IN THE COURT OF APPEALS OF TENNESSEE

AT KNOXVILLE

August 10, 2017 Session

THE COAL CREEK COMPANY v. ANDERSON COUNTY, TENNESSEE,

ET AL.

Appeal from the Chancery Court for Knox County

No. 190298-1 John F. Weaver, Chancellor

No. E2017-00661-COA-R3-CV

This appeal concerns whether a tax on certain property containing oil and gas deposits 

constitutes an unlawful additional severance tax. The Coal Creek Company (“Coal 

Creek”) appealed the tax assessments of various county property assessors (“Assessors”). 

After administrative proceedings and appeals, the Tennessee Assessment Appeals 

Commission reinstated the original assessments. Coal Creek filed suit in the Chancery 

Court for Knox County (“the Trial Court”) seeking judicial review of the Appeals 

Commission’s decision. Following a bench trial, the Trial Court entered an order 

dismissing Coal Creek’s complaint. Coal Creek appeals to this Court. We hold, inter 

alia, that the taxes assessed upon Coal Creek’s property relative to oil and gas remaining 

in the ground are property taxes, not a severance tax. We affirm the judgment of the 

Trial Court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed;

Case Remanded

D. MICHAEL SWINEY, C.J., delivered the opinion of the court, in which JOHN W.

MCCLARTY and THOMAS R. FRIERSON, II, JJ., joined.

Lewis S. Howard, Jr. and Erin J. Wallen, Knoxville, Tennessee, for the appellant, The 

Coal Creek Company.

Robert T. Lee, Mt. Juliet, Tennessee, for the appellee, Anderson County, Tennessee.

Joseph G. Coker, Jacksboro, Tennessee, for the appellee, Campbell County, Tennessee.

Andrew N. Hall, Wartburg, Tennessee, for the appellee, Morgan County, Tennessee.

10/05/2017
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John Sharpe, Assistant General Counsel for the appellee, Tennessee Division of Property 

Assessments.

Herbert H. Slatery, III, Attorney General and Reporter, Andrée Sophia Blumstein, 

Solicitor General, and, Mary Ellen Knack, Senior Counsel, for the appellees, State Board 

of Equalization and Assessment Appeals Commission.

OPINION

Background

Coal Creek owns the subject real property in Anderson, Campbell, and Morgan

Counties. This property contains oil and natural gas deposits, which Coal Creek also 

owns in fee simple. The majority of Coal Creek’s oil and gas operations are centered in 

Anderson County, Tennessee. Coal Creek receives royalty payments from lessees who 

remove the oil and gas. This case has its origin in a 2009 change in how the Coal Creek 

property was classified for tax purposes. Before 2009, Coal Creek’s property had been 

classified as farm property and assessed at a 25% rate. Beginning in 2009, the Assessors 

assessed the property’s mineral value at the industrial or commercial rate of 40%. From 

2009 through 2014, Coal Creek paid these additional taxes to Anderson County in the 

amount of $122,742.59; Morgan County in the amount of $27,408; and, Campbell 

County in the amount of $1,662. The Tennessee Division of Property Assessments 

assisted the Assessors in their work valuing the mineral interests. An income approach 

was utilized in the valuations.

Coal Creek appealed the assessments to the State Board of Equalization. In 

October 2013, Coal Creek filed a motion for summary judgment. In January 2014, the

Administrative Judge entered an initial decision and order granting Coal Creek’s motion

for summary judgment. In finding for Coal Creek, the Administrative Judge stated in 

part:

The Administrative Judge finds that the Assessors’ methodology for 

estimating the contributory value of the oil and gas reserves does not 

comport with Tenn. Code Ann. § 67-5-602(a) insofar as the dictates of the 

Assessment Manual have been ignored. For example, the portions of the 

depositions summarized or quoted above make clear that the Assessors 

have no knowledge of, and make no meaningful attempt to obtain, 

information concerning the quantity of the reserves and the remaining

economic life of the reserves. Moreover, no attempt is made to obtain 

information from the operator concerning its plans, income from royalties 

etc.
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***

The Assessors have absolutely no information to support the assumption 

that the prior year’s production is a reliable indicator of future production. 

Indeed, if a producer chooses to cease production for a year in hopes that 

the price of oil and gas will increase, the Assessors would assign no value 

to the oil and gas reserves for the current year because of no production the 

prior year. This valuation method quite clearly results in nothing more than 

an additional severance tax on oil and gas production that is purported to be 

an ad valorem tax on property containing oil and gas reserves. 

Consequently, the Assessors’ methodology for valuing the mineral 

component of subject parcels violates the prohibition in Tenn. Code Ann. § 

60-1-301 against taxing oil and gas removed from the ground except for a 

severance tax as set forth in that statutory provision.1

(Footnote added). In February 2014, the Tennessee Division of Property 

Assessments, acting on behalf of the counties, appealed the Administrative Judge’s 

decision to the Tennessee Assessment Appeals Commission. In April 2015, a hearing 

was conducted before the Appeals Comission.

Keith Gibson, an area supervisor for the Tennessee Division of Property 

Assessments, testified regarding the methodology used in valuing mineral interests:

I’ve been with the Division for 32, 33 years, started doing the mineral 

valuation probably in 2006 or 7. I had done it previously years ago as a 

young staff member that basically just plugged in a few numbers but just 

kind of took over this aspect of it in 2007 or 8. Since that time, I have been 

promoted up to supervisor, the current position that I’m in. I have not been 

directly involved with these appraisals, but I oversee each and every one of 

them. Therefore, I have the most knowledge.

But what we’re trying to do is, we contend that it’s not a severance 

tax, that all we’re doing is just valuing an income stream. If you take two 

like properties, exactly like Mr. Howard suggested awhile ago, where you 

have a property that does not have a known mineral reserve and then you 

have another one that does, all we’re doing is just looking at the royalty that 

they received from that one year and then projecting a lifetime in saying, 

you know, what is that income stream worth over a period of time. If you

 

1 Ad valorem is Latin for “according to the value,” or as meant specifically in this instance, “proportional 

to the value of the thing taxed.” Black’s Law Dictionary 53 (7th ed. 1999).
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receive $5,000.00 one year and you’re expecting to receive that for an 

additional five or six years, what is that worth today? So that’s all we’re 

trying to do as far as valuing an income stream. It’s not a severance tax. 

It’s just saying that if you have two exact properties and both were up for 

sale, you know, what would you prefer to have, one that you’re going to 

receive a royalty check for the next duration period of time or would you 

rather have the other one that you don’t have a known reserve?

We’re very conservative whenever we make all these estimates. On

coal, we receive the Office of Surface Mining Permit which has not only 

reserve studies, but they have projections on what they’re to receive each 

year. We look at that. We only put an economic life up to their legal use. 

In other words, if that permit even said that they had a 20-year life on it, 

they don’t have a legal use to permit it for 20 years. They only give a fiveyear permit; so we’re very conservative on coal by using only that legal use 

of the property.

On oil and gas, there is no reserve studies. It’s kind of a run-bywildcat operation. It’s a lot simpler for them to go out and do a test hold 

just to tap and see if there’s any oil and gas. Even if there were reserve 

studies, it’s very unreliable. I mean, you know, you may do different kinds 

of tests to try to find out what kind of oil and gas you have down there, but 

it doesn’t mean it’s feasible to get out. So we have a very conservative 

approach with that. 

In 2014, the Division had a meeting with several members of the oil 

and gas members. There were attorneys, purchasers, producers. We had a 

meeting with them and they had the same thought process on why we use a 

five-year life and we don’t reduce it each and every year, we just keep the 

five.

On cross-examination, Gibson testified as follows:

Q. So when you are taking the estimate of cash value annually of oil and 

gas reserves in the ground, that’s just pure speculation, is it not?

A. Repeat the question.

Q. You don’t have any idea what the reserves are that you’re talking about, 

do you?

A. The remaining reserves?

Q. Yes, sir.

A. No, sir. We do not have a reserve study to follow.

Q. And the manuals don’t allow you to assess based on speculation, do 

they?
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A. The Mineral Manual that we have in this section details different 

observations that you have to make; so I feel like I’ve applied everything 

that I can. Yes, sir.

Q. Well, what have you applied? What have you done to determine the 

mineral reserves?

A. There’s nothing that I can do without a mineral reserve study; so I guess 

I did everything that I could do to make an assumption, which you make

assumptions all the time in an appraisal.

In June 2015, the Appeals Commission issued its final decision and order wherein

it reinstated the original assessments. In its final decision and order, the Appeals 

Commission stated in part:

The tax here was duly levied by the counties as an ad valorem tax based on 

the determined value of the property, and demonstrated error in the value 

determination does not convert the levy to another form of tax. The boards 

of equalization may reject the value as unduly speculative, or just plain

wrong, but the boards do not thereby avoid their duty to determine value 

using the most persuasive evidence available. In this case, as in the coal 

cases decided in years past, the only evidence came from the assessing

authority. The owner of the mineral interest offered no measure of actual 

depletion for these properties, in fact no evidence at all pertinent to the 

properties’ value.

The assessors offered the testimony of Keith Gibson, a staff 

appraiser employed by the Tennessee Division of Property Assessments, 

who explained there were no reserve studies available to the Division or 

taxing authorities, just annual data on production for oil and gas. He stated 

the implicit assumption of a five year remaining life for these interests is 

conservative based on their historic production which typically exceeds five 

years. Projecting the coming year production will equal the prior year is a 

neutral assumption, not unlike any income projection for commercial 

properties, and the assessor invites more accurate information from the 

property owners who are better positioned to estimate future production. 

Lacking more accurate information would not excuse the assessor from the 

responsibility of assessing the contributory value of proven mineral 

reserves.

Disproving the assessors’ assumptions, or raising the likelihood that 

a more accurate value is possible, did not render the tax levy void, and did 

not meet the property owner’s burden to establish a more credible value. 

Accordingly, the Commission finds and concludes the original assessments 
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for these properties should be reinstated subject to the owners’ rights of 

further appeal.

In September 2015, Coal Creek filed a complaint in the Trial Court seeking 

judicial review of the Appeals Commission’s decision. This matter was tried in January 

2017. William S. Lyon, III (“Lyon”), executive vice president for Coal Creek, testified. 

Lyon testified, in pertinent part, as follows:

Q. When did -- well, how much property does The Coal Creek Company 

own and where is it located?

A. We own 72,000 acres across four counties, being Campbell, Morgan, 

Anderson, and Blount.

Q. And where are the majority of the gas and oil operations located?

A. Anderson County.

Q. And when was the first time that you, on behalf of The Coal Creek 

Company, became aware of the taxation of these mineral interests that 

we’ve been talking about here today?

A. 2009.

Q. And how did that -- how did you become aware of that taxation?

A. Well, we received tax notices that -- in the past, we always received tax 

notices on the value of the land. And then in 2009, there was a tax notice 

on the mineral interests.

Q. Was it a separate tax notice?

A. Yes.

Q. Did the valuation of the land change in regard to -- well, did the 

valuation of the land change when you started receiving these separate 

mineral notices? 

A. No. It probably increased just a tad because of the reappraisal period, but 

no appreciable change.

Q. And has the same process been followed from 2009 through 2016?

A. Yes.

Q. Have you had any conversations with any of the assessors for Morgan, 

Campbell, or Anderson counties regarding any sort of allocation of how 

these taxes are allocated across the various parcels of property?

A. No.

Q. Have you received any information from the counties that there is any 

sort of allocation?

A. No, I have not.

Q. Okay. When you first began -- well, when was the -- when was the last 

time an oil or gas well was dug on any of Coal Creek’s property?

A. It would probably be early 2009.
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Q. And how many oil and gas lessees are there?

A. Three.

Q. And have there generally always been three?

A. Since I’ve been there, just three.

Q. And who are those three?

A. Knoxville Energy, Atlas America, and Vinland Energy.

Q. How many -- beginning back in 2009 when this taxation process started, 

how many oil and gas wells were in existence and operating on Coal Creek 

property?

A. There was approximately 414. Approximately.

Q. And how many are there today?

A. There are 344.

Q. Have any of the operators gone out of business or restructured, as far as 

you know?

A. Yes, two of our lessees have gone through bankruptcy in the last two 

years.

Q. And who were those?

A. Atlas and Vineyard.

Q. Now, at the time these assessments began or prior to the time these 

assessments on the oil and gas minerals started, did anyone from the State 

or any of the counties contact you on behalf of Coal Creek to get any 

information?

A. No.

Q. Does Coal Creek maintain information on the production of oil and gas 

wells?

A. Yes.

Q. And what records are maintained?

A. We get a monthly royalty report from each lessee. And we post those by 

month, by well, to production schedules, and we keep those up to date.

***

Q. Based on your knowledge of the production records of the oil and gas 

wells on the property, did the production vary from year to year?

A. Yes.

Q. Are the variations large, small?

A. Well, some of them are pretty large. For example, the oil production for 

2015, compared to 2016, decreased on one lessee by 60 percent and on 

another lessee it decreased by 30 percent.

The gas has a smaller decline rate. It decreased on one lessee 16 

percent from ’16 to ’15 and 10 percent on another one from ’16 to ’15.
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Q. Based on your knowledge of the production records from Coal Creek, 

would production from a prior year be a reasonable indicator of production 

for the subsequent year?

A. I don’t believe so. It’s so -- it’s so up and down that I don’t think it’d be 

a reasonable estimate.

Q. Does Coal Creek have any reserve studies of oil and gas deposits on its 

property?

A. No.

Q. Has Coal Creek ever received any information regarding reserve studies 

that may have been conducted?

A. I have not seen any.

Q. Are you aware of any methodology for determining the amount of oil or 

gas deposits that may be contained in underlying fee property?

A. No.

Q. Did Coal Creek keep on its books or any of its records a valuation of the 

oil and gas mineral interests existing on its properties?

A. No.

Q. Has it ever?

A. Not to my knowledge. And I’ve been here ten years, and I have not seen 

a segregation of that asset.

On cross-examination, Lyon testified as follows:

Q. Mr. Lyon, you are a CPA by trade; is that correct?

A. Yes. 

Q. And in your professional practice you’re familiar with the use of the 

income method for value for leases, for example?

A. Yes.

Q. So you understand that that is in fact a standard method, acceptable 

method, by which valuations are done?

A. Yes.

***

Q. All right. And finally, have you -- have you ever taken any information 

to the Campbell County Property Assessor’s Office which you asked -- in 

which you were asking them to consider making an adjustment in the 

mineral valuation of the Campbell County part of the property?

A. No, I’ve never taken any production information or anything. The only 

thing I have done is appear before the Board of Equalization and put forth 

our appeal as to severance tax and the apportionment factor.
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Q. And I want to be clear about what I’m asking you here. You understand 

that at any time you can take information to a property assessor’s office?

A. I understand that.

Q. Have you ever done that as far as the Campbell County Property 

Assessor’s Office, asking for an adjustment to be made?

A. No.

Q. And never provided them with any further information?

A. No, I have not.

***

THE COURT: Let me ask before you step down, Mr. Lyon. Have you 

provided any information to any of the counties involved in this case, the

Boards of Equalization, for an adjustment on the tax?

THE WITNESS: No, I have not.

In February 2017, the Trial Court entered its detailed final judgment in which it 

dismissed Coal Creek’s complaint. The Trial Court found that Coal Creek failed to meet 

its burden of proof, stating as follows:

This case is before the Court on the complaint of The Coal Creek 

Company (“taxpayer”) for judicial review of a decision from the Tennessee 

State Board of Equalization and Tennessee Assessment Appeals 

Commission (collectively “the Board”), reversing the decision of the 

Administrative Law Judge and reinstating the valuations and assessments 

of the property assessors for the Tennessee counties of Anderson, 

Campbell, and Morgan. The complaint addresses the values and 

assessments for the oil and gas reserves owned by the taxpayer in its real 

property. The taxpayer argues that the income approach utilized by the 

assessors results in an additional severance tax in violation of Tenn. Code 

Ann. § 60-1-301; that the taxation, as industrial and commercial, of the oil 

and gas reserves (mineral interests) was not apportioned with the taxation, 

as farmland, of the surface of the property in violation of Tenn. Code Ann. 

§ 67-5-801(b); and that any attempted apportionment would further violate 

Tenn. Code Ann. § 67-5-801(b) because the State Board of Equalization 

had never established guidelines, for apportionment, as mandated by Tenn. 

Code Ann. § 67-5-801(b).

The taxpayer has not produced any proof regarding the value of its 

oil and gas interests or its fee interests. The taxpayer has instead pointed 

out deficiencies in the income-approach used by the assessors and that the 

surface land and mineral interests assessments have not been apportioned. 
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The taxpayer has presented no evidence to support any alternative value or 

any alternative apportionment.

The taxpayer’s lack of proof is problematic for its case. The Court 

agrees with the Board’s pretrial brief filed January 23, 2017:

In accordance with the foregoing authorities, the taxpayer 

bears the burden of proving that the tax assessments are 

erroneous. Dooley, 2013 WL 179962, at * 5, Spring Hill, 

2003 WL 23099679, at *5 (citing Edmondson Mgmt. Serv., 

Inc. v. Woods, 603 S.W.2d 716, 717 (Tenn. 1980)). The 

taxpayer cannot meet this burden merely by criticizing the 

taxing authority’s method of assessment or computation of 

tax amounts. Edmondson, 603 S.W.2d at 718. To meet its 

burden, the taxpayer additionally must offer “evidence of the

amount of taxes owed.” Id.

As the Supreme Court explained in Edmondson, “[v]ague 

allegations by the taxpayer to the effect that the . . . method of 

ascertaining the taxes due from him was incorrect are not 

sufficient to carry the taxpayer’s burden.” Id. In upholding 

the assessment in that case, the Court reasoned that

[the taxpayer] has failed to produce an audit, 

actual books and records, or summaries thereof, 

or other evidence to establish that it owes less 

taxes than the amount assessed by the 

Department of Revenue. The taxpayer has done 

no more than to make allegations to the effect 

that the State’s audit method was incorrect, 

inapplicable or constitutes only an estimate; this 

is wholly insufficient to support a judgment in 

favor of the taxpayer.

Id.

In this case, Coal Creek elected not to present any proof 

regarding the value of its oil and gas interests. (A.R. I, 93). 

Instead, Coal Creek focused its efforts on criticizing the 

methodology used by the Assessors and DPA [Tennessee 

Division of Property Assessments] to value the interests. 

(A.R. I, 63-88). Coal Creek suggested that the Assessors 
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should have used the comparable sales (market) approach, but 

it presented no evidence that would have supported any type 

of valuation using this approach. (A.R. I, 63 & 93). And it 

criticized the speculative nature of the DPA’s valuation of the 

interests using the income approach and, in particular, the

DPA’s assumption of a five year well life, but it presented no 

evidence as to the average life of Coal Creek’s wells, and it 

presented no evidence to support an alternative value using 

either the income approach or any other approach. (A.R. I, 83 

& 93).

STATE BOARD OF EQUALIZATION’S AND ASSESSMENT 

APPEALS COMMISSION’S PRE-TRIAL BRIEF IN OPPOSITION TO 

PLAINTIFF’S COMPLAINT SEEKING JUDICIAL REVIEW, pp. 12-13.

The Board’s above comments relate to the proceedings before it; 

however, the same comments apply to the proceeding before this Court. 

The taxpayer put forth no alternative valuation or apportionment before the 

Board or this Court.

The context of a case involving ad valorem assessments of property 

containing mineral interests is set out in Richardson v. Assessment Appeals 

Com’n, 828 S.W.2d 403 (Tenn. Ct. App. 1991). The Court of Appeals 

states:

As observed by appellant’s counsel, a brief statement 

regarding ad valorem assessments of property containing 

mineral reserves is helpful in order to put the issues at hand in 

perspective. Generally, for purposes of tax appraisal, 

assessments are made differently on real property owned in 

fee and having mineral content. Separate assessments are 

made for the “surface” values of the property and the 

“mineral” values of the property. In keeping with the 

Constitution of The State, the surface assessment, as 

noncommercial property, is twenty-five percent of the fair 

market value and the underlying mineral is assessed at forty 

percent of the fair market value as commercial property. 

Generally stated, surface values are to be established pursuant 

to T.C.A § 67-5-601, et seq.

T.C.A. § 67-5-601(a) and T.C.A. § 67-5-602 provide 

respectively in pertinent part as follows:
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67-5-601. General Policy.—(a) The value of all 

property shall be ascertained from the evidence 

of its sound, intrinsic and immediate value, for 

purposes of sale between a willing seller and a 

willing buyer without consideration of 

speculative values ...

67-5-602. Assessment guided by manuals—

Factors for consideration.—(a) ... in 

determining the value of all property of every 

kind, the assessor shall be guided by, and 

follow the instructions of the appropriate 

assessment manuals issued by the division of 

property assessments and approved by the state 

board of equalization.....

(b) For determining the value of real property, 

such manuals shall provide for consideration of 

the following factors:

***

(7) Natural productivity of the soil, except that 

the value of growing crops shall not be added to 

the value of the land. As used in this 

subdivision, “crops” include trees; and ...

[3] Thus, in general terms, surface values are determined 

without regard to mineral value and without regard to the 

value of growing crops, which by statutory mandate, include 

trees. The mineral value must then be determined and the 

surface value must, then, in order to obtain true equalization, 

be further reduced by the value of the underlying minerals. 

Common sense dictates that, under ordinary circumstances, 

the combined market value of the surface and underlying 

minerals do not and cannot exceed the market value of the 

fee.

Richardson, at 407.

The taxpayer provided no alternative values whatsoever for its 

mineral interests. Even on its original appeal forms to the State Board of 
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Equalization, the taxpayer conspicuously failed to complete the sections of 

the forms asking for the taxpayer’s belief as to the fair market value of the 

property (mineral interests). The Court is unable to find that the assessors’

use of the discounted income approach has resulted in any erroneous 

valuations or that a different valuation would be correct. As to 

apportionment, in addition to producing no evidence as to the value of the 

mineral interests, the taxpayer gave no value on its appeal forms for the fee 

and presented no evidence as to the value of the fee (the value of the land 

with consideration of the mineral interests). The taxpayer has raised no 

issue as to the assessors’ valuation of its surface land. The assessor valued 

the taxpayer’s surface land without consideration of the mineral interests. 

The taxpayer produced no evidence of the value of its mineral interests or 

the fee.

The “property appealed” is only the taxpayer’s mineral interests. In 

completing portions of the appeal forms to the Board, the taxpayer gave 

information from the assessors’ records as to the assessors’ valuations of 

the taxpayer’s mineral interests and surface land. The taxpayer also 

attached various property tax notices and records from the assessors. 

However, as mentioned above, the taxpayer gave no value for the 

taxpayer’s mineral interests or fee. The taxpayer produced no such 

evidence, and the record is devoid of any evidence whatsoever as to the 

value of the fee. With no evidence produced as to the value of the fee, the 

Court cannot determine that the apportionment made is inaccurate or that 

the assessors’ values for the mineral interests and surface land exceed the 

value of the fee.

Finally, the taxation, at issue in this case, is not a tax on oil and gas 

removed from land owned by the taxpayer, but upon the oil and gas 

remaining in the land. The use of the discounted income approach, which 

utilizes the prior year’s production as a measure of income, does not 

transform the tax from an ad valorem tax upon the oil and gas reserves 

remaining in the property. The prohibition against an additional severance 

tax, in Tenn. Code Ann. § 60-1-301, does not apply to taxes upon the oil 

and gas reserves remaining but only to the oil and gas removed. The tax 

imposed in this case is not for the same year as the severance tax imposed 

upon the oil and gas removed but for the next year upon the oil and gas 

reserves remaining. The taxpayer produced no evidence to show that any 

different amount of tax would result from using a different methodology as 

opposed to the discounted income approach used by the assessors in this 

case. Likewise, as with methodology, the taxpayer has failed to show that 

the imposition of formal guidelines would result in any different valuation 

or apportionment.
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The taxpayer has failed to meet its burden of proof in this case. The 

complaint will be dismissed with the costs taxed to the plaintiff taxpayer.

Coal Creek timely appealed to this Court.

Discussion

Although not stated exactly as such, Coal Creek raises one issue on appeal: 

whether the Trial Court erred in dismissing Coal Creek’s complaint for failure to meet its 

burden of proof.

“[J]udicial review of a Board of Equalization decision clearly falls under the 

Uniform Administrative Procedures Act (“UAPA”) . . . courts are to apply the narrow, 

statutorily defined standard contained in [Tenn. Code Ann.] § 4-5-322(h) rather than the 

broad standard of review used in other civil appeals.” Spring Hill, L.P. v. Tennessee 

State Bd. of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679, at *4 

(Tenn. Ct. App. Dec. 31, 2003), no appl. perm. appeal filed (citations and quotation 

marks omitted). We review the trial court’s factual findings de novo with a presumption 

of correctness, unless the evidence preponderates otherwise. Tenn. R. App. P. 13(d); 

Richardson v. Assessment Appeals Com’n, 828 S.W.2d 403, 407 (Tenn. Ct. App. 1991).

We review the trial court’s conclusions of law de novo with no presumption of 

correctness. Id. Tenn. Code Ann. § 4-5-322(h) (2015) states, in relevant part, that a court 

reviewing the board’s decision may:

reverse or modify the decision if the rights of the petitioner have been 

prejudiced because the administrative findings, inferences, conclusions or 

decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Arbitrary or capricious or characterized by abuse of discretion or clearly 

unwarranted exercise of discretion; or

(5)(A) Unsupported by evidence that is both substantial and material in the 

light of the entire record.
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(B) In determining the substantiality of evidence, the court shall take into 

account whatever in the record fairly detracts from its weight, but the court 

shall not substitute its judgment for that of the agency as to the weight of 

the evidence on questions of fact.

“Upon appeal of a decision taken by an administrative agency following a 

contested case proceeding, the standard of review in this court is the same as it is in the 

chancery court.” Terminix Intern. Co., L.P. v. Tennessee Dept. of Labor, 77 S.W.3d 185, 

191 (Tenn. Ct. App. 2001). 

This case touches, in part, upon appraisal methodology. There are at least “three 

generally recognized approaches: the comparable sales approach, income approach, and 

cost approach.” Knoxville Community Development Corp. v. Bailey, No. E2004-01659-

COA-R3-CV, 2005 WL 1457750, at *2 (Tenn. Ct. App. June 21, 2005), no appl. perm. 

appeal filed. The Assessors in the present case utilized the income approach, which has 

been described as follows:

[T]he “income approach” appraisal method . . . is designed to determine the 

value of income-producing property by reducing to present value the 

anticipated future net earnings stream of the property. The income 

approach begins with a calculation of gross income. This gross income 

figure is then reduced by expenses. The resulting net income figure is then 

capitalized at an appropriate rate to arrive at the value of the incomeproducing property.

Seaton v. State Bd. of Equalization, No. E1998-00880-COA-R3-CV, 2000 WL 852123, 

at *1 (Tenn. Ct. App. June 28, 2000), Rule 11 perm. app. denied Feb 20, 2001. (Footnote 

omitted).

“[T]he burden is on the taxpayer to prove that [tax assessments] are erroneous.”

Edmondson Mgmt. Serv., Inc. v. Woods, 603 S.W.2d 716, 717 (Tenn. 1980) (quoting 

Howard v. United States, 566 S.W.2d 521, 528 (Tenn. 1978)). On the other hand, 

“[t]axation statutes must be liberally construed in favor of the taxpayer and strictly 

construed against the taxing authority.” Covington Pike Toyota, Inc. v. Cardwell, 829 

S.W.2d 132, 135 (Tenn. 1992). Article II, § 28 of the Tennessee Constitution provides 

for the classification and taxing of property as follows:

In accordance with the following provisions, all 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 
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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, and the entire amount of money 

deposited in an individual’s personal or family checking or savings 

accounts. For purposes of taxation, property shall be classified into three 

classes, to wit: Real Property, Tangible Personal Property and Intangible 

Personal Property.

Real Property shall be classified into four (4) subclassifications and 

assessed as follows:

(a) Public Utility Property, to be assessed at fifty-five (55%) percent of its 

value;

(b) Industrial and Commercial Property, to be assessed at forty (40%) 

percent of its value;

(c) Residential Property, to be assessed at twenty-five (25%) percent of its 

value, provided that residential property containing two (2) or more rental 

units is hereby defined as industrial and commercial property; and

(d) Farm Property, to be assessed at twenty-five (25%) percent of its value.

Tenn. Code Ann. § 60-1-301 provides for a severance tax on oil and gas removed 

from the ground in Tennessee:

(a) There is levied a severance tax on all gas and oil removed from the 

ground in Tennessee. The measure of the tax for such gas and oil shall be 

three percent (3%) of the sale price of such gas and oil. Every person 

actually engaged in severing oil or gas, or actually operating oil or gas 

property under contracts or agreements requiring direct payments to the 

owners of any royalty interest, excess royalty or working interest, either in 

money or otherwise, shall be liable for the tax imposed by this section and 

shall, prior to making any such payments, withhold from any quantity or 

amount due the amount of tax due pursuant to this section.

(b) The tax shall be levied for the use and benefit of the state, as well as the 

county governments and one third ( 1/3 ) of all revenues collected from the 

tax shall be allocated to the county which was the site of the wellhead for 

that gas or oil. The remaining two thirds ( 2/3 ) of such revenues shall be 
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deposited to the credit of the state treasurer as a part of the general funds of 

the state.

(c) No other tax shall be imposed on such gas and oil by the state, counties 

or any other political subdivision of the state; provided, however, that:

(1) Free gas used by the property owner or tenant under the terms of the 

lease, unless it be in lieu of cash payment; and

(2) Gas which has been injected into the ground for underground storage 

and thereafter withdrawn shall not be subject to this, or any taxation.

Tenn. Code. Ann. § 60-1-301 (2013). Regarding classification of property 

according to use for tax purposes, Tenn. Code Ann. § 67-5-801 provides:

(a) For the purposes of taxation, all real property, except vacant or unused 

property or property held for use, shall be classified according to use and 

assessed as provided in this section:

(1) Public Utility Property. Public utility property shall be assessed at fiftyfive percent (55%) of its value;

(2) Industrial and Commercial Property. Industrial and commercial 

property shall be assessed at forty percent (40%) of its value;

(3) Residential Property. Residential property shall be assessed at twentyfive percent (25%) of its value; and

(4) Farm Property. Farm property shall be assessed at twenty-five percent 

(25%) of its value.

(b) Where a parcel of real property is used for more than one (1) purpose, 

which would result in different subclassifications and different assessment 

percentages, then it shall be apportioned among the subclasses according to 

guidelines established by rules and regulations of the state board of 

equalization.

Tenn. Code Ann. § 67-5-801 (a)-(b)(2013).

Coal Creek argues on appeal that the tax assessments on its mineral interest 

constitute an unlawful additional severance tax above what is provided for exclusively by 
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Tenn. Code Ann. § 60-1-301. Coal Creek argues further that the Board of Equalization’s

failure to promulgate and abide by guidelines as contemplated by Tenn. Code Ann. § 67-

5-801 precludes the “layering” of taxes on Coal Creek’s property according to different 

uses.

It is undisputed that Coal Creek’s property contains oil and gas deposits which,

when extracted, produce income for the company. It is a logical and unsurprising 

proposition that a property producing a stream of income—in this case from oil and 

gas—is more valuable than an otherwise comparable property that cannot provide any 

such income stream. Even though reserve studies as to the gas and oil are not available, 

the Assessors did not have to blind themselves to the reality of the property’s use. The 

Tennessee Constitution provides for the classification of property and levying of tax 

according to use. It is clear from the record that Coal Creek’s property is not merely farm 

land, however long previously it had been classified solely as such. 

The tax assessments at issue are on oil and gas remaining in the ground. A 

severance tax, by contrast, taxes those minerals that are extracted. Accounting for and 

taxing the value of the oil and gas deposits on Coal Creek’s property is not identical to

imposing an unlawful additional severance tax. 

Coal Creeks points to the lack of guidelines contemplated by Tenn. Code Ann. § 

67-5-801. We do not know why the Board has failed, at least as of the disposition of this

case below, to promulgate guidelines regarding apportionment and sub-classifications. 

However, we do not believe that failure to promulgate guidelines to date means the 

Assessors were required to ignore the fact that Coal Creek’s property contains oil and gas 

deposits that produce a stream of income for the company, a relevant consideration in 

valuation. Under the Tennessee Constitution, Coal Creek’s property, including its 

mineral interest, is subject to taxation. The Assessors in this case went about appraising 

the mineral interest of the property using a method they regarded as appropriate, even 

“conservative” vis-à-vis Coal Creek’s interests. In the absence of guidelines, we find that 

the Assessors sufficiently exercised their duty under the Tennessee Constitution and other 

applicable law.2

The Assessors utilized the income approach appraisal method. The evidence in 

the record reflects that the income approach is a viable and widely accepted means of

arriving at value, depending upon the circumstances. Tennessee case law also supports 

this proposition. Coal Creek asserts that the Assessors did not correctly perform an 

 

2 Under the facts of the present case, we find that the classifications and tax assessments at issue were 

rendered properly notwithstanding the absence of formal guidelines. The better practice, and one likely to 

reduce or eliminate similar questions going forward, would be for the State Board of Equalization to 

establish formal guidelines by rules and regulations as contemplated by statute.
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income approach appraisal method because no reliable studies are available to establish 

the oil and gas reserves. Nevertheless, again, in our judgment, this does not relieve Coal 

Creek from being subject to taxation of its mineral interest. It is undisputed that the 

property contains oil and gas deposits and that these produce a stream of income for Coal 

Creek. Coal Creek’s position appears to be that, because production varies from year to 

year and no reserve studies are available, the Assessors have no available means of 

valuing the mineral interest, and therefore its mineral interest is immune from property 

taxation. For the reasons already discussed, we disagree and instead agree with the Trial 

Court. 

Lastly, there is the issue of Coal Creek’s failure to put forward an alternative value 

for the mineral interest. As found by the Trial Court, Coal Creek produced no “evidence 

whatsoever as to the value of the fee [including the mineral interests].”

Instead, Coal Creek argues that “the assessments at issue are legally invalid on their face” 

and “Coal Creek should not be charged with the burden of proving what essentially is a

double negative. . . .” We already have rejected Coal Creek’s argument that the tax 

assessments were invalid on their face. With the tax assessments not being invalid on 

their face and Coal Creek having produced no evidence as to the value of its mineral 

interests, there is no basis under our standard of review to modify the assessors’ values. 

We find and hold, as did the Trial Court, that the Appeals Commission’s decision 

to reinstate the original assessments is supported by substantial and material evidence, 

and we find no other basis under the applicable standard of review to reverse or modify 

the Appeals Commission’s decision. We affirm the judgment of the Trial Court.

Conclusion

The judgment of the Trial Court is affirmed, and this cause is remanded to the 

Trial Court for assessment of the costs below. The costs on appeal are assessed against 

the Appellant, The Coal Creek Company, and its surety, if any.

____________________________________

D. MICHAEL SWINEY, CHIEF JUDGE