Carl Clear Coal Corp. v. Huddleston
| Decision Date | 08 December 1992 |
| Citation | 850 S.W.2d 140 |
| Parties | CARL CLEAR COAL CORPORATION, Plaintiff-Appellee, v. Joe HUDDLESTON, Commissioner, Department of Revenue, State of Tennessee, Defendant-Appellant. |
| Court | Tennessee Court of Appeals |
Charles W. Burson, Atty. Gen., and William E. Young, Asst. Atty. Gen., Nashville, for defendant-appellant.
David L. Buuck, with Claiborne, Davis, Buuck & Hurley, Knoxville, for plaintiff-appellee.
The Defendant Commissioner has appealed from a summary judgment for the Plaintiff holding it was not the intent of the legislature for the Commissioner to use the purchase price paid by the mining operator as royalties to the owner of the coal as the basis for determining the value of "property used" pursuant to T.C.A. § 67-4-906(a)(1), (3)(A).
Plaintiff-Appellee Carl Clear Coal Corporation (Clear Coal) filed suit pursuant to T.C.A. § 67-1-1801(a)(1)(B) against the Commissioner of the Department of Revenue for the State of Tennessee (Commissioner) to have an assessment for franchise taxes for the years 1985, 1986, and 1987, in the amount of $29,087, plus interest of $13,612, set aside and abated. The complaint alleged the purchase price it had paid for coal to the owners of the coal as royalties was wrongfully treated by the Commissioner for franchise tax purposes as "rents paid" to the owners of the coal. The complaint stated:
The Commissioner, for answer, joined issue on the allegations in the complaint. As pertinent here, he said: "The Commissioner affirmatively states that a substantial portion of the tax assessment in question arose from the Department of Revenue's reclassification of mineral royalties received [paid] by plaintiff as rental payments for the purpose of establishing the plaintiff's liability for the Tennessee Franchise Tax, codified at T.C.A. 67-4-901, et seq. "
The Plaintiff and Defendant each filed a motion for summary judgment, each alleging there was no genuine issue of any material fact and he was entitled to a judgment as a matter of law. After both of the parties filed briefs in support of their respective positions, the chancellor sustained the motion of the Plaintiff and dismissed the motion of the Defendant.
The Commissioner has appealed, saying, in effect, it was error for the court to grant summary judgment for the Plaintiff instead of the Defendant. We cannot agree, and affirm for the reasons hereinafter set forth.
The statute under which the Commissioner levied the assessment is T.C.A. § 67-4-906(a)(1), (3)(A). As pertinent here, T.C.A. 67-4-906 provides:
(a)(1) The measure of the tax hereby imposed shall in no case be less than the actual value of the property owned, or property used, in Tennessee.
* * * * * *
(3) In cases where part or all of the property is rented, the actual value of property will be deemed to be the book value of all property owned as shown by the books and records of such corporation at the close of its last fiscal year preceding the making of the sworn report hereinafter required (excepting books with respect to investment costs kept pursuant to regulations of the interstate commerce commission), plus the value of the rental property used which shall be determined by multiplying the net annual rental by the following multiples:
Multiples
(A) Real property ..................................................... 8
(B) Machinery and equipment used in manufacturing and processing ...... 3
(C) Furniture, office machinery and equipment ......................... 2
(D) Delivery of mobile equipment ...................................... 1
(4) The "net annual rental" means the gross annual rental paid by the taxpayer, less the gross rental received by the taxpayer for sub-rental.
(5) For the purposes of this section, "used" means only such property as is actually utilized by the corporation in the conduct of its principal business.
The portion of the statute which is the basis of the issue before us is that portion of (3) which provides "the value of the rental property used which shall be determined by multiplying the net annual rental by the following multiples: (A) Real property ... Multiples 8."
The assessments of franchise taxes are for the years 1985, 1986, and 1987. The record shows that in 1985 Clear Coal had in effect one mining lease with Energy, Inc., et al., for the full year and one with Howard Easley, et al., from and after August 20. In 1986 it had the same two mining leases in effect and a third lease, the Francis Richardson, et al., lease, which was in effect for 20 days in the month of December. In 1987 it had the same mining leases in effect, plus a lease with James Spur, Inc., for the last six months of the year and one with J.C. Rice, et al., from June 23 to the end of the year.
Each of the mining leases gave Clear Coal the right to extract coal from the soil for which it was to pay a sum for each ton of coal extracted from the soil, a price ranging from $0.50 up to $6.00 for each ton of coal taken. Two of the leases provided for payment of a given amount per ton or 10% of the sales price, whichever was greater. The following is quoted from the Francis Richardson lease but is representative of what and how the compensation for coal extracted was to be paid: The lease also provides: This has reference to the Tennessee "Coal Severance Tax" pursuant to T.C.A. § 67-7-101, et seq., which imposes a tax of $0.20 per ton on all coal products at the time of their severance from the ground.
The mining leases made no rental charge for the use of the land. They provided only for the purchase price of the coal extracted from the ground. Since none of the mining leases called for a monthly or annual amount of rent to be paid on which he could calculate "the gross annual rent paid" as provided in (3) and (4) of the statute, the Commissioner apparently decided to take the total annual purchase price which Clear Coal paid to the owners of the coal interest and call it "rent paid" for the purpose of forming a tax base pursuant to (3) and (4) of the statute. From the copy of the assessment in the record, it appears the field auditor for the Commissioner found that in 1985 Clear Coal had paid $1,527,077.12 for coal extracted from the ground under the two mining leases it had at that time. The auditor then, under the guise of this being the amount of rent paid, multiplied the $1,527,077.12 by eight (8) and came up with a figure of $12,216,617 as the value of the property used by Clear Coal in 1985. In 1986 Clear Coal apparently paid $745,132.37 for coal extracted from the ground. On the theory this was rent, the auditor multiplied this figures by eight (8) and came up with a value of property used, which was three mining leases, in 1986 of $5,961,059. In 1987 Clear Coal apparently paid $152,573.25 for coal extracted under its five mining leases. Again, multiplying this figure by eight (8), the auditor came up with a value of $1,220,586 as the value of property used by Clear Coal in 1987. In spite of the fact that the number of mining leases involved increased from two in 1985 to five in 1987, under the Commissioner's formula for fixing value of property used, the value dropped from over $12,000,000 in 1985 to approximately $1,200,000 in 1987.
To arrive at the amount of tax to be levied against Clear Coal, the Commissioner used the tax rate of $0.25 on each $100 of value found for property used each year, resulting in a tax of $30,542 for 1985, $14,903 for 1986, and $3,051 for 1987.
The chancellor filed an excellent memorandum opinion in which he stated:
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...of the taxpayer. See Memphis Peabody Corp. v. MacFarland, 211 Tenn. 384, 365 S.W.2d 40, 42 (1963); accord Carl Clear Coal Corp. v. Huddleston, 850 S.W.2d 140, 147 (Tenn. Ct.App.1992). Courts may not extend by implication the right to collect a tax "beyond the clear import of the statute by ......
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