually owned by Cookeville Boat Dock. If Cookeville Boat Dock did not own the boat dock structures, and the federal government instead owned the structures, the DeKalb County Assessor still could assess Cookeville Boat Dock for its leasehold interest in federally-owned property. Inasmuch as Cookeville Boat Dock actually owns the property for which it has been assessed, however, any constitutional or statutory provisions that bar the taxation of federally-owned property simply are inapplicable," according to the Attorney General.
"Cookeville Boat Dock owns the boat dock and related structures that it uses to operate a business on federal property. Neither the Supremacy Clause nor any principal of state law prevents DeKalb County from assessing Cookeville Boat Dock for its ownership interest in the boat dock property. Under Tennessee law, boat docks and marinas are assessable as real property and businesses that operate boat docks regardless of whether it is on the land of a state or local government or that of the federal government. If the taxpayer actually owns the boat dock and related structures, it is assessable for that property. Alternatively, if the taxpayer does not own the property but merely leases it from the local, state, or federal government, the taxpayer still is assessable for its leasehold interest in the property. Under these circumstances, Cookeville Boat Dock's challenge to the tax assessments is wholly without merit," wrote AG Cooper.
Cooper further asserts that Cookeville Boat Dock cannot raise this constitutional challenge within the context of a delinquent tax proceedings when it has not pursued its statutory remedies for challenging the underlying tax assessments. "Cookeville Boat Dock's challenge to Article II, Section 28, is not properly before this Court," wrote the Attorney General.
"Statutory remedies for contesting Cookeville Boat Dock's property tax assessments are provided by state law (appeals to the county and state boards of equalization) and (suit against collecting officer, provided the taxpayer first pays the tax under protest and files suit within six months of payment). Having failed to avail itself of either of these remedies, Cookeville Boat Dock may not contest the validity of the underlying property tax assessments by raising the issue in an answer or a counter-complaint to delinquent tax proceedings. Cookeville Boat Dock's failure to pursue these statutory remedies provides an additional ground for dismissing the counter-complaint in which it attempts to challenge the validity of the property tax assessments," concluded State Attorney General Cooper.
Each year the attorney for Cookeville Boat Dock & Resort, Inc. has filed an answer to the delinquent tax lawsuits, claiming that the county can't "collect a tax on real estate" on federal property since the U.S. government pays in lieu of taxes to the state for the use and benefit of DeKalb County. That constitutes, in essence, double taxation, according to the answer.
Cookeville Boat Dock & Resort, Inc. denies it owes any ad valorem taxes to DeKalb County and that the real property assessed is held in fee by the United States (federal government) and is leased to the marina pursuant to "lease for commercial concession purposes".
In the counter claim and request for declaratory judgment, Jones states that "DeKalb County asserts that this property is subject to ad valorem taxation. The claim of DeKalb County is based on Article II, Section 28 of the Constitution of Tennessee, which on its face allows for exemption of property leased by the State but not by the United States."
In their Trial Brief, "Cookeville Boat Dock & Resort, Inc. asks the Court to declare that DeKalb County's assessment of ad valorem taxes against boat dock facilities leased by Cookeville Boat Dock & Resort, Inc from the United States is a violation of the Supremacy Clause of the U.S. Constitution because Tennessee exempts boat dock facilities from taxation when the lessor is an agency of the state."
"Pursuant to Article II, Section 28, Tennessee discriminates against a lessee of the United States and in favor of lessees of the State of Tennessee, its counties, or its municipalities or other local governmental entities. The constitutional provision and resulting discrimination against lessees of the United States including the counter plaintiff (Cookeville Boat Dock & Resort,Inc.), violate the Supremacy Clause of the United States," according to the counter claim and request for declaratory judgment.
Concerning compensation to DeKalb County for lost Ad Valorem revenue, the trial brief states that "In 1940, Congress recognized that the taking of lands for flood control purposes would reduce the local property tax base. Congress also recognized that some of the property acquired would be developed and used for recreational purposes through concessions/leases. Congress decided that the United States should pay 75% of all monies received by the United States from leasing of lands acquired for flood control purposes to the State in which such property is situated...for the benefit of public schools and public roads of the county or counties, in which such property is situated, or for defraying any of the expenses of county government. Seventy five percent of Cookeville Boat Dock & Resort, Inc.'s annual payment substantially exceeds the taxes assessed," according to the trial brief.
The counter claim of Cookeville Boat Dock and Resort states "Unless this court declares that Article II, Section 28 of the Constitution of Tennessee, and the resulting discrimination against the counter plaintiff (Cookeville Boat Dock & Resort, Inc.) as a lessor from the United States are violations of the Supremacy Clause of the Constitution of the United States, counter defendant (DeKalb County) will continue to illegally assess ad valorem taxes against property leased to Cookeville Boat Dock & Resort, Inc. and this will encumber and confuse counter plaintiff's (Cookeville Boat Dock & Resort, Inc.) use of said property".
"Wherefore, counter plaintiff (Cookeville Boat Dock & Resort, Inc.) asks the court to declare that Article II, Section 28 of the Constitution of Tennessee is invalid and that the real property subject to the counter plaintiff's lease for commercial concession purposes is exempt from ad valorem taxation. The counter plaintiff asks that the Attorney General of the State of Tennessee be made a party to this litigation for purposes of defending the constitutionality of Article II, Section 28 of the Constitution of Tennessee".
Former Chancellor Vernon Neal recused himself from hearing the delinquent tax case against Cookeville Boat Dock & Resort, Inc. in 2002 citing a personal conflict. Former Circuit Court Judge John Turnbull was designated and appointed to hear the case to its conclusion. After Turnbull retired from the bench, the case was passed on to Judge Amy Hollars but it still has not been settled in court.
Last December, the county commission approved a motion by second district member Jack Barton to "give this priority number one in our unpaid taxes that our (tax) attorney is going after," he said.
The case was to be on the Chancery Court docket on June 20 but it was delayed due to the filing of Cookeville Boat Dock's amended answer and counter complaint for declaratory judgment. No new court date has yet been set in the case.
Vester Parsley, Jr. is the county's tax attorney.