### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE July 2000 Session HOME BUILDERS ASSOCIATION OF MIDDLE TENNESSEE, ET AL 

### .

v. MAURY COUNTY, TENNESSEE, ET AL 

### . Appeal from the Circuit Court for Maury County No. 8595 Stella L. Hargrove, Judge

No. M1999-02383-COA-R3-CV - Filed August 31, 2000

Two homebuilders and their trade association asked the trial court to declare that a privilege tax imposed on new construction in Maury County was in fact a n unconstitutional impact fee. The County and the State both filed motions for summary judgment, which wer e granted by the trial court. We affirm.

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

Affirmed and Remanded

B EN H. C ANTRELL , P.J., M.S., delivered the opinion of the court, in which P ATR I CIA J. C OTTRELL , J., joined. W ILLI

AM C. K OCH , J R ., J. filed a concurring opinion.

L. Bruce Peden, Columbia, Tennessee, for the appellants, Homeb uilders A ssociation of Middle Tennessee, Larry Reave

s, and Dino Roberts Homes, Inc.

Wil lia m H. Dal e, J r., Col umb ia, Ten nes see, for the app ell ee, M aury C oun ty.
Paul G. Summers, Attorne y General and Reporter, an d Winston B. Sitton, Assistant Attorney General, for th

e appellee, Paul

G. Summers.

OPINION

I. A P RIVATE A CT FOR M AURY C OUNTY
On May 30, 1991, the Tennessee Legislatur

e passed a priva

te act called the

“Maury Coun

ty Adequate Facilities Tax Act

.” Its preamble stated that

the introduction into the county of the Saturn auto plant had been a tremendous stimulus to growth, and had cr ea ted a great need for new infrastructureto accommodate th at gro wth. In order to prevent the costs of new public facilities-2-

from falling solely

on current resid

ents, the act auth

orized the County

to “levy and collect

a privilege tax on new developme

nt in the county

. . .” and to adopt a

“capital improve

ments program”

to identify the needs to be funded by the tax [Private Acts 1991, Chapter 118]. Maury County did not i

m plement th e new tax immediate ly, but on Janua

ry 19, 1999, i

t enacted a capital improvements plan and a development tax of $ .50 per gross square foot on new residential development, and $ .30 per gross

square foot on new non-residential development, to be paid at the time a building permit was obtained from the county. Shortly thereafter, Plaintiff Larry Rea ves, a member of the Home Bui lders As sociation of Middle Tennessee, app

lied for a building

permit in order to construct

a house in a new subdivision. He obtained the perm

it after paying his tax of $283.50 under protest. Dino Roberts Homes, another Association membe

r, also applied fo

r a building perm

it, and paid a tax of $ 1,195 under prote st.
On March 8, 1999, Mr.

Reaves a nd Dino Roberts Homes joined with the Home Builders Association in filing a decl aratory jud gment complaint, naming Maury County a nd the Attorney General as defendants. See Rule 24.04, Tenn. R. Civ. P. The plaintiffs askedthe court to declare Private Act 118 unconstitutional, contending among other things that the erection of shelter from the elementswas a natural right and not a privilege, and thus could

not be subj ect to a pr

ivilege t ax. The two builders also asked for a refund of the sums they had paid. The parties filed cross-motions for summary judg

ment. After hear

ing argument f

rom both sides, the trial court found that the challenged Act created a valid privilege tax, and on December 13, 1999 it granted the defendants’ motions for summary judgment. This appeal followe d.

II. C AN B UILDING A H OUSE BE A T AXABLE P RIVILEGE ?

This case presents no

disputes as to fac

ts, but turns entire

ly on the vali

dity of the pl

aintiffs’ argument that the financial exaction imposed on new construction in Mau ry Co unt y i s in fact a constitut ionally invalid im

pact fee in the gui

se of a pri vilege ta x.
The plaintiffs contend that the building of a shelter on one’s own property is not a privilege, and thus c annot be made subj ect to taxation. The y further c

ontend that the exac

tion bears all

th e earmarks of an impact fee, except for the fact that the reven ue collectedis not segregated for the benefit of fee-paying property

owners, and that this violates their substantive dueproce ss rig hts. In order to address this argument, we must briefly discuss the scope of the taxing powe r at issue.

Article II, Section

28 of the Tennesse

e Constitution give

s the legislature

the authority

“to tax merchants,peddlers, and privileges, in such manner as they may from time to time direct.” The Constitution does not define “ privil ege.” How ever, numerous ju dicial decisions d

ealing with privilege taxes indicate that the legislature’s p ower to declare

activities to be pr

ivileges and to

tax them as such is extremely broad.-3-

For example, Seven Springs W ater C o . v. Kennedy , 299 S.W. 792 (Tenn 19 27) was a case involving a property

-owner who sold

water collecte

d from a spring on

his own land. In upholding
a tax on that activity

, the court decla

red th at “privilege” meant “any and all occupations that the legislaturein its discretion chose to declare a privilege and tax as such.” Th e court s have even speculated

that the act of farming could be a taxable privileg

e if the legislat

ure deemed it

as such. Mabry v. Tarver , 20 Tenn. (1 Hum.) 93 (1839).

While some of these earlier cases implied that the privilege tax could only be imposed upon the pursuit of some business or occupation, other cases hav e shown the taxing p

ower to be broader than that. Thus, the pursuit of pleasure may also be taxed, whether that involves such activities as driving a car for pleasure on county roads, Ogilvie v. H ailey , 14 1 Tenn. 392 (Tenn. 1918), or purchasing tickets for

any place of amusement in Knox County, Knoxtenn Theatres v. Dance, 208 S.W.2d 536 (Tenn. 1948). Use taxes are also

privilege taxes, see Madison Suburban Utility District of Davidson County v. Carson, 232 S.W.2d 277 (Tenn. 1950), and are impo sed upon th e privilege of “using, consuming, distributing or storing tang iblepersonal property after it is brought into the state.” See also Foster & Creighton Co. v. Graham , 154 Tenn. 412 (1925).

The power to tax privile

ges is so expansive

that some opinio

ns have stated it to be almos t withoutlimit. In Hooten v. Carson , 209 S.W.2d 273 (Tenn. 1948), the Court relied upon extensive
e arlier prec edent in stating that “[t]he power to tax privileges is not subject to any constitutional limitation except that the tax lev ied mus t no t be arbi tra ry, capri cious or who lly unr eason able. ” In
an older case, the Court even stated that “[a] privilege is whatever the legislature chooses to declare to be a privilege, and to tax as such.” Kurth v. State , 86 Tenn. 134 (1887). However, in a more recent case ci

ted to us by the

appellants, the Co

urt said to the cont

rary that,

“It cannot be denied that the Legislature can name any privil ege a taxabl e privilege andtax it by means other than an income t ax , but the Leg

islature cannot n

ame something to be a taxable privilege unless it is first a privilege.”
Jack Cole Co. v. McFarland , 337 S.W.2d 453, 455 (Tenn. 1960).

While the Jack Cole

case indicates that the legislative power cannot

be quite as expansive
as the statement fro

m Kurth implies, the appell ants must carry a heavy

burden if they are to persuade
us that their activities should be exempt from taxation. As we stated ab ove, t he appellants’ arguments

are premised upon the idea that the act of building a shelter upon one’ s own pro perty cannot be deemed to be a

privilege, but is

more appropriat

ely classif

ied as a natural r

ig ht , like breathing or eating, and is therefore not properly taxable.

Similarnatural rights arguments wer e ma de in s ome of the ot her ca ses we menti oned. In Hooten v. Carson , supra, the plaintiff argued that purchasing food w as not a privilege, but an absolute necessity if he wished to e at, and that the sales tax on food (which is also a species of privilege tax) was therefore invalid. Our Supreme C ou rt rejected this contention. In Knoxtenn Theatres v. Dance , s upra, the Court observed that “many of the natural rights of man have-4-

necessarily

been regulated by laws enacted under the police powers a

nd under the powe

r to raise revenue.” 208 S.W.2d at 538. Thus , just because some activity can be arguably called a natural right does not mean it cannot also be declared a taxable privilege.

It seems somewhat disingenuous for these particular plaintiffs to make the natural r ights argument, for there is nothing in the record to indicate that any of them intendedto build a shelter for his own use. They appea r to be real estate developers, who are challenging the privileg e tax for the benefit

of their business operations in Maury County. The natural rights ar gument would have hadmor e res ona nce e arl ier in o ur h ist ory, whe n ma ny, or even most, Tennesseans built their own homes and grew their own food. But as we menti oned above, eve

n then the courts c

onsidered it within the power of the l

egislature to

subject the pursuit of farming to privilege taxe

s if it chose to do so. Mabry v. Tarver , 20 Tenn. (1 Hum.) 9 3, 98 (1839). Therefore, we believe the act of developing real estate can constitute a taxable privilege.

III. D OES C HAPTER 118 C REATE A P RIVILEGE T AX OR AN I MPACT F EE ? Appellants

argue that Private Act 118 creates an impact fee rather than a privilege tax, and citeits close resemblance to Public Chapter 1022 ( enacted 1988), which authorized Davidson County to impose an impact

fee on new deve

lopment within its bor

ders. Appellants

note that both enactments

reference the need create

d by growth

and development to

finance public f

acilities, both require the taxing authori

ty to create a capital improveme

nts program bef

ore imposing the f

ee, both trigger payment at

the time a permit or certificate of occupancy is issued, and neither identifies the person liable for payment of the tax or fee. We note, however, that there are also significant differences between Public

Chapter 1022 andPrivate Chapter 118. For example, Chapter1022 requires tha t the “fair share

impact fees” collected under it “be reasonably attributable or reasonably related t o th e service demands of the development which is assessed the fee,” and that they be “used and expen

ded to the benefit of the development

that pays the

fair share impac

t fee.” The Act a

lso requir es that collected fees be put into a trust fund which

clearly id

entifies t he type of facility for which the fees were imposed. Chapter 118 conta

ins no such require

ments. Appellants

argue that Chap

ter 118 and the ca

pital improvements

plan enacted pur

suant to it do notmeet the constitutional requirements of a regulatory exaction measure, bec ause they do not require that

the funds collected benefit the property from which it is derived. Thus for example, the county could collect a g

reat deal of re venue from the no rthern half of its

territory, and allocate all of it to roads

in the sout

hern half . Weagree that the Private Chapter tax would not pass muster as a regulatory exaction.
However, th e diff

erence betwee

n a tax and a regu

latory exac

tion or fee is that a

tax is imposed primarily f

or the purpose

of raising revenue, and a fee is imposed as part of the regulation of someact ivi ty un der t he p oli ce po wer o f th e gov erni ng au tho rit y. Memphis Retail Liqu or Dealers’-5-

Ass’n, v. City of Memphis, 547 S. W.2d 2 44 (Tenn. 1977). T he revenue that

is collected in fe

es is used to defray the costs of collecting them and to provide services or benefits to the persons paying them. City of Tullahoma v. B edford County , 938 S.W.2d 408 (Tenn. 1997). The revenue derived from taxes is used for general pu bl ic purposes, and there is no requirement that the individual taxpayer receive any specific benefit from the use of funds r aised by the taxation. Nashville C. & St. L. Ry v. Wallace , 288 U.S. 249 (1933). We see nothing in the Private Act to indicate that it was meant to be a regulatory measure. It does not change the construction standards a developer must meet in order to obtain a building permit, limit who may o

r may not be a

developer, or imp

ose any new

requirements d

esi gned to restrict or limit developmen

t in any way

. Its purpose is clearly to raise new revenue, and while that
revenueis to be disbursed for the creation or improvement of public facilities, there is no requirement that those facilities benefit the individual taxpayer.

The tax is collected at the time a building permit is issued be cause that is the most logical andconvenient time to d o s o. An application for a building permit accompanied by the detailed plans required for the

permit show a deve

loper’s fixed inten

tion to begin buil

ding with in a short time. The building code, and the rules and regu lations that must be c

omplied with in orde

r to obtain a building permit are an example of the exercise of the police power to r

egulate devel

opment, and the charge for such a permit is properly called a fee. Since the exaction at issue does not alter thos e rules or regulations in any way , it is properly understood to be a privilege tax.

IV.
The judgment of the trial court is affirmed. Remand this cause to the Circuit Court of Maury County for f urt her proceedings consistent with this opinion. Tax the costs on appeal to the appellants.

_________________________________________ BEN H. CANTREL

L, PRESIDI

NG JUDGE, M.S.