2023 Tennessee Code › Title 7 - CONSOLIDATED GOVERNMENTS AND LOCAL GOVERNMENTAL FUNCTIONS AND ENTITIES (§§ 7-1-101 — 7-91-104) › MUNICIPAL FUNCTIONS (§§ 7-31-101 — 7-41-111) › Chapter 39 - ENERGY ACQUISITION CORPORATIONS ACT (§§ 7-39-101 — 7-39-406) › Part 4 - MUNICIPAL GAS SYSTEM TAX EQUIVALENT LAW OF 1987 (§§ 7-39-401 — 7-39-406) › Section 7-39-404 - Tax equivalents authorized - Conditions

Notwithstanding any law to the contrary in this code or in any private act, every municipality may pay or cause to be paid from its gas system revenues for each fiscal year an amount for payments in lieu of taxes, referred to as "tax equivalents", on its gas system and gas operations, which, in the judgment of the municipality's governing body, shall represent the fair share cost of government properly to be borne by the municipality, subject, however, to the following conditions and limitations:
(1)
The total amount so paid as tax equivalents for each fiscal year shall not exceed a maximum amount equal to the sum of the following:
(A)
With respect to each of the respective taxing jurisdictions in which the municipality's gas system is located, the equalized property tax rate, determined as provided in this section, for the taxing jurisdiction as of the beginning of such fiscal year, multiplied by the net plant value of the gas system and the book value of materials and supplies within the taxing jurisdiction as of the beginning of such fiscal year, multiplied by the assessment ratio in effect as of the beginning of such fiscal year; and
(B)
Four percent (4%) of the average of revenue less cost of gas from gas operations for the preceding three (3) fiscal years;
(2)
Such tax equivalent payments shall be made only from gas system revenues remaining after payment of, or making reasonable provision for payment of:
(A)
Current gas system operating expenses, including salaries, wages, cost of materials and supplies, power at wholesale, and insurance;
(B)
Current payments of interest on indebtedness incurred or assumed by a municipality for the acquisition, extension, or improvement of the gas system, and the payment of principal amounts of such indebtedness, including sinking fund payments, when due;
(C)
Reasonable reserves for renewals, replacements, and contingencies; and
(D)
Cash working capital adequate to cover operating expenses for a reasonable number of weeks;
(3)
The total amount to be paid as tax equivalents for each fiscal year shall be in lieu of all state, county, city, and other local taxes or charges on the municipality's gas system and gas operations except as provided in subdivision (6);
(4)
The total amount to be paid as tax equivalents, including that to be paid for the municipality and any other taxing jurisdiction, for each fiscal year, determined in accordance with and subject to this part, shall be set forth in a resolution adopted by the municipality's governing body after consultation with the supervisory body, if different from the governing body, and the municipality's gas system shall pay to the municipality and any other specified taxing jurisdictions amounts as provided in that resolution. Such determination shall be made as early in such fiscal year as possible and shall become final at the end of such year;
(5)
Notwithstanding subdivisions (1)-(4), until the first fiscal year in which the aforementioned maximum amount for tax equivalents, calculated as provided in subdivision (1), exceeds the tax equivalent amount for the twelve (12) months ended June 30, 1987, the maximum tax equivalent amount that may be paid for any fiscal year shall not be less than the maximum tax equivalent amount for the twelve (12) months ended June 30, 1987. Thereafter, such maximum amount for any fiscal year shall not exceed the maximum amount calculated as provided in subdivision (1). All such maximum amounts shall be subject to the conditions and limitations of subdivisions (2)-(4); and
(6)
Notwithstanding anything in subdivisions (1)-(5) that might be construed to the contrary, properly authorized retail sales or use taxes on gas energy at the same rates applicable generally to sales or use of personal property or services shall not be considered a tax or charge on the municipality's gas system or its gas operations or properties for purposes of this part.
Acts 1987, ch. 220, § 5.