The Coal Creek Company v. Anderson County, Tennessee
546 S.W.3d 87
Tenn. Ct. App.2017Background
- The Coal Creek Company owned fee simple real property across Anderson, Campbell, and Morgan Counties that included oil and gas deposits producing royalty income.
- In 2009 assessors reclassified and separately assessed the mineral interests at the industrial/commercial rate (40%) using a discounted income approach; Coal Creek paid increased taxes from 2009–2014.
- Coal Creek appealed administratively; an Administrative Judge initially granted Coal Creek summary judgment, finding the assessors’ method effectively imposed an additional severance tax.
- The Tennessee Division of Property Assessments and counties appealed; the Assessment Appeals Commission reinstated the original assessments after an evidentiary hearing where assessors testified about using prior-year production and a conservative five-year life estimate.
- Coal Creek then sought judicial review in chancery court; that court dismissed Coal Creek’s complaint for failure to carry its burden of proving an erroneous valuation or providing an alternative valuation.
- The Court of Appeals affirmed, holding the tax was an ad valorem property tax on minerals in the ground (not an unlawful severance tax), the income approach was an acceptable method, and Coal Creek produced no substantial evidence to rebut the assessments.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the mineral assessments are an unlawful additional severance tax | Coal Creek: The assessors’ income-based method merely tracks production and functions as an extra severance tax prohibited by Tenn. Code Ann. § 60-1-301 | Counties/Board: Assessments are ad valorem taxes on minerals remaining in the ground, valuing an income stream distinct from the severance tax on removed product | Held: Assessment is an ad valorem property tax on in-ground minerals, not a forbidden additional severance tax |
| Whether assessors should have apportioned and reclassified surface vs. mineral values under § 67-5-801 without formal guidelines | Coal Creek: Lack of Board guidelines makes layered classification/apportionment improper and prejudicial | Counties/Board: In absence of formal rules, assessors may still value properties and apportion based on available facts; mineral value is a relevant use-based classification | Held: Absence of formal guidelines did not require assessors to ignore mineral value; classifications and assessments were permissible under the Constitution and statutes |
| Whether the income approach used was legally improper or too speculative without reserve studies | Coal Creek: Using prior-year production and assumed well life is speculative and violates assessment manuals; lacking reserve studies makes valuation unreliable | Counties/Board: Income approach is a recognized appraisal method; assessors used conservative assumptions and invited owners to submit better data | Held: Income approach is acceptable; assessors’ methodology was supported by evidence and was not invalid as a matter of law |
| Whether Coal Creek met its burden to show assessments were erroneous | Coal Creek: Criticized assessors’ methodology and argued assessments were invalid on their face; did not present alternative valuations or reserve studies | Counties/Board: Burden rests with taxpayer to prove error with concrete evidence or alternative valuation | Held: Coal Creek failed to produce any credible alternative valuation or evidence; burden not met; assessments upheld |
Key Cases Cited
- Edmondson Mgmt. Serv., Inc. v. Woods, 603 S.W.2d 716 (Tenn. 1980) (taxpayer bears burden to prove assessed tax is erroneous; mere criticism of state method is insufficient)
- Richardson v. Assessment Appeals Com'n, 828 S.W.2d 403 (Tenn. Ct. App. 1991) (discusses separate assessment of surface and mineral values and apportionment principles)
- Howard v. United States, 566 S.W.2d 521 (Tenn. 1978) (tax cases place burden on taxpayer to prove assessments incorrect)
- Covington Pike Toyota, Inc. v. Cardwell, 829 S.W.2d 132 (Tenn. 1992) (tax statutes construed liberally in favor of taxpayer but strictly against taxing authority)
- Terminix Intern. Co., L.P. v. Tennessee Dept. of Labor, 77 S.W.3d 185 (Tenn. Ct. App. 2001) (administrative appeals use UAPA standard of review)