Real Property

Reference Number: CTAS-1470

Real property, except vacant or unused property or property held for use, is classified according to use and assessed as a percentage of its value as follows:

Public Utility—55 percent
Industrial and Commercial—40 percent
Residential—25 percent
Farm Property—25 percent

If a parcel of real property is used for more than one purpose so that different assessment subclassifications and percentages apply, the tax is apportioned among the subclasses according to guidelines established by the State Board of Equalization.¹If a parcel of real property is vacant, unused, or held for use, it is classified according to its immediate most suitable economic use, after considering several factors.²Real property not within any other definition and classification above is classified and assessed as farm or residential property.³"For property tax purposes, value attaches to the property itself, not to the interest of the current party in possession."⁴A leasehold is considered real property and is taxable as such.⁵The interest of a lessee is distinct from the fee, and may, under certain circumstances, be taxed when the fee is exempt from taxation.⁶

Mobile homes used for commercial, industrial, or residential purposes are assessed as real property improvements to land.⁷If the mobile home is on a rented lot, the owner of the mobile home is responsible for the additional property tax imposed because of the improvement. The owner of the land actually pays the tax and has a first lien against the mobile home to secure payment of the property tax from the mobile home owner.⁸However, the county has a lien against the real property itself in case of delinquent taxes on the mobile home, and may include the real property in a tax sale to satisfy the delinquency.⁹

Perfection in the classification system for the ad valorem tax is rarely attainable. Indeed, taxing real property containing two or more rental units based on 40 percent of its value as industrial and commercial property while taxing real property containing one rental unit based on 25 percent of its value as residential property has been constitutionally upheld as a reasonable classification even though some discrimination exists.¹⁰Even though the legislature has discretion in classifying property, a reasonable basis must be established which may not be arbitrary or capricious.¹¹

¹T.C.A. § 67-5-801(a), (b).

²T.C.A. § 67-5-801(c)(1).

³T.C.A. § 67-5-801(c)(2).

⁴Hoover v. State Bd. of Equalization, 579 S.W.2d 192, 195 (Tenn. Ct. App. 1978).

⁵United States v. Metropolitan Gov’t, 808 F.2d 1205, 1208-1209 (6th Cir. 1987); T.C.A. § 67-5-502(d).

⁶Jeston v. University of the South, 208 U.S. 489, 500, 28 S.Ct. 375, 377 (1908); University of the South v. Franklin Co., 506 S.W.2d 779, 784 (Tenn.Ct.App. 1973); T.C.A. § 67-5-605.

⁷Tenn. Const., art. II, § 28; T.C.A. § 67-5-802.

⁸Belle-Aire Village, Inc. v. Ghorley, 574 S.W.2d 723, 725 (Tenn. 1978); T.C.A. § 67-5-802.

⁹Op. Tenn. Atty Gen. 95-071 (July 5, 1995).

¹⁰Snow v. City of Memphis, 527 S.W.2d 55, 64-66 (Tenn. 1975), appeal dismissed, 423 U.S. 1083, reh. den., 424 U. S. 979 (1976).

¹¹General Am. Transp. Corp. v. State Bd. of Equalization, 536 S.W.2d 212, 214 (Tenn. 1976).