# FILED

June 1, 1998 Cecil W. Crowson Appellate Court Clerk

June 1, 1998 1 FOR PUBLICATION 2 3 IN THE SUPREME COURT OF TENNESSEE 4 5 AT NASHVILLE 6 7 8 NORTHWEST AIRLINES, INC., ( 9 FEDERAL EXPRESS CORPORATION, ( 10 AMERICAN AIRLINES, INC., FLAGSHIP ( 11 AIRLINES, AND DELTA AIR LINES, ( 12 INC., ( 13 ( 14 Plaintiffs-Petitioners, ( 15 ( Certified Question from the 16 ( United States District Court 17 v . ( for the Middle District of 18 ( Tennessee 19 ( 20 TENNESSEE STATE BOARD OF ( Hon. Thomas A. Wiseman, Jr., 21 EQUALIZATION, ( Judge 22 ( 23 Defendant-Respondent, ( No. 01S01-9702-FD-00030 24 ( 25 and ( 26 ( 27 CSX TRANSPORTATION, INC., ( 28 ( 29 Plaintiff-Petitioner, ( 30 ( 31 ( 32 v . ( 33 ( 34 ( 35 TENNESSEE STATE BOARD OF ( 36 EQUALIZATION, ( 37 ( 38 Defendant-Respondent, ( 39 ( 40 and ( 41 ( 42 ILLINOIS CENTRAL RAILROAD COMPANY, ( 43 ( 44 Plaintiff-Petitioner, ( 45 ( 46 ( 47 v . ( 48 ( 49 ( 50 TENNESSEE STATE BOARD OF ( 51 EQUALIZATION, ( 52 ( 53 Defendant-Respondent. ( 54 For Plaintiffs-Petitioners: For Defendant-Respondent: 551 Stephen D. Goodwin John Knox Walkup 2 Janis Wild Kesser Attorney General & Reporter 3 Baker, Donelson, Bearman & Caldwell Nashville 4 Memphis 5 Jimmy G. Creecy 6 James W. McBride Chief Special Counsel 7 Baker, Donelson, Bearman & Caldwell Nashville 8 Washington, D.C. 9 Daryl J. Brand 10 Senior Counsel 11 Nashville 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 O P I N I O N 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 REID, SP. J. 50 51 Pursuant to Rule 23 of the Rules of the Supreme Court of 521“The Supreme Court may, at its discretion, answer questions of law

certified to it by . . . a District Court of the United States in Tennessee . . . . This rule may be invoked when the certifying court determines that, in a proceeding before it, there are questions of law of this state which will be determinative of the cause and as to which it appears to the certifying court there is no controlling precedent in the decisions of the Supreme Court of Tennessee.” Tenn. R. S. Ct. 23.

2 SeeTenn. Code Ann. § 67-5-1301(a)(12) (Supp. 1997).

3 SeeTenn. Code Ann. § 67-5-1301(a)(1) (Supp. 1997).

4CSX did not challenge its assessment for 1993, and Illinois Central only challenged tax years 1994 and 1995.

5 The airlines asserted that the Board’s assessment violated 49 U.S.C. § 40116(d) (1997) of the Tax Equity and Fiscal Responsibility Act of 1982. The railroads asserted that the assessments challenged violate section 306 of the Railroad Revitalization and Regulatory Reform Act of 1976, 49 U.S.C. § 11501 (1997).

-3- Tennessee1, this Court has accepted from the United States District 1 Court for the Middle District of Tennessee a certified question of 2 law regarding the effect of the 1996 amendment to Tenn. Code Ann. § 3 67-5-1512(b)(2) on the calculation of interest on property tax 4 payments and refunds. 5 6

I 7 8 The petitioners, Northwest Airlines, Inc., Federal Express 9 Corp., American Airlines, Inc., Flagship Airlines, and Delta Air 10 Lines, Inc., which are “commercial air carrier companies,”2and 11 petitioners CSX Transportation, Inc., and Illinois Central Railroad 12 Co., which are “railroad companies,”3filed suit in the district 13 court against the respondent Tennessee State Board of Equalization, 14 alleging that the State’s assessment of the petitioners’ ad valorem 15 property taxes for 1990, 1991, 1992, 1993, 1994, and 1995, 4resulted 16 in discriminatory taxation in violation of certain federal statutes. 5 17 The parties reached a settlement of all issues presented in the case, 18-4-

except the issue before this Court, the appropriate interest rate to 1 be applied to refunds and additional payments due. The settlement 2 was approved by the district court. Pursuant to the settlement, the 3 petitioners owed taxes to some counties and municipalities and were 4 due refunds from others. 5 6 Specifically, the certified question is as follows: 7 8 Whether any or all of the present payments or 9 refunds of property taxes for tax years 1990 10 through 1995, all of which payments and refunds 11 will be made after April 22, 1996, should be 12 calculated at two percentage points below the 13 composite prime rate as provided by Tenn. Code 14 Ann. § 67-5-1512(b)(2), as amended effective 15 April 22, 1996, or whether some or all of the 16 interest should be calculated at the composite 17 prime rate as provided by Tenn. Code Ann. § 67- 18 5-1512(b)(2) prior to April 22, 1996 and in 19 effect during the tax years in question? 20 21 22

I I 23 24 The property of railroad and commercial air carrier 25 companies is assessed for state, county, and municipal taxation by 26 the comptroller of the treasury. Tenn. Code Ann. § 67-5-1301 (Supp. 27 1997). Those assessments are subject to review by the State Board of 28 Equalization, which makes the final assessments. I d

. 29 30 31 Tenn. Code Ann. § 67-5-1512 provides that if an assessment 32 of property tax made by the Board of Equalization is challenged, the 33 taxpayer may pay either the full tax assessment to the local taxing 34-5-

jurisdiction, Tenn. Code Ann. § 67-5-1512(b)(1)(A)(ii)(a), or pay the 1 undisputed portion of the tax to the local taxing jurisdiction, Tenn. 2 Code Ann. § 67-5-1512(b)(1)(A)(ii)(b). When the proper assessment is 3 finally determined, interest on the underpayment or overpayment is 4 imposed by Tenn. Code Ann. § 67-5-1512(b)(2)(A) and (B). Prior to 5 April 22, 1996 that provision read as follows: 6 7 (b)(2)(A) Except as provided in subdivision 8 (b)(2)(B), if the taxpayer has made a payment in 9 accordance with subdivision (b)(1) and prevails 10 on appeal, the county or municipality shall pay 11 interest at the rate of the composite prime rate 12 as published by the federal reserve board as of 13 the date such taxes would have normally become 14 delinquent. Such interest shall be calculated 15 from March 1, or the date the taxes would have 16 become delinquent under the municipal charter; 17 provided, that in any county included in the 18 provisions of Acts 1989, ch. 550; §§ 8-21 or in 19 any county which by private act adopts similar 20 provisions to those contained in such provisions 21 of Acts 1989, ch. 550, the delinquency date 22 shall be February 1. Such interest shall be 23 calculated upon the amount paid in excess of the 24 taxes due as determined by final action of the 25 state board of equalization or the assessment 26 appeals commission. If the taxpayer loses or 27 withdraws the appeal or it is determined that 28 taxes in excess of the amount paid, if any, 29 pursuant to subdivision (b)(1) are owed, then 30 such taxpayer shall pay, in addition to such 31 amount, interest at the same rate on the balance 32 of the amount due as provided in this 33 subdivision. 34 35 (B) If the taxpayer prevails in any appeal 36 to the local or state board of equalization, the 37 county or municipality shall, within sixty (60) 38 days from the date of the final action by the 39 state board of equalization or assessment 40 appeals commission, refund any overpayment in 41 taxes together with interest thereon at the rate 42 of the composite prime rateas published by the 43 federal reserve board computed from the date the 44 overpayment was made until the date refunded. 45 The provisions of this subdivision (b)(2)(B) 46 only apply in counties having a population 47-6- greater than seven hundred seventy thousand 1 (770,000) according to the l980 federal census 2 or any subsequent federal census. 3 4 5 6 (Emphasis added.) 7 8 Section 2 of chapter 787 of the 1996 Public Acts amended 9 the statute by deleting the words “at the rate of the composite prime 10 rate,” in subdivision (A) and (B) and substituting the words “at the 11 rate of two (2) percentage points below the composite prime rate.” 12 The amendment became effective April 22, 1996. 13 14 The taxpayers contend that the post-amendment rate should 15 be applied even to interest accruing prior to the amendment’s 16 effective date, April 22, 1996. They also contend that because the 17 certification of a final assessment by the state board of 18 equalization for each taxable year will not occur until after 19 April 22, 1996, application of the 1996 amendment would not be a 20 retroactive application. They argue, in the alternative, that the 21 amendment should be applied retroactively to the interest due on 22 unpaid or overpaid taxes. 23 24 25

I I 26 27 In Tennessee, amendments to tax statutes are presumed to 28 be prospective in application unless an intention to the contrary is 29 clearly expressed. For example, in Nashville Ry. & Light Co. v. 30-7-

Norve1l, 122 Tenn. 613, 124 S.W. 613 (1910), the issue was whether a 1 back assessment could be based on an amendment revising the method 2 for assessing the property of street railway companies. The Court 3 stated, “the act of 1905 [providing the new method of assessing 4 street railway companies] was wholly prospective in its operation, as 5 statutes usually are unless the contrary clearly appears.” I d. at 6 614. In reaching that decision, the Court in Norvellrelied on what 7 is currently Tenn. Code Ann. § 1-3-101 (1994): 8 9 The repeal of a statute does not affect any 10 right which accrued, any duty imposed, any 11 penalty incurred, nor any proceeding commenced, 12 under or by virtue of the statute repealed. 13 14 15 And more recently, in Woods v. TRW, Inc. , 557 S.W.2d 274, 275 (Tenn. 16 1977), the Court held that amendments to statutes dealing with the 17 collection of taxes are presumed to apply prospectively. Prior to an 18 amendment in 1973, the statute in question provided that the 19 Department of Revenue had a period of six years in which to institute 20 proceedings to collect taxes, including corporate, franchise, and 21 excise taxes. The tax year involved was 1971, for which the 22 corporate taxpayer filed its franchise and excise tax return in 1972. 23 Under the pre-1973 amendment, the Department had until January 1, 24 1977 to commence proceedings to collect additional taxes. In 1973, 25 at which time no assessment for additional taxes had been made by the 26 Department, the General Assembly enacted an amendment which shortened 27 the period of limitations to three years. Under the amended statute, 28 if it applied to the taxpayer in question, the department had until 29 December 31, 1975 to make an assessment. An assessment was made on 30-8-

March 19, 1976. The Court held that the General Assembly had the 1 authority, under the United States Constitution and the Constitution 2 of Tennessee, to enact an amendment regarding the collection of taxes 3 that had a retroactive effect, but, in the absence of clear language 4 to the contrary, it would not interpret such an amendment to be 5 retroactive. The Court stated as follows: 6 7 We do not question the authorities cited by the 8 Chancellor and by the taxpayer to the effect 9 that the legislature has the general power to 10 make many kinds of statutes, including 11 limitations for collecting taxes, retroactive to 12 prior years, if it clearly expresses such an 13 intention. Ordinarily, however, statutes 14 enacted by the General Assembly are given 15 prospective operation and will be so construed 16 unless a clear intention to the contrary is 17 found in their provisions. See Cates v. 18 T.I.M.E., D.C., Inc. , 513 S.W.2d 508, 510 (Tenn. 19 1974); Jennings v. Jennings, 165 Tenn. 295, 303, 20 54 S.W.2d 961 (1932; Dugger v. Insurance Co. , 95 21 Tenn. 245, 249, 32 S.W. 5 (1895). 22 23 24 25 Id.at 275. 26 27

In Electric Power Bd. of Metropolitan Government of 28 Nashville and Davidson County v. Woods, 558 S.W.2d 821 (Tenn. 1977), 29 the Court again affirmed the principle that statutory amendments 30 dealing with the enforcement of tax collection are presumed to be 31 prospective in operation. In that case the Nashville Electric 32 Service was assessed a penalty for delinquent sales taxes for tax 33 year 1975. The Court held that a 1977 statute authorizing the 34 department to waive penalties in cases of clerical error should not 35 be applied retroactively: “In the absence of legislative intent or a 36 necessary inference that a statute is to have retroactive force, an 37-9-

act of the legislature is to be given prospective effect only by the 1

courts.” I d. at 825. 2 3 In cases cited by the petitioners supporting a retroactive 4 application, the amendments contained express language providing for 5 retroactive application or the retroactive application was not at 6 issue. See e.g. , Combustion Engineering, Inc. v. Jackson, 705 S.W.2d 7 655 (Tenn. 1986), Genesco, Inc. v. Woods, 578 S.W.2d 639 (Tenn. 8 1979), State v. Bone, 183 Tenn. 78, 203 S.W.2d 362 (1947), Sherrill 9 v. Thomason, 145 Tenn. 499, 238 S.W. 876 (1922), and Myers v. Park, 10 55 Tenn. 550 (1875). 11 12 In the case before the Court, the 1996 amendment does not 13 provide that the interest rate be applied retroactively. 14 Consequently, the new rate of interest should be applied on and after 15 the effective date of the amendment. C f

. Noe v. City of Chicago, 307 16 N.E.2d 376, 379 (Ill. 1974). 17 18 19

III 20 21 The answer to the certified question is that only the 22 interest on payments or refunds of property taxes accruing after 23 April 22, 1996 are to be calculated at two percentage points below 24 the composite prime rate under Tenn. Code Ann. § 67-5-1512(b)(2) 25 (Supp. 1997). 26 27-10- The clerk will transmit this opinion in accordance with 1 Rule 23, Section 8 of the Rules of the Supreme Court. 2 3 The costs in this Court will be taxed to the petitioners. 4 5

____________________________ 6 Lyle Reid, Special Justice 7 8 9 Concur: 10 11 Anderson, C.J., Drowota, Birch, 12 and Holder, JJ. 13 14