Alcoa Inc v. Tenn. State Bd. Of Equalization
| Decision Date | 18 February 2011 |
| Docket Number | No. E2010-00001-COA-R3-CV,E2010-00001-COA-R3-CV |
| Parties | ALCOA, INC., v. TENNESSEE STATE BOARD OF EQUALIZATION, et al. |
| Court | Tennessee Court of Appeals |
Appeal from the Chancery Court for Blount County
No. 08-142 Hon. Telford E. Forgety, Chancellor
In this case the Blount County property assessor assessed ad valorem taxes against defendant for certain raw materials the defendant used to fabricate sheets of aluminum at its manufacturing facility in Blount County. The State Board of Equalization and the Chancery Court for Blount County upheld the assessment. Defendants have appealed to this Court arguing that Article II, Sections 28 and 30 of the Tennessee Constitution provide exemptions from ad valorem taxes for "the direct product of the soil in the hands of the producer, and his immediate vendee". We affirm the Judgment of the Trial Court.
Tenn. R. App. P.3 Appeal as of Right; Judgment of the Chancery Court Affirmed.
Wayne R. Kramer and Jackson G. Kramer, Knoxville, Tennessee, for the appellant, Alcoa, Inc.
Robert E. Cooper, Jr., Attorney General and Reporter, Michael E. Moore, Solicitor General, and Gregory O. Nies, Assistant Attorney General, Nashville, Tennessee, for the appellee, Tennessee State Board of Equalization.
Robert N. Goddard and LaJuana G. Atkins, Maryville, Tennessee, and Doyle R. Monday, Brentwood, Tennessee, for the appellees, Mike Morton, Blount County Property Assessor, and Blount County, Tennessee.
Background
Appellant, Alcoa, Inc., is a corporation organized and existing under and by virtue of the laws of the Commonwealth of Pennsylvania. Alcoa maintains offices and manufacturing operations in Blount County, Tennessee. The dispute in this case is whether Alcoa has met its burden of proving that it is entitled to an exemption from ad valorem taxes assessed by the Blount County Property Assessor on certain raw materials Alcoa used to fabricate sheets of aluminum at its Tennessee manufacturing facility. The assessment made by the Blount County Property Assessor was upheld by the Blount County Board, the State Board of Equalization and the Chancery Court for Blount County Tennessee. Alcoa has appealed and at the heart of its appeal are the provisions of Article II, Sections 28 and 30 of the Tennessee Constitution that provide exemptions from ad valorem tax for "the direct product of the soil in the hands of the producer, and his immediate vendee" and the "manufactured produce of this State... in the hands of the manufacturer." The relevant language of these constitutional provisions is as follows:
... [A]ll property real, personal or mixed shall be subject to taxation, but the Legislature may except such as may be held by the State, by Counties, Cities or Towns, and used exclusively for public or corporation purposes, and such as may be held and used for purposes purely religious, charitable, scientific, literary or educational, and shall except the direct product of the soil in the hands of the producer, and his immediate vendee.... (emphasis added).
No article, manufactured of the produce of this State shall be taxed otherwise than to pay inspection fees.
Also applicable to this appeal is Tenn. Code Ann. § 67-5-216. This provision states as follows:
(a) All growing crops of whatever kind, including, but not limited to, timber, nursery stock, shrubs, flowers, and ornamental trees, the direct product of the soil of this state or any other state of the union, in the hands of the producer or theproducer's immediate vendee, and articles manufactured from the produce of this state, or any other state of the union, in the hands of the manufacturer, shall be exempt from taxation. (emphasis added).
The Final Decision and Order of the Board's Assessment Appeals Commission provides the background information regarding the tax assessments in question as follows:
Alcoa was also assessed for the omitted raw materials for the tax year 2003, and it timely filed appeals with the Board for the years 2001, 2002 and 2003. A hearing was held in January 2006 and the Administrative Law Judge (ALJ) issued an Initial Decision and Order finding that the raw materials at issue were subject to assessment as personal property and that the exemption sought by Alcoa under Article II, Section 28 of the Tennessee Constitution and Tenn. Code Ann. § 67-5-216 did not apply because the raw materials were imported from foreign countries. The holding was affirmed by the Board's Assessment Appeals Commission (AAC) by its Order of June 4, 2008. The ruling was adopted by the Board and a Certificate of Assessment was issued on July 24, 2008. Neither the ALJ nor the AAC actually ruled that the raw materials were or were not "direct products of the soil". Alcoa filed a Petition for Judicial Review on September 19, 2008 with the Chancery Court for Blount County, Tennessee pursuant to Tenn. Code Ann. §§ 4-5-322(b)(1)(A) and 67-51511.
The Chancery Court Trial
The Chancery Court conducted a hearing on the Petition for Judicial review on October 8, 2009, and the Chancellor issued a Memorandum Opinion and Order on December 9, 2009 ruling in favor of the Board and the County. The Chancellor first set forth the applicable legal principles in the Memorandum:
In construing statutes, court must first determine the legislature's purpose andintent, and then give full effect to that intent and purpose. Waldschmidt v. Reassure American Life Ins. Co., 271 S. W. 3d 173, 176 (Tenn. 20008). In doing so, the court must (1) give words their natural and ordinary meaning, (2) consider them in the context of the entire statute, and (3) presume that the General Assembly intended that each word be given full effect. Id.
In general, taxing statutes are construed liberally in favor of the taxpayer and strictly against the taxing authority. Covington Pike Toyota, Inc. v. Cardwell, 829 S.W.2d 132, 135 (Tenn. 1992). On the other hand, exemptions from taxation are construed strictly against the taxpayer who bears the burden of showing that he is entitled to exemption. Id.
The Court went on to address the fact that Alcoa had raised certain constitutional questions regarding the taxing statutes at issue:
The courts must not decided constitutional questions unless such questions are absolutely necessary for the disposition of the case, and the determinations of the parties' rights. DeLaney v. Thompson, 982 S.W.2d 857, 858 (Tenn. 1998), reh'g denied. Moreover, if a case can be decided upon non-constitutional grounds, the courts must avoid decisions on constitutional questions. State v. Thompson, 151 S.
Based on these stated legal principles and the facts presented, the Chancellor ruled that "the raw materials at issue were properly assessed and taxed by Blount County." Specifically, the Trial Court found that all the raw materials had gone through an "extensive man-initiated and controlled refinement process" and therefore were not "direct products of the soil" within the meaning of Article II, section 28 of the Tennessee Constitution or Tenn. Code Ann. §§ 67-5-216 and 67-5-502. In so finding, the Trial Court relied on two Tennessee Supreme Court decisions, Benedict v. Davidson County, 110 Tenn. 183, 67 S.W. 806 (1902) and Nashville Tobacco Works v. City of Nashville, 149 Tenn. 551, 260 S.W. 449 (1924). Although the Trial Court stated that this ruling was dispositive of the issue and that it was not necessary to analyze the "products of the soil" exemption further, the Trial Court went on to state that Alcoa also failed to qualify for the exemption under Article II, section 28 of the Tennessee Constitution or Tenn. Code Ann. § 67-5-216 because the raw materials were not "in the hands of the producer or immediate vendee". 1 The Trial Court further stated that because of its ruling that the raw materials were not "direct products of the soil" it was unnecessary to address whether Tenn. Code Ann. § 67-5-216 was unconstitutional becauseit unlawfully discriminated against products of the soil of foreign (non-United States) nations.
The Trial Court also held that Alcoa was not entitled to a tax exemption on the raw materials at issue as they were not "products manufactured of the produce of this state" under Article II, Section 30 of the Tennessee Constitution. The Court, relying on Morgan & Hamilton Co. v. City of Nashville, 151 Tenn. 382, 270 S.W. 75 (1925), stated that the raw materials "have certainly not been shown to be articles manufactured by Alcoa itself." 2 The Trial Court went on to state that in view of this ruling, it was unnecessary to address the constitutional question, raised by Alcoa, that Article II, Section 30 of the Tennessee Constitution and the controlling Tennessee tax statutes unlawfully discriminated against articles manufactured from the produce of foreign nations.
Alcoa timely filed a Notice of Appeal of the Chancellor's Order.
Alcoa presents these issues on appeal:
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