Colonial Pipeline Company v. TN State Board Of Equalization

01/25/2021
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
November 16, 2020 Session

COLONIAL PIPELINE COMPANY V. TN STATE BOARD
OF EQUALIZATION

Appeal from the Tennessee State Board of Equalization
Nos. 123390; 117550; 120567
Tennessee State Board of Equalization Executive Director

No. M2020-00247-COA-R12-CV

An interstate pipeline company filed this direct appeal from a decision of the Tennessee
Board of Equalization rejecting the company’s claims for equalization relief. Having
considered the company’s arguments that Tenn. Code Ann. § 67-5-501(10)(B)(iii) has been
inconsistently applied, we affirm the Board’s decision.

Tenn. R. App. P. 12 Direct Review of Administrative Proceeding; Judgment of
Tennessee Board of Equalization Affirmed

ANDY D. BENNETT, J., delivered the opinion of the Court, in which FRANK G. CLEMENT,
JR., P.J., M.S., and W. NEAL MCBRAYER, J., joined.

Stephen H. Price, Nashville, Tennessee, and Everett B. Gibson, Memphis, Tennessee, for
the appellant, Colonial Pipeline Company.

Herbert H. Slatery, III, Attorney General and Reporter, Andrée Blumstein, Solicitor
General, and Mary Ellen Knack, Senior Assistant Attorney General, for the appellee,
Tennessee State Board of Equalization.

John Freemont Sharpe, Jr., Nashville, Tennessee, for the appellee, Tennessee Comptroller
of the Treasury.
Robert T. Lee, Mt. Juliet, Tennessee, for the appellees, Bradley County Government,
Coffee County Government, Grundy County Government, Loudon County Government,
Marion County Government, McMinn County Government, and Monroe County
Government.
 OPINION

FACTUAL AND PROCEDURAL BACKGROUND

Colonial Pipeline Company (“Colonial”) is an interstate pipeline company that
transports refined petroleum products such as gasoline, diesel fuel, jet fuel, heating oil, and
kerosene for third parties. Colonial’s pipeline traverses thirteen states, including
Tennessee, and extends from Texas to New York. Although the company has the power
of eminent domain, Colonial typically obtains easements from property owners, rather than
buying property, to allow the company to bury its pipeline.

Tennessee classifies Colonial as a public utility company. Property tax assessments
for public utilities are determined by the Comptroller’s Office of State Assessed Properties
(“OSAP”), rather than by county assessors. See Tenn. Code Ann.§ 67-5-1301(a)(7);
Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 833 (Tenn. 2008). As our Supreme
Court explained in Colonial Pipeline Co. v. Morgan, the Tennessee Constitution empowers
the state “to tax all real, personal, or mixed property, including that owned and operated by
companies like [Colonial].” Morgan, 263 S.W.3d at 833. Both real and tangible personal
property classified as public utility property is to be assessed at 55% of its value. Id. (citing
TENN. CONST. art. II, § 28). In 1997, however, “the Board of Equalization directed OSAP
to reduce the assessment value of personal property owned by centrally-assessed
taxpayers” by 15%. Id. at 834; In re All Assessments, 58 S.W.3d 95, 96 (Tenn. 2000). The
Board of Equalization (“BOE”) ruling, which reflected its recognition that locally assessed
personal property was being under-assessed due to statutory depreciation tables that
overstated depreciation, was ultimately affirmed by our Supreme Court. See In re All
Assessments, 58 S.W.3d at 96, 102.

Thereafter, in an effort to reduce its tax liability, Colonial argued that its pipeline
should be classified as personal property. Morgan, 263 S.W.3d at 834. The BOE rejected
this argument and followed OSAP’s recommendation “that pipelines should be classified
as real property.” Id. In 2004 (and each succeeding tax year), Colonial appealed OSAP’s
notice of assessment of its property to the BOE. In 2005, the company filed an action in
chancery court challenging the constitutionality of what is now Tenn. Code Ann. § 67-5-
501(10)(B), a provision enacted in 2004 (2004 TENN. PUB. ACTS ch. 719) that defines
certain pipelines and other property as real property for purposes of classification and
assessment. Morgan, 263 S.W.3d at 832, 835. The chancery court case reached the
Tennessee Supreme Court, which decided that Colonial raised facial and “as applied”
constitutional challenges and that questions regarding “whether the application of a statute
violates constitutional principles should be submitted to the agency . . . before any action
is brought in the Chancery Court.” Id. at 845-46. On remand, the chancery court rejected
all of Colonial’s facial challenges to the statute’s constitutionality and dismissed the case.
The company’s “as applied” challenges were to be considered by the BOE.

-2-
 Back before the BOE, Colonial argued that the classification of its pipelines as real
property violated equal protection and requested equalization relief on the ground that
Tenn. Code Ann. § 67-5-501(10)(B)(iii) had been inconsistently applied.1 At an
evidentiary hearing before an administrative law judge (“ALJ”) in March 2019, Colonial
presented examples of locally assessed pipe that had purportedly been misclassified as
personal property. The ALJ rejected the company’s characterization of misclassification,
however, because he determined that Chapter 719 did not apply to the identified local
pipes, which were associated with large above-ground tanks at petroleum storage facilities
or with manufacturing processes. The ALJ interpreted the statute to apply to Colonial’s
pipeline property but not to most locally assessed taxpayers who owned piping. Colonial
appealed the ALJ’s initial decision to the BOE assessment appeals commission, which
conducted a review on the record and affirmed the ALJ’s decision. This appeal followed.

This appeal raises the following issues:

1. Whether the BOE correctly determined that Tenn. Code Ann. § 67-5-
501(10)(B)(iii) applies to the pipelines owned by Colonial but does not apply to
locally assessed piping used in the manufacturing or refining process.

2. Whether the BOE properly determined, in denying Colonial’s equal protection
and uniform taxation claims, that Tenn. Code Ann. § 67-5-501(10)(B)(iii) had
not been inconsistently applied among similarly situated taxpayers.

3. Whether the ALJ, in denying equalization relief to Colonial, improperly relied
on a deposition errata sheet.

STANDARD OF REVIEW

Colonial brings this appeal pursuant to part I of Tenn. R. App. P. 12, which governs
appeals taken directly to the Court of Appeals from administrative agencies subject to the
Tennessee Uniform Administrative Procedures Act (“UAPA”). See TECO Barge Line,
Inc. v. Wilson, No. M2009-01675-COA-R12-CV, 2010 WL 2730591, at *2 (Tenn. Ct. App.
July 9, 2010) (stating that review of decisions of the BOE assessment appeals commission
falls under the UAPA). Tennessee Code Annotated section 4-5-322(h) states:

The court may affirm the decision of the agency or remand the case for
further proceedings. The court 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;

1
The remedy requested by Colonial was to classify its piping as personal property.
-3-
 (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.
(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.

The UAPA’s narrow standard of review for an administrative body’s factual
determinations “suggests that, unlike other civil appeals, the courts should be less confident
that their judgment is preferable to that of the agency.” Wayne Cnty. v. Tenn. Solid Waste
Disposal Control Bd., 756 S.W.2d 274, 279 (Tenn. Ct. App.1988). This court, like the trial
court, must apply the substantial and material evidence standard to the agency’s factual
findings. City of Memphis v. Civil Serv. Comm’n, 239 S.W.3d 202, 207 (Tenn. Ct. App.
2007); Bobbitt v. Shell, 115 S.W.3d 506, 509-10 (Tenn. Ct. App. 2003). With respect to
questions of law, our review is de novo with no presumption of correctness. Cnty. of Shelby
v. Tompkins, 241 S.W.3d 500, 505 (Tenn. Ct. App. 2007).

ANALYSIS

I. Construction of Tenn. Code Ann. § 67-5-501(10)(B)(iii).

The parties agree that the outcome of this case turns upon the proper construction
of Tenn. Code Ann. § 67-5-501(10)(B)(iii), which was enacted by Chapter 719 of the
Public Acts of 2004. Tennessee Code Annotated section 67-5-501(10)(B)(iii) (or “Chapter
719”) currently provides that, for purposes of the classification and assessment of property,
real property includes:

Mains, pipes, pipelines and tanks permitted or authorized to be built, laid or
placed in, upon, or under any public or private street or place for conducting
steam, heat, water, oil, electricity or any property, substance or product
capable of transportation or conveyance therein or that is protected thereby,
excluding propane tanks for residential use and above ground storage tanks
that can be moved without disassembly and are not affixed to the land[.]

The General Assembly added the final phrase concerning above ground storage tanks in
2006. See 2006 TENN. PUB. ACTS ch. 521.

Our Supreme Court set out guiding principles of statutory interpretation in Colonial
Pipeline Co. v. Morgan:

-4-
 Our chief concern is to carry out legislative intent without broadening or
restricting the statute beyond its intended scope. Houghton v. Aramark Educ.
Res., Inc., 90 S.W.3d 676, 678 (Tenn. 2002). In construing legislative
enactments, we presume that every word in a statute has meaning and
purpose and should be given full effect if the obvious intention of the General
Assembly is not violated by so doing. In re C.K.G., 173 S.W.3d 714, 722
(Tenn. 2005). When a statute is clear, we apply the plain meaning without
complicating the task. Eastman Chem. Co. v. Johnson, 151 S.W.3d 503, 507
(Tenn. 2004). Our obligation is simply to enforce the written language. Abels
ex rel. Hunt v. Genie Indus. Inc., 202 S.W.3d 99, 102 (Tenn. 2006). When a
statute is ambiguous, however, we may reference the broader statutory
scheme, the history of the legislation, or other sources. Parks v. Tenn. Mun.
League Risk Mgmt. Pool, 974 S.W.2d 677, 679 (Tenn. 1998). We presume
the General Assembly was aware of its prior enactments at the time it passed
the legislation. Owens v. State, 908 S.W.2d 923, 926 (Tenn. 1995).

Morgan, 263 S.W.3d at 836.

Colonial takes the position that Chapter 719 “applies to all piping capable of
conveying any substance that is ‘built, laid or placed in, upon or under’ land.” Under this
interpretation, Chapter 719 would cover locally assessed piping such as piping used in
manufacturing. Yet, as reflected in the evidence presented before the ALJ, locally assessed
piping is typically assessed as personal property based upon the application of the law of
fixtures. The key statutory phrase relied upon by the BOE is the reference to “pipelines
and tanks permitted or authorized to be built.” Tenn. Code Ann. § 67-5-501(10)(B)(iii)
(emphasis added). According to the BOE, the words “permitted or authorized” include
pipelines placed on or under property pursuant to easements: the easements permit or
authorize Colonial to build or place its pipeline under the property owner’s land. The BOE
asserts that pipes or pipelines placed by the property owners themselves—for example, at
a manufacturing plant—are not “permitted or authorized.”

We have concluded that the plain language and purpose of the statute support the
BOE’s interpretation of Chapter 719. The statute states that real property includes pipes
and pipelines “permitted or authorized to be built, laid or placed in, upon, or under any
public or private street or place for conducting” products including refined petroleum
products. Tenn. Code Ann. § 67-5-501(10)(B)(iii). Black’s Law Dictionary defines
“permit,” in pertinent part, to mean “[t]o consent to formally; to allow (something) to
happen, esp. by an official ruling, decision, or law.” BLACK’S LAW DICTIONARY (11th ed.
2019). “Authorize” means “[t]o give legal authority; to empower,” or “[t]o formally
approve; to sanction.” Id. These definitions include the concept of a formal sanction or
act of approval, which would include an easement.

-5-
 Piping installed on land owned in fee simple by the piping owner does not require
legal approval and thus does not fall within the plain meaning of the statutory language.
Colonial argues that the term “authorized” “is sufficiently broad in scope to encompass not
only personal or property legal rights such as a license, right of way or easement, but also
any other form of personal or property legal rights of a taxpayer, including ownership of
land in fee simple.” We disagree. If this were the meaning of the term “authorized,” the
term would be unnecessary; the word would have no qualifying effect because all pipes
and pipelines, no matter how they are placed, would be included in the definition of real
property.2

As our Supreme Court has recently stated, “In all cases involving statutory
construction, judges must look not only at ‘the language of the statute,’ but also ‘its subject
matter, the object and reach of the statute, the wrong or evil which it seeks to remedy or
prevent, and the purpose sought to be accomplished in its enactment.’” Coffee Cnty. Bd.
of Educ. v. City of Tullahoma, 574 S.W.3d 832, 845-46 (Tenn. 2019) (quoting Spires v.
Simpson, 539 S.W.3d 134, 143 (Tenn. 2017)). The circumstances surrounding the
enactment of Chapter 719, described by the Supreme Court in Colonial Pipeline v. Morgan,
reflect the purpose for its passage. See Morgan, 263 S.W.3d at 833-34. In ANR Pipeline
Co. v. TN Board of Equalization, Nos. M2001-01098-COA-R12-CV, M2001-01117-COA-
R12-CV, M2001-01119-COA-R12-CV, 2002 WL 31840689, at *2-4 (Tenn. Ct. App. Dec.
19, 2002), this court held that centrally assessed pipelines should be classified as personal
property under the existing statutory definitions and the common law of fixtures. On May
18, 2004, the General Assembly enacted Chapter 719 to amend Tenn. Code Ann. § 67-5-
501 to modify the definition of real property to include such pipeline property.3 Morgan,

2
Colonial also points to the use of the term “permitted or authorized” in Tenn. Code Ann. § 67-5-
501(10)(B)(i) concerning railroad property. The parties stipulated that railroad track property owned by
Class 1 railroads is uniformly classified by OSAP as real property, regardless of whether the railroad yard
is owned by the railroad in fee simple. As the ALJ pointed out, Colonial limited its equalization claim to
its centrally assessed pipeline property “located on another party’s property by license, right of way or
easement.” The company did not “make a straight-faced argument that pipeline or track on land they own
is tangible personal property.” The ALJ reasoned that, “The legislature had neither reason nor need to
codify the already commonly understood and completely non-controversial premises that pipeline on
Colonial’s own land is real property and that railroad tracks on railroad-owned land are real property.”
(Nonetheless, as the ALJ noted, we cannot ignore the “permitted or authorized” language.)
3
Because the statute is not ambiguous, we need not consult the legislative history. We note, however, that
the legislative history reflects that Chapter 719 was intended to overturn the holding of ANR Pipeline. A
sponsor of the legislation stated:

[F]or the last 25 years the structures that are buried in the ground, or towers and things of
that nature that are attached to the ground, have been assessed as real property. And there
was a law decision, a court case, the Court of Appeals ruled in favor of the pipelines to
change that to personal property. It has always been the intention of the assessments to
treat those as real property and this bill will clarify that intention, and it names all of the
different things that we think that’s a possibility of having court cases. There is no intention
-6-
263 S.W.3d at 834; see also Hermann Holtkamp Greenhouses, Inc. v. Metro. Nashville &
Davidson Cnty., No. M2009-00345-COA-R3-CV, 2010 WL 366697, at *8 n.12 (Tenn. Ct.
App. Feb. 2, 2010).

Citing the two statutory exclusions for “propane tanks for residential use and above
ground storage tanks that can be moved without disassembly and are not affixed to the
land,” Colonial emphasizes that the legislature did not exclude from the definition of real
property piping used in manufacturing or petroleum processing that conveys substances.
No exemption or exclusion is necessary, however, because, for the reasons discussed
above, the language of Chapter 719 does not include such piping.4

For the foregoing reasons, we conclude that the BOE correctly determined that
Tenn. Code Ann. § 67-5-501(10)(B)(iii) applies to the pipelines owned by Colonial but
does not apply to locally assessed piping used in the manufacturing or refining process.

II. “As applied” constitutional and equalization claims.

Colonial makes two arguments here: an equal protection challenge to Chapter 719
and a request for relief under the uniform taxation provisions of the Tennessee
Constitution.

Equal protection “does not require absolute equality from the State and its political
subdivisions,” Posey v. City of Memphis, 164 S.W.3d 575, 578-79 (Tenn. Ct. App. 2004),
but it does require “‘that persons similarly situated be treated alike,’” Osborn v. Marr, 127
S.W.3d 737, 741 (Tenn. 2004) (quoting Gallaher v. Elam, 104 S.W.3d 455, 461 (Tenn.
2003)). The determination of “‘what is “different” and what is “the same” resides in the
legislatures of the States, and legislatures are given considerable latitude in determining
what groups are different and what groups are the same.’” Tenn. Small Sch. Sys. v.
McWherter, 851 S.W.2d 139, 153 (Tenn. 1993) (quoting Doe v. Norris, 751 S.W.2d 834,
841 (Tenn. 1988) (other citation omitted)). Colonial asserts that the continued
“classification of locally assessed piping at the favorable ‘personal’ property class,
notwithstanding the clear and unambiguous language of Chapter 719, while the piping of
centrally assessed taxpayers like Colonial are classified at the unfavorable ‘real’ property

of the State or the Comptroller or the local governments to increase anyone or change
anyone from where they have been doing them for the past 25 years.

House Floor Session, 103rd General Assembly, 2nd Reg. Sess., Tape H-40 (Mar. 31, 2004) (statement of
Rep. Head).
4
The Tennessee Supreme Court has stated that, “[e]very word in a statute ‘is presumed to have meaning
and purpose, and should be given full effect if so doing does not violate the obvious intention of the
Legislature.’” Waters v. Farr, 291 S.W.3d 873, 881 (Tenn. 2009) (quoting In re C.K.G., 173 S.W.3d 714,
722 (Tenn. 2005)). In this instance, the intention of the legislature is not ambiguous and the exceptions or
exclusions in question are mere surplusage.
-7-
class” violates equal protection. As discussed above, however, the Board properly
interpreted the language of Chapter 719 as not applicable to most locally assessed piping,
which is not “permitted or authorized.” Colonial’s “as applied” equal protection challenge
to Chapter 719 rests upon a flawed understanding of the statute’s reach, and we find no
merit in the argument.

More significant is Colonial’s argument that, pursuant to Tenn. Code Ann. § 67-5-
1302(b)(1)5 and article 2, section 28 of the Tennessee Constitution, the company is entitled
to tax equalization relief. Colonial specifically requests that its “pipelines in the land of
another by easement or license” be reclassified as personal property. In 1972, article 2,
section 28 of the Tennessee Constitution was amended, in part, to include the following
provision:

The ratio of assessment to value of property in each class or subclass shall
be equal and uniform throughout the State, the value and definition of
property in each class or subclass to be ascertained in such manner as the
Legislature shall direct. Each respective taxing authority shall apply the same
tax rate to all property within its jurisdiction.

See also In re All Assessments, 58 S.W.3d at 97. The constitutional amendment divided
property for taxation purposes into “real property, tangible personal property and intangible
personal property” and subdivided tangible personal property into public utility property
(assessed at 55% of value), industrial and commercial property (assessed at 30% of value),
and all other tangible personal property (assessed at 5% of value). TENN. CONST. art. II, §
28; Tenn. Code Ann. § 67-5-901(a).

As Colonial points out, our Supreme Court determined in In re All Assessments6 that
the BOE has the authority to reduce the appraised (and assessed) value of centrally assessed

5
Tennessee Code Annotated section 67-5-1302(b)(1) states:

The assessments of public utility property or property of modern market
telecommunications providers, as set by the comptroller of the treasury in accordance with
subsection (a), shall be adjusted, where necessary, on the basis of appropriate ratios, as are
determined by the board of equalization for purposes of equalizing the values of such
property to the prevailing level of value of property in each jurisdiction; provided, that no
equalization factor for purposes of this section may exceed a factor of one (1.000).
6
In In re All Assessments, county taxing authorities challenged the BOE’s decision to reduce the value of
centrally assessed public utility tangible personal property by 15% to compensate for the effect of
depreciation tables for commercial and industrial tangible property that resulted in the undervaluing of
locally assessed industrial and commercial tangible personal property. In re All Assessments, 58 S.W.3d at
96. Our Supreme Court held that, under the 1972 amendments to article 2, section 28 of the Tennessee
Constitution, the BOE has the legal authority to make such reductions in the assessed value of centrally
assessed public utility tangible personal property in order to equalize “the ratio of the appraised value to
-8-
public utility property as part of the equalization process. In re All Assessments, 58 S.W.3d
at 95; see also Tenn. Code Ann. § 67-5-1509(b). To support its argument for equalization
relief, Colonial cites statements made by the chancery court in its memorandum and final
order denying the company’s facial constitutional challenge. The chancellor did not,
however, reach the “as applied” constitutional issues, which were expressly reserved for
the BOE’s consideration. At the administrative hearing, the examples of locally assessed
piping7 presented by Colonial did not involve piping placed pursuant to permission or
authorization. Colonial argues that it is entitled to equalization “provided that Chapter 719
is applicable to all piping capable of conveying any substance, whether centrally or locally
assessed.” In its final order, the BOE adopted the finding of the ALJ that “whether locally
assessed commercial and industrial pipe is correctly classified as real property or personal
property requires a case-by-case analysis and application of the law of fixtures to the
relevant facts.” We agree with the conclusion of the BOE. As previously discussed,
Chapter 719 does not generally apply to locally assessed piping because that piping is on
the owner’s property.

III. Deposition errata

Colonial’s final argument is that the ALJ “should have completely disregarded” the
deposition errata sheet of Greg Moody in making his decision. For the reasons discussed
below, we find no error.

As part of his initial decision and order dismissing Colonial’s appeal, the ALJ
incorporated several attachments. The attachment at issue here, attachment B, includes a
detailed summary of the facts and includes the following statement:

DPA [Division of Property Assessment] employee Greg Moody testified that
locally assessed pipeline is assessed as commercial and industrial tangible
personal property. On the errata sheet to the deposition, Moody added the
qualified, “unless [it is] classified as real property.”

In a footnote to this statement, the ALJ noted: “Because Colonial’s interpretation of Tenn.
Code Ann. § 67-5-501(10)(B)(iii) is wrong, there is no need to resolve the question of

fair market value of public utility property in any particular county with the corresponding ratio for
industrial and commercial property in that county.” Id. at 102. The present case does not involve a disparity
in the assessment of centrally assessed and locally assessed property within a classification, such as real
property or tangible personal property. Rather, Colonial asserts that Chapter 719 has not been applied
equally to centrally assessed and locally assessed taxpayers and, as discussed in this opinion, that argument
is without merit. By its terms, Chapter 719 does not apply to most locally assessed taxpayer pipes.
7
The main examples were a manufacturer piping paint from one part of its building to a robotic painter; a
gas station’s piping covering a short distance from its tanks to its pumps; petroleum storage facilities using
piping to transport the product from one part of a facility to another.
-9-
whether the errata sheet qualifier was a substantive change and/or the question of whether
the errata sheet qualifier was appropriate.” Pursuant to Tenn. R. App. P. 36(b), an error is
not grounds for reversal unless it “more probably than not affected the judgment.” The
ALJ’s footnote indicates that the deposition errata sheet did not affect the ALJ’s decision
to deny Colonial’s appeal.

CONCLUSION

The judgment of the Board of Equalization is affirmed. Costs of this appeal are
assessed against the appellant, Colonial Pipeline Company, for which execution may issue
if necessary.

_/s/Andy D. Bennett________________
ANDY D. BENNETT, JUDGE

- 10 -