Does a convention center owned by a city-created nonprofit qualify as a 'government-owned convention center' for hotel-tax exemption purposes?

Subject

Opinion No. 14-04, Government-Owned Convention Centers, January 9, 2014

Plain-English summary

Senator Bo Watson asked whether a convention center owned by a nonprofit corporation that a local government created under the Convention Center Authorities Act of 2009 counts as a "government-owned convention center" for purposes of Tenn. Code Ann. § 67-4-1425(c)(2). That exception, in turn, controls when a county can levy hotel-occupancy taxes by private act.

The AG said yes. The Convention Center Authorities Act, codified at Tenn. Code Ann. §§ 7-89-101 et seq., expressly declares that each authority "shall be a public nonprofit corporation and a public instrumentality" of the municipality with respect to which it is organized. The authority performs "a public function on behalf of the municipality." Net earnings flow to the municipality, and on dissolution, all of the authority's assets and property vest in the municipality. The statute even exempts the authority's property and income from state taxation. Those features are the structural signature of a municipal instrumentality, not an independent third-party entity.

The AG bolstered this with case law. Garner v. Blount County, 2000 WL 116026 (Tenn. Ct. App. Jan. 28, 2000), held that a Public Building Authority created under the materially similar Public Building Authorities Act of 1971 was an "arm of government" rather than a separate independent entity, despite being formally a separate nonprofit corporation. The Tennessee Supreme Court reached the same conclusion in Fort Sanders Presbyterian Hospital v. Health and Educational Facilities Board, 453 S.W.2d 771 (Tenn. 1970), and West v. Industrial Development Board, 332 S.W.2d 201 (Tenn. 1960). The Convention Center Authorities Act has the same structural DNA as the Public Building Authorities Act, so the same conclusion follows: the convention-center authority is an arm of the municipality, and its property is "government-owned" for § 67-4-1425(c)(2) purposes.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The Convention Center Authorities Act of 2009. Tenn. Code Ann. §§ 7-89-101 et seq. lets municipalities create local convention-center authorities to "plan, promote, finance, construct, acquire, renovate, equip and enlarge convention center facilities." § 7-89-102(b). Each authority is a "public nonprofit corporation" and a "public instrumentality" of the organizing municipality. §§ 7-89-109, -113.

Structural indicators of an arm of government.

• The authority performs a public function "on behalf of the municipality." § 7-89-113.
• Net earnings must be paid to the organizing municipality. § 7-89-118.
• All authority property and bond income are exempt from state taxation. § 7-89-113.
• Upon dissolution, title to all funds and property vests in the organizing municipality. § 7-89-119.

The hotel-tax statute, § 67-4-1425. Imposes limits on counties' ability to levy hotel-occupancy taxes by private act. § 67-4-1425(a)(1)-(3) sets those general limits. § 67-4-1425(c) carves out exceptions, including one for counties that:

(1) contain or border a county with a regular commercial-service airport designated in the ICAO regional air navigation plan, and
(2) contain a government-owned convention center of at least 50,000 square feet with an attached, adjoining, or adjacent hotel or motel facility; or
(3) contain an airport with regularly scheduled commercial passenger service where the creating municipality of the metropolitan airport authority is not in such county. Hotel taxes levied by cities within such counties must be used for tourism as defined in § 7-4-101.

The interpretive question. When the legislature said "government-owned," did it mean only property held in the municipality's own corporate name, or did it include property held by a municipal instrumentality like a convention-center authority? The AG read it inclusively.

The Garner analogy. Garner v. Blount County, 2000 WL 116026, addressed whether a Public Building Authority of Blount County (a nonprofit created under the Public Building Authorities Act of 1971) was an independent entity or an agency of the County for a contract-dispute purpose. The Court of Appeals examined the authority's stated purposes alongside the Public Building Authorities Act and found it was a "division or arm of the government," even though formally a separate corporation. The court adopted the term "agency" to mean a division or arm of government, not a principal-agent relationship.

Garner's supporting cases. Fort Sanders Presbyterian Hospital held that the Health and Educational Facilities Board of Knox County, organized as a nonprofit public corporation, was "merely an agency or instrumentality of Knox County." West v. Industrial Development Board held that a similar industrial development board was "a mere agency or instrumentality of the municipality." Johnson v. Chattanooga-Hamilton County Hospital Authority held that a hospital authority was a "subdivision of the state and county" for workers' compensation purposes.

Why the Public Building Authorities Act analogy fits. Compare § 12-10-102 (purposes) with § 7-89-102 (purposes); § 12-10-118 (no benefit to private individuals) with § 7-89-118 (same); § 12-10-119 (dissolution vests property in municipality) with § 7-89-119 (same). The two statutes are structural twins.

Common questions

Why does it matter whether a convention center is "government-owned"?

Because § 67-4-1425(c)(2) is one of the gates for the hotel-occupancy-tax exception. If the county has a government-owned convention center of at least 50,000 square feet with an attached hotel, and it borders or contains an ICAO-listed commercial airport, the county can levy hotel occupancy taxes by private act in ways the general statute otherwise restricts.

Does this opinion mean the county can immediately impose a new hotel tax?

No. It means a convention center held by a city-created nonprofit authority satisfies the "government-owned" element of § 67-4-1425(c)(2). The other elements (size threshold, attached hotel, airport in or bordering the county, etc.) still need to be satisfied.

Could a privately-owned convention center qualify?

Not under § 67-4-1425(c)(2)'s "government-owned" element. The opinion does not address other provisions.

Does this apply to building authorities other than convention-center authorities?

The opinion focuses on the Convention Center Authorities Act. Public Building Authorities and similar bodies are arms of their municipalities under Garner, but whether they meet § 67-4-1425(c)(2)'s "convention center" definition is a separate question.

What if the convention-center authority's property is later sold to a private buyer?

The opinion does not address transfers of authority property. It holds only that a convention center owned by a city-created authority counts as government-owned; what happens to the analysis if such property changes hands is outside its scope.

Citations

Statutory: Tenn. Code Ann. § 7-89-101 et seq.; § 7-89-102; § 7-89-102(b); § 7-89-109; § 7-89-113; § 7-89-118; § 7-89-119; § 12-10-101 et seq.; § 12-10-102; § 12-10-109(a); § 12-10-113(a); § 12-10-118; § 12-10-119; § 67-4-1425; § 67-4-1425(a)(1)-(3); § 67-4-1425(c); § 67-4-1425(c)(2); § 7-4-101. Cases: Garner v. Blount County and the Public Bldg. Auth. of Blount County, No. E1999-02525-COA-R3-CV, 2000 WL 116026 (Tenn. Ct. App. Jan. 28, 2000); Fort Sanders Presbyterian Hospital v. Health and Educational Facilities Board, 453 S.W.2d 771 (Tenn. 1970); West v. Industrial Development Board, 332 S.W.2d 201 (Tenn. 1960); Johnson v. Chattanooga-Hamilton County Hospital Authority, 749 S.W.2d 36 (Tenn. 1988). Reference: Black's Law Dictionary 814 (8th ed. 2004) (definition of "instrumentality").

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2014/op14-004.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL

January 9, 2014

Opinion No. 14-04

Government-Owned Convention Centers

QUESTION

Is a convention center owned by a nonprofit organization that is created by a government entity considered a "government-owned convention center" within the meaning of Tenn. Code Ann. § 67-4-1425(c)(2)?

OPINION

Yes. Tenn. Code Ann. §§ 7-89-101 et seq. allows municipalities to create public nonprofit corporations for the purpose of owning, operating, promoting, and maintaining convention center facilities. These corporations operate as an instrumentality and solely for the benefit of the organizing municipality. Tenn. Code Ann. § 7-89-109. Any convention center owned by such a nonprofit corporation would be considered a government-owned convention center within the meaning of Tenn. Code Ann. § 67-4-1425(c)(2).

ANALYSIS

The Convention Center Authorities Act of 2009, Tenn. Code Ann. §§ 7-89-101 et seq. (the "Act"), deals with the establishment of local convention center authorities "to plan, promote, finance, construct, acquire, renovate, equip and enlarge convention center facilities." Tenn. Code Ann. § 7-89-102(b). Convention center authorities are public nonprofit corporations. Tenn. Code Ann. §§ 7-89-109, -118.

Tenn. Code Ann. § 67-4-1425 imposes limitations on the ability of local governments to levy occupancy taxes on hotels within their jurisdictional boundaries pursuant to a private act. See Tenn. Code Ann. §§ 67-4-1425(a)(1)-(3). However, the statute contains exceptions to its provisions, including the following:

This section does not apply in any county, excluding any county with a metropolitan form of government, that:

(1) Contains or borders a county that contains an airport designated as a regular commercial service airport in the international civil aviation organization (ICAO) regional air navigation plan; and

(2) Contains a government-owned convention center of at least fifty thousand square feet (50,000 sq. ft.) with an attached, adjoining, or adjacent hotel or motel facility; or

(3) Contains an airport with regularly scheduled commercial passenger service, and the creating municipality of the metropolitan airport authority for the airport is not located within such county. The tax levied on occupancy of hotels by cities located within such a county may only be used for tourism as defined by § 7-4-101.

Tenn. Code Ann. § 67-4-1425(c) (emphasis added).

The instant question is whether a convention center owned by a nonprofit corporation that is created by a local municipality in accordance with the Convention Center Authorities Act of 2009 should be considered a government-owned convention center for purposes of the exception found in Tenn. Code Ann. § 67-4-1425(c).

Tenn. Code Ann. § 7-89-109 provides that "each convention center authority created pursuant to this chapter shall be a public nonprofit corporation and a public instrumentality of the municipality with respect to which the authority is organized." The statute specifically declares the authority "to be performing a public function on behalf of the municipality with respect to which it is organized and to be a public instrumentality of the municipality." Tenn. Code Ann. § 7-89-113. The public corporation does not operate for the benefit for any private individual or entity, and any net earnings must be paid to the organizing municipality. Tenn. Code Ann. § 7-89-118. Because the General Assembly has declared that the convention center authority is performing a public function on behalf of the municipality, "the authority and all properties at any time owned by it and the income from the properties and all bonds issued by the authority and the income from the bonds, shall be exempt from all taxation in the state." Tenn. Code Ann. § 7-89-113. While the authority may own property, upon dissolution of the authority, title to all funds and properties vests with the organizing municipality. Tenn. Code Ann. § 7-89-119.

The Act does not define the term "instrumentality." However, the Black's Law Dictionary definition of that term includes "a means or agency through which a function of another entity is accomplished." Black's Law Dictionary 814 (8th ed. 2004).

While no appellate court has addressed the question posed here, a number of cases provide guidance. In one such case, Garner, et al., v. Blount County and the Public Bldg. Auth. of Blount County, No. E1999-02525-COA-R3-CV, 2000 WL 116026 (Tenn. Ct. App. Jan. 28, 2000), the Tennessee Court of Appeals considered whether the Public Building Authority of Blount County, a separate nonprofit entity created by a municipality under the Public Building Authorities Act of 1971, was an independent corporate entity or an agency or instrumentality of its municipality for purposes of a contract dispute. The Court of Appeals concluded in that case that, although the building authority was created as a separate corporate entity, it was nevertheless an agency of Blount County. In so ruling, the court examined the authority's stated purpose in conjunction with the language of the Public Building Authorities Act.

[The Authority's] Certificate of Incorporation states that the purposes of the Authority are "to make possible the construction, acquisition or enlargement of public buildings, structures and facilities to be made available for the use by the County . . . ." The Public Building Authorities Act clearly contemplates that an authority will be "a public instrumentality of the municipality," T.C.A. § 12-10-109(a), and that the Authority will perform "a public function in behalf of the municipality with respect to which it is organized . . . ." T.C.A. § 12-10-113(a).

Garner, 2000 WL 116026, at *3.

"[C]onsidering the purpose and context of the statute," the court thus determined that the Authority was a "division or arm of the government." Id. The court further noted decisions in cases under analogous circumstances, which supported its conclusion:

[T]he Supreme Court found that the "Health and Educational Facilities Board of the County of Knox," a board organized as a non-profit, public corporation, was an agency or instrumentality of Knox County. Fort Sanders Presbyterian Hosp. v. Health and Educ. Facilities Bd., 453 S.W.2d 771, 774 (Tenn. 1970) ("The Health and Educational Facilities Board, while it is a separate corporate entity, is merely an agency or instrumentality of Knox County . . . ."); West v. Industrial Development Bd., 332 S.W.2d 201, 202 (Tenn. 1960) ("Even though the Industrial Board is a separate corporate entity, the pleadings show that it is a mere agency or instrumentality of the municipality."); see also Johnson v. Chattanooga-Hamilton County Hosp. Auth., 749 S.W.2d 36, 37 (Tenn. 1988) (holding that hospital authority was a "subdivision of the state and county" for the purposes of workers' compensation law).

Id.

The Convention Center Authorities Act of 2009 is similar to the Public Buildings Authority Act of 1971 in a number of respects, including the creation by a municipality of a public nonprofit corporation for the express purpose of serving a public interest, the prohibition that the corporation does not operate for the benefit of any private individual or entity but rather for the sole benefit of the municipality, and the requirement that upon dissolution of the corporation all funds and properties of the corporation shall vest with the organizing municipality. Compare Tenn. Code Ann. §§ 12-10-102, -118, -119 with Tenn. Code Ann. §§ 7-89-102, -118, -119. Given the similarities between the two acts and the reasoning of the above-cited decisions, a court would likely find that a public nonprofit corporation created under the Convention Center Authorities Act of 2009 is an "arm of the government" for which the corporation was created. Thus, a convention center owned by such a corporation should be considered a government-owned convention center for purposes of the exception found in Tenn. Code Ann. § 67-4-1425(c).

ROBERT E. COOPER, JR.
Attorney General and Reporter

JENNIFER L. SMITH
Deputy Attorney General

BRIAN J. RAMMING
Assistant Attorney General

Requested by:

The Honorable Bo Watson
Speaker Pro Tempore of the Senate
13 Legislative Plaza
Nashville, TN 37243-0211