When Tennessee distributes TVA payments-in-lieu-of-taxes to counties by acreage, does TVA-owned underwater land (reservoirs) count toward each county's share?

Plain-English summary

TVA does not pay property taxes on the land and reservoirs it owns. Instead, federal law (16 U.S.C. § 831l) requires TVA to pay a percentage of its gross power-sale proceeds to states and local governments where TVA operates. Tennessee receives a share, and Tenn. Code Ann. §§ 67-9-101 et seq. tells the Department of Revenue how to split a slice of that money back out to counties and cities.

One specific slice, set by Tenn. Code Ann. § 67-9-102(a)(1)(C), is 10% of the available pool, divided among counties in proportion to "Tennessee Valley authority owned land in that county" relative to all TVA-owned land in Tennessee. In 2009, TVA gave the Department a revised schedule of TVA-owned acreage that was much smaller than in prior years; TVA had audited its books and removed land it had previously sold or transferred. The question was whether "TVA-owned land" should be measured by dry land only or whether it should also include reservoir bottoms (inundated land).

The AG concluded that both kinds of land count. The Act does not define "land," but other Tennessee statutes do. Tenn. Code Ann. § 70-7-101 (recreational use) defines "land" to include "waters . . . owned by" TVA, and § 11-10-101 (state lease for recreation) defines "land" to include "water [and] watercourses." Most importantly, Tenn. Code Ann. § 67-5-602(b)(7) requires that the valuation of real property for property-tax purposes account for "inundated wetlands," meaning inundated land is in the property tax base, valued in light of its condition. The 67-9-102(a)(1)(C) distribution exists to reimburse counties for property-tax revenues lost when TVA took land off the rolls; that purpose covers reservoir bottoms as well as upland. Under Stallcup v. Duncan, 684 S.W.2d 643, 646 (Tenn. Ct. App. 1984), statutory construction follows legislative purpose, and the purpose here is restorative.

Currency note

This opinion was issued in 2010. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: How are TVA payments-in-lieu-of-taxes split among Tennessee counties?
A: Under Tenn. Code Ann. § 67-9-102(a)(1), of the amount Tennessee distributes back out to local governments (48.5% of TVA receipts above the FY 1977-78 baseline, see § 67-9-101(a)(2)), 30% goes to counties by population, 30% goes to counties by total acreage, 10% goes to counties by TVA-owned acreage in the county, and 30% goes to incorporated municipalities by population. The opinion deals only with the third bucket, the 10%-by-TVA-acreage piece.

Q: Why does a county get less if TVA shrinks its land schedule?
A: Because the third bucket is a relative share. A county's payment from that bucket equals the county's share of total TVA-owned land in the state. If TVA removes acreage statewide in an audit, the absolute amount of land everyone is dividing changes, and so does each county's slice if its land was reclassified or if other counties' land was not.

Q: Wasn't this just an accounting cleanup at TVA?
A: Yes. TVA's audit removed land it had previously sold or transferred but kept showing as TVA-owned. The dispute is about what should still count among the land TVA does still own, specifically whether the land that sits under a reservoir counts the same as a dry parcel.

Q: Why does the AG point to recreational-use statutes to define "land"?
A: Because the TVA payments-in-lieu Act itself doesn't define the term. Courts default to the Code's general definitions in Tenn. Code Ann. § 1-3-105 "unless the context otherwise requires." Section 1-3-105's definition of "lands" is generic ("tenements and hereditaments, and all rights thereto"). The recreational-use statutes (§§ 70-7-101 and 11-10-101) and the property valuation statute (§ 67-5-602(b)(7)) are the closest analogs in the Code that treat the boundary between dry land and water, and they all include water within "land" in the relevant senses.

Q: Does this opinion affect counties that have a lot of reservoir bottom relative to dry TVA land?
A: Yes, mechanically. Counties with significant reservoir surface inside their borders would receive a larger share of the 10%-by-TVA-acreage bucket if inundated land counts than if it does not. The opinion ratifies the inclusive method.

Q: Did TVA's federal payment formula factor into this?
A: The opinion notes the federal scheme as background. 16 U.S.C. § 831l splits the federal payment to states partly by power sales and partly by the book value of TVA "power property," with a floor tied to property tax that would have been levied against TVA "power property" and "reservoir lands allocable to power" had they remained privately owned. Tennessee's state-level distribution to counties is a separate question, but the federal use of the phrase "reservoir lands allocable to power" supports the inclusive reading.

Background and statutory framework

The federal payment lever sits in 16 U.S.C. § 831l, which requires TVA to pay state and local governments in the TVA service area a percentage of its gross proceeds from power sales, with a floor tied to historical property-tax revenue from TVA-acquired property and "reservoir lands allocable to power." That federal stream provides "financial assistance to those States and local governments in which [TVA] has acquired properties previously subject to State and local taxation." Tennessee Valley Authority v. Polk County, 68 F. Supp. 692, 694 (E.D. Tenn. 1945), aff'd 158 F.2d 96 (6th Cir. 1946); see also Crider v. County of Henry, 295 S.W.3d 269, 271 (Tenn. Ct. App. 2008).

Tennessee receives that federal payment and decides how to redistribute portions of it back out. Tenn. Code Ann. § 67-9-101(a)(2) sets up the redistribution: 48.5% of receipts above the fiscal 1977-78 baseline goes to local governments. Section 67-9-102(a)(1) splits that pool into four streams: 30% to counties by population, 30% to counties by total acreage, 10% to counties by TVA-owned land in the county relative to all TVA land in Tennessee, and 30% to incorporated municipalities by population. The 10%-by-TVA-land slice is the focus of the opinion.

The interpretive question, what is "land" in § 67-9-102(a)(1)(C), has to be answered without an in-statute definition. Tenn. Code Ann. § 1-3-105(14)'s default ("lands, tenements and hereditaments, and all rights thereto") doesn't help. So the AG looks at neighbor statutes: § 70-7-101(1)(B) defines "land" or "premises" in the recreational-use chapter to include "waters . . . owned by" TVA; § 11-10-101(3) defines "land" in the state-recreational-lease chapter to include "water [and] watercourses"; and § 67-5-602(b)(7) (real property valuation) directs that "inundated wetlands" be valued for property tax. Together these confirm that "land" in the Code is a flexible term that often includes water.

The clinching move is purpose. Stallcup v. Duncan, 684 S.W.2d 643, 646 (Tenn. Ct. App. 1984), recites that the "premier rule of statutory construction is to ascertain and give effect to the legislative intent" with attention to "the general purpose to be accomplished." The 10%-by-TVA-land distribution exists to reimburse counties for the property tax revenue lost when TVA acquired land. Reservoir bottoms were on the tax rolls before TVA took them and are off the rolls now, just like the dry parcels around them. Including them in the distribution matches what the statute is trying to do.

Citations and references

Federal statutes:

• 16 U.S.C. § 831l (TVA payments to states and local governments)

State statutes:

• Tenn. Code Ann. § 1-3-105(14) (Code-wide definition of "lands")
• Tenn. Code Ann. § 11-10-101(3) ("land" includes water and watercourses)
• Tenn. Code Ann. § 67-5-602(b)(7) (valuation of real property includes inundated wetlands)
• Tenn. Code Ann. § 67-9-101(a)(2) (48.5% of TVA receipts above 1977-78 baseline goes to local governments)
• Tenn. Code Ann. § 67-9-102(a)(1) (four-way split among counties and municipalities)
• Tenn. Code Ann. § 67-9-102(a)(1)(C) (10% by TVA-owned land in county relative to state total)
• Tenn. Code Ann. § 70-7-101(1)(B) ("land" includes waters owned by TVA)

Cases:

• Tennessee Valley Authority v. Polk County, 68 F. Supp. 692 (E.D. Tenn. 1945), aff'd 158 F.2d 96 (6th Cir. 1946) (purpose of TVA payments: reimburse for lost taxes)
• Crider v. County of Henry, 295 S.W.3d 269 (Tenn. Ct. App. 2008) (TVA payment system context)
• Stallcup v. Duncan, 684 S.W.2d 643 (Tenn. Ct. App. 1984) (statutory construction follows legislative purpose)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2010/op10-079.pdf

Original opinion text

Distribution of Tennessee Valley Authority Payments in Lieu of Taxes

QUESTION

Should the payment percentage set forth under Tenn. Code Ann. § 67-9-102(a)(1)(C) be computed by taking into account inundated land owned by the Tennessee Valley Authority, i.e., land that is located beneath bodies of water?

OPINION

It is the opinion of this Office that the disbursement of TVA payments in lieu of taxes made by the Department of Revenue to the counties based on the portion of TVA-owned land in each county should take into account both dry and inundated land owned by TVA because both types of land would previously have been subject to ad valorem property taxes but are now exempt because of the taking by TVA.

ANALYSIS

The Tennessee Valley Authority pays to Tennessee and other state and local governments a percentage of the gross proceeds it derives from the sale of power. 16 U.S.C. § 831l (Supp. 2009). Half the amount Tennessee receives is based on the percentage of TVA power sales in Tennessee as compared to all TVA power sales. Id. The other half is based on the percentage of the book value of TVA "power property" in Tennessee as compared to the book value of all TVA power property. Id. At a minimum TVA must pay to Tennessee and its counties an amount equal to the property tax levied against TVA power property and "reservoir lands allocable to power" when that property or land was last privately owned or operated. Id. These TVA payments are made "[i]n order to render financial assistance to those States and local governments in which [TVA] has acquired properties previously subject to State and local taxation." Id. See Tennessee Valley Authority v. Polk County, 68 F. Supp. 692, 694 (E.D. Tenn. 1945), aff'd 158 F.2d 96 (6th Cir. 1946); Crider v. County of Henry, 295 S.W.3d 269, 271 (Tenn. Ct. App. 2008).

Pursuant to Tenn. Code Ann. §§ 67-9-101 et seq. (the "Act"), Tennessee distributes to counties and municipalities 48.5% of the amount Tennessee receives from TVA that is "above the payments received in the fiscal year 1977-1978." Tenn. Code Ann. § 67-9-101(a)(2) (2006). That amount is distributed as follows:

(A) Thirty percent (30%) of the available amount shall be paid to counties in accordance with the percentage that the population of each county bears to the total state population;

(B) Thirty percent (30%) of the available amount shall be paid to counties in accordance with the percentage that the total acreage of each county bears to the total acreage of the state;

(C) Ten percent (10%) of the available amount shall be paid to each county containing land owned by the Tennessee Valley authority in accordance with the percentage that Tennessee Valley authority owned land in that county bears to all Tennessee Valley authority owned land in Tennessee; and

(D) Thirty percent (30%) of the available amount shall be paid to incorporated municipalities in accordance with the percentage that the population of that municipality bears to the population of all incorporated municipalities in Tennessee.

Tenn. Code Ann. § 67-9-102(a)(1) (Supp. 2009) (emphasis added).

With regard to the section 67-9-102(a)(1)(C) distribution, TVA provides to the state agency authorizing such distribution a schedule of TVA-owned land in each county. The amount of land in the schedule TVA provided to the Department of Revenue in October 2009 was significantly less than in previous years. The reduction was the result of an audit performed by TVA of its Tennessee land. In the years preceding the audit, TVA's schedules had not taken into account sales and transfers of land by TVA and, thus, included land no longer owned by TVA.

Because the Act does not define the term "land," the answer to the instant question requires us to impute the meaning of the term in light of its general meaning and the purpose of the provisions in question. Tenn. Code Ann. § 1-3-105, which provides the definitions of many terms used in the Tennessee Code "unless the context otherwise requires," defines "lands" as including "lands, tenements and hereditaments, and all rights thereto and interests therein, equitable as well as legal." Tenn. Code Ann. § 1-3-105(14) (Supp. 2009). This definition is not instructive; however, the definition of "land" elsewhere in the Code does shed some light on the matter. In Tenn. Code Ann. § 70-7-101, "land" or "premises" includes "waters . . . owned by" TVA. Tenn. Code Ann. § 70-7-101(1)(B) (2004). [Tenn. Code Ann. §§ 70-7-101 et seq. concern the duty of care of persons in control of land used for recreational activities such as hunting, fishing, camping, water sports, and boating.] Also, in Tenn. Code Ann. § 11-10-101, the definition of "land" includes "water [and] watercourses." Tenn. Code Ann. § 11-10-101(3) (1999). [Tenn. Code Ann. §§ 11-10-101 et seq. concern the duty of care of owners of land leased to the state, county, or municipality, or any agency thereof, for recreational purposes.] Most significantly, Tenn. Code Ann. § 67-5-602(b)(7) (2006) directs that the valuation of real property take into account that it includes "inundated wetlands." Thus, such inundated lands are clearly included in the property tax base, but are valued in light of their inundated condition. Furthermore, the general purpose of the Act supports the view that "land," as used in section 67-9-102(a)(1)(C), includes both dry and inundated land. "The premier rule of statutory construction is to ascertain and give effect to the legislative intent. In doing this we look to the general purpose to be accomplished." Stallcup v. Duncan, 684 S.W.2d 643, 646 (Tenn. Ct. App. 1984) (citations omitted). The purpose of this portion of the TVA payments is to reimburse Tennessee and its counties for the property tax revenues they lost because the land in those jurisdictions was taken off the property tax rolls when acquired by TVA. It follows that the section 67-9-102(a)(1)(C) disbursement made by the Department of Revenue to the counties out of those TVA payments should take into account both inundated and dry land owned by TVA because both types were rendered and remain exempt from county property taxes because of their ownership by TVA. Accordingly, when the Department of Revenue makes such disbursements, it should take into consideration both dry and inundated land owned by TVA.

ROBERT E. COOPER, JR.
Attorney General and Reporter

BARRY TURNER
Deputy Attorney General

NICHOLAS G. BARCA
Assistant Attorney General

Requested by:

The Honorable Reagan Farr
Commissioner of Revenue
Andrew Jackson State Office Building
500 Deaderick Street
Nashville, Tennessee 37242-1099

and

The Honorable Willie "Butch" Borchert
State Representative
23 Legislative Plaza
Nashville, Tennessee 37243