In 2017, was Tennessee's bill letting assessors presume mobile homes attached to real property are residential constitutional?

Plain-English summary

HB 768/SB 907 would have amended Tenn. Code Ann. § 67-5-801(c)(2) to add: "When a mobile home attached to real property as described in [§] 67-5-802 is used as a residence, the assessor of property may presume the classification is residential." The Comptroller asked whether this conformed to Article II, Section 28 of the Tennessee Constitution and to Tennessee case law.

The constitution defines "residential property containing two (2) or more rental units" as industrial and commercial property. So an assessor's presumption that an attached mobile home used as a residence is residential cannot override that constitutional rule when the mobile home is one of two or more rental units. The bill is fine as applied to single-unit cases; it is unconstitutional as applied to two-or-more-rental-unit cases. Williams v. Carr, 218 Tenn. 564 (1966), confirms that the constitution prevails over conflicting statutory definitions.

The case law (Snow v. Memphis, Castlewood, and Spring Hill) is consistent. Properties with two or more rental units are income-producing and must be classified commercial. As long as assessors apply the presumption only to property with no more than one rental unit, the proposed legislation lines up with both the constitution and existing case law.

Currency note

This opinion was issued in 2017. 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 mentioned here.

Background and statutory framework

Tennessee's property tax framework has four constitutional subclasses with different assessment ratios. Residential gets 25%; industrial and commercial gets 40%. The constitution then carves out: "residential property containing two (2) or more rental units" is treated as industrial and commercial. That keeps multi-unit rental property at the higher rate even though it would otherwise look residential.

The proposed legislation would have created an assessor presumption that an attached mobile home used as a residence is residential. The presumption is fine for owner-occupied mobile homes and single-tenant rentals. It conflicts with the constitution for multi-unit rental properties because the constitution forecloses residential classification there.

Snow v. Memphis (1975) upheld the constitutional treatment of multi-rental-unit property as industrial and commercial, calling the purpose "to tax income-producing property at a higher rate than owner-occupied residences and farms." Castlewood, Inc. v. Anderson County (1998) applied this to 80 condominium rental units. Spring Hill, L.P. v. Tennessee State Board of Equalization (2003) reached the same result for 44 single-family rental homes in one subdivision.

The AG's resolution is straightforward. The bill's text says the assessor "may presume" the classification is residential, not "shall." So an assessor administering the statute consistently with the constitution would not apply the presumption to multi-rental-unit mobile home parks. The bill is constitutional as long as the practical administration respects the constitutional ceiling.

Common questions

Q: Can an assessor presume an attached mobile home is residential for tax purposes?
A: Under this opinion's reading of HB 768/SB 907, yes, as long as the property has no more than one rental unit. The presumption cannot apply to mobile home parks with multiple rental units.

Q: What if a mobile home park has two or more rental units?
A: The Tennessee Constitution requires it to be classified as industrial and commercial property. The bill's presumption does not override that rule.

Q: Does this apply to owner-occupied mobile homes?
A: Yes. Owner-occupied mobile homes are single-residence cases and would qualify for residential treatment.

Q: What's "industrial and commercial property" here?
A: A residential rental property with two or more units is treated as industrial and commercial for tax-rate purposes only, with an assessment ratio of 40% instead of 25%.

Q: Why does the constitution treat multi-unit rentals differently?
A: The Tennessee Supreme Court in Snow v. Memphis described the purpose as taxing income-producing property at a higher rate than owner-occupied residences and farms.

Citations and references

Constitution and statutes:

• Tenn. Const. art. II, § 28
• Tenn. Code Ann. § 67-5-801, § 67-5-801(c)(2), § 67-5-802

Cases:

• Williams v. Carr, 218 Tenn. 564, 404 S.W.2d 522 (1966)
• Snow v. Memphis, 527 S.W.2d 55 (Tenn. 1975)
• Castlewood, Inc. v. Anderson County, 969 S.W.2d 908 (Tenn. 1998)
• Spring Hill, L.P. v. Tennessee State Board of Equalization, 2003 WL 23099679 (Tenn. Ct. App. Dec. 31, 2003)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2017/op17-032.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
April 21, 2017
Opinion No. 17-32
Legality of Proposed Legislation Related to the Property Tax Classification of Mobile Homes

Question 1
Does House Bill 768/Senate Bill 907, 110th Tenn. Gen. Assem. (2017), as amended, conform to the provision of article II, section 28, of the Tennessee Constitution that "residential property containing two (2) or more rental units is hereby defined as industrial and commercial property"?

Opinion 1
House Bill 768/Senate Bill 907 conforms to article II, section 28, insofar as the proposed legislation would apply to property with no more than one rental unit. The proposed legislation would violate article II, section 28, if it were applied to residential property containing two or more rental units.

Question 2
Does House Bill 768/Senate Bill 907, 110th Tenn. Gen. Assem. (2017), as amended, conform to Tennessee case law, such as Snow v. Memphis, 527 S.W.2d 55 (Tenn. 1975), Castlewood, Inc. v. Anderson County, 969 S.W.2d 908 (Tenn. 1998), and Spring Hill, L.P. v. Tennessee State Board of Equalization, No. M2001-02683-COA-R3-CV, 2003 WL 23099679 (Tenn. Ct. App. Dec. 31, 2003)?

Opinion 2
As long as assessors of property apply the presumption that would be created by the proposed legislation only to property with no more than one rental unit, HB 768/SB 907 conforms to existing case law.

ANALYSIS

Article II, section 28, of the Tennessee Constitution provides, in part, that "Residential Property" is "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." Article II, section 28, also requires "the value and definition of property in each class or subclass to be ascertained in such a manner as the Legislature shall direct."

Tennessee Code Annotated § 67-5-801 contains the Legislature's directives regarding the classification and rate of assessment for real property. House Bill 768/Senate Bill 907, 110th Tenn. Gen. Assem. (2017), would amend § 67-5-801(c)(2), which sets the rate for industrial and commercial property, to add: "When a mobile home attached to real property as described in [Tenn. Code Ann.] § 67-5-802 is used as a residence, the assessor of property may presume the classification is residential."

The Constitution requires that residential property containing two or more rental units be treated as industrial and commercial property for tax purposes. The proposed legislation classifies as residential a mobile home that is used as a residence and is attached to real property. There is, thus, a potential for conflict between the Constitution and the proposed legislation, depending on the particular facts in a given instance. For example, if the mobile home that is being used as a residence is one of two or more rental units attached to the real property, the Constitution would require it to be classified as industrial and commercial, while HB 768/SB 907 would appear to allow it to be treated as residential. On the other hand, if the mobile home that is being used as a residence is not one of two or more rental units, then no such conflict arises.

To the extent that there is a conflict between the Legislature's definition of property within a class or subclass and the Constitution's delineation of property classes and subclasses, the Constitution's requirements must prevail. See Williams v. Carr, 218 Tenn. 564, 404 S.W.2d 522, 529 (1966). Therefore, the presumption of "residential" classification created by the proposed legislation could not be applied when the Constitution would require a given mobile home to be classified as "industrial and commercial."

Tennessee case law likewise indicates that, to be consistent with article II, section 28, the presumption created by HB 768/SB 907 could be applied only to property with no more than one rental unit. Cases analyzing article II, section 28, affirm that a property containing two or more rental units must be classified as industrial and commercial. Snow v. Memphis involved an equal-protection challenge to the language in article II, section 28, that addresses residential property containing two or more rental units. Snow v. Memphis, 527 S.W.2d 55, 64 (Tenn. 1975). The Supreme Court upheld the classification, opining: "The purpose and objective of [the classification] is to tax income-producing property at a higher rate than owner-occupied residences and farms. That such classification is constitutionally permissible is beyond question." Id. at 66. Relying on Snow, the Court made clear that 80 condominium rental units were income-producing property and thus properly classified as commercial under the Tennessee Constitution. Castlewood, Inc. v. Anderson County, 969 S.W.2d 908, 909-10 (Tenn. 1998). More recently, the Court of Appeals dealt with a taxpayer challenge to the commercial classification of 44 single-family residences in one multi-unit subdivision. Spring Hill, L.P. v. Tennessee State Board of Equalization, M2001-02683-COA-R2-CV, 2003 WL 23099679 (Tenn. Ct. App. Dec. 31, 2003). Because the residences were not "separate residential property" but "instead commercial rental units," the Court of Appeals — relying upon both Snow and Castlewood — ruled that the residences were properly classified as commercial. Id. at 17-18.

Thus, as long as assessors of property apply the presumption that would be created by the proposed legislation only to property with no more than one rental unit, HB 768/SB 907 will conform to existing case law.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

JAMES P. URBAN
Assistant Attorney General

Requested by:
The Honorable Justin P. Wilson
Comptroller of the Treasury
State Capitol
Nashville, TN 37243-9034