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:

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Terms Used In Tennessee Code 7-39-404

  • Assessment ratio in effect: means that assessment ratio being applied by the comptroller of the treasury in assessing gas system property of private gas corporations for ad valorem taxation or, if such assessment function ceases to be performed by the comptroller of the treasury, that assessment ratio applied by any authorized department, agency, or official of the state empowered to so apply such an assessment ratio in assessing gas system property. See Tennessee Code 7-39-403
  • Code: includes the Tennessee Code and all amendments and revisions to the code and all additions and supplements to the code. See Tennessee Code 1-3-105
  • Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
  • Fiscal year: means the year beginning July 1 of each calendar year. See Tennessee Code 7-39-403
  • Gas operations: means all activities associated with the establishment, development, and administration of a gas system and the business of supplying gas and associated services to the public, including, but not limited to, the generation, purchase, and sale of gas energy and the purchase, use, and consumption of gas energy by ultimate consumers. See Tennessee Code 7-39-403
  • Gas system: means all tangible and intangible property and resources of every kind and description used or held for use in the purchase, generation, transmission, distribution, and sale of gas energy. See Tennessee Code 7-39-403
  • Governing body: means , with respect to a municipality that is an associated municipality of, or purchaser of gas from, an acquisition corporation established to exercise the powers described in this chapter with respect to natural gas and natural gas substitutes, any board, commission or other instrumentality of such municipality having jurisdiction, control and management of the gas distribution system of that municipality, and, with respect to a municipality that is an associated municipality of, or purchaser of electrical power from, an acquisition corporation established to exercise the powers described in this chapter with respect to electrical power, any board, commission or other instrumentality of such municipality having jurisdiction, control and management of the electrical power distribution system of that municipality. See Tennessee Code 7-39-102
  • Jurisdiction: (1) The legal authority of a court to hear and decide a case. Concurrent jurisdiction exists when two courts have simultaneous responsibility for the same case. (2) The geographic area over which the court has authority to decide cases.
  • Municipality: means any incorporated city or town, metropolitan government, or county that now or hereafter owns and operates a gas system. See Tennessee Code 7-39-403
  • Private act: includes , without limitation, the charter and any amendments to the charter of any home rule municipality or any metropolitan government. See Tennessee Code 7-39-403
  • Property: includes both personal and real property. See Tennessee Code 1-3-105
  • State: when applied to the different parts of the United States, includes the District of Columbia and the several territories of the United States. See Tennessee Code 1-3-105
  • Supervisory body: means any board or other agency of a municipality established to supervise the management and operation of its gas system and operations, or, in the absence of a board or other agency, the governing body of the municipality. See Tennessee Code 7-39-403
  • Taxing jurisdiction: means any county, incorporated city or town, or metropolitan government in Tennessee having the power to levy taxes, or any special taxing district in Tennessee on behalf of which ad valorem property taxes may be levied, for the support of governmental and related activities and services. See Tennessee Code 7-39-403
  • Year: means a calendar year, unless otherwise expressed. See Tennessee Code 1-3-105
(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.
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