                IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                 April 16, 2010 Session

 TECO BARGE LINE, INC. , N/K/A U. S. UNITED BARGE LINE, LLC v.
JUSTIN P. WILSON, TENNESSEE COMPTROLLER OF THE TREASURY,
                             ET AL.

               Appeal from the Tennessee State Board of Equalization
                         Assessment Appeals Commission
                         Kelsie Jones, Executive Secretary


                 No. M2009-01675-COA-R12-CV - Filed July 9, 2010


Taxpayer, an interstate water transportation carrier company operating boats and barges over
various waterways including the Mississippi and Tennessee Rivers, was assessed an ad
valorem tax on personal property for the tax year 2005. Taxpayer appealed the assessment
to the State Board of Equalization. Following the filing of Taxpayer’s appeal, Taxpayer was
retroactively assessed for the two tax years immediately preceding the original assessment,
2003 and 2004. Taxpayer appealed these assessments as well as assessments in subsequent
tax years 2006, 2007 and 2008. A hearing was held before an Administrative Law Judge,
who upheld both the regular as well as the retroactive assessments. Taxpayer appealed to the
State Board of Equalization Assessment Appeals Commission and, following a hearing, the
Commission affirmed the ALJ’s decision. Taxpayer appeals; we affirm in part and reverse
in part.

 Tenn. R. App. P. 12 Direct Review of Administrative Proceedings by the Court of
   Appeals; Judgment of the Tennessee State Board of Equalization Assessment
            Appeals Commission Affirmed in Part, Reversed in Part

R ICHARD H. D INKINS, J., delivered the opinion of the court, in which F RANK G. C LEMENT,
J R. and ANDY D. BENNETT, JJ., joined.

Everett B. Gibson and Joni K. Roberts, Memphis, Tennessee, for the appellant, TECO Barge
Line, Inc. n/k/a U.S. United Barge Line, LLC.

Robert E. Cooper, Jr., Attorney General and Reporter, Michael E. Moore, Solicitor General,
Mary Ellen Knack, Senior Counsel, for the appellees, Tennessee Comptroller of the Treasury
and the Assessment Appeals Commission of the State Board of Equalization.
                                               OPINION

I. Background

       The Appellant, TECO Barge Line, Inc. n/k/a U.S. United Barge Line, LLC
(“United”),1 is a water transportation carrier company registered with the U.S. Army Corps
of Engineers that owns and operates tugboats and barges for hire over waterways throughout
the central and southeastern portions of the United States. United’s barges mostly carry coal,
grain, aggregate grain and steel over the Ohio, Illinois and Mississippi Rivers. Within
Tennessee, the majority of United’s boats and barges traverse the Mississippi River, though
it regularly utilizes the Tennessee River for its barges traveling between Alabama and
Kentucky. United is not domiciled in Tennessee nor does it own or lease any real property
in Tennessee.

       In 2000 and 2002, the Office of State Assessed Properties (“OSAP”), a division of the
Tennessee Comptroller of the Treasury, sent an ad valorem tax report questionnaire to United
to determine United’s tax liability. United completed and returned the questionnaires each
year, but OSAP did not assess any tax in those years. In 2005, OSAP again required United
to complete an ad valorem tax report questionnaire and in July 2005, OSAP issued a notice
assessing an ad valorem personal property tax for the 2005 tax year.2 United appealed the
assessment to the Tennessee State Board of Equalization.3 In August 2006, OSAP assessed
United for the tax year 2006 and retroactively assessed or “back assessed” United for tax
years 2003 and 2004. United also appealed these assessments, which were then consolidated
with United’s appeal of the 2005 assessment.

       In January 2008, a hearing was conducted by an Administrative Law Judge to consider
United’s appeal of the 2005 and 2006 assessments as well as the 2003 and 2004 back
assessments. The ALJ determined that United was subject to taxation under Tenn. Code
Ann. § 67-5-1301 because it is a water transportation carrier company that operates boats and
barges over the waterways of Tennessee for hire that is also registered with the U.S. Army
Corps of Engineers; consequently, the ALJ upheld the tax assessments for 2005 and 2006.


        1
           In the Fall of 2007, U.S. United Barge Line, LLC, acquired all of the assets of TECO Barge Line,
Inc., including its rights of appeal in this case. Prior to 2002, TECO Barge Line, Inc., was named Mid-South
Towing Company, Inc., which was changed by charter amendment in 2002.
        2
          The notice was not received by United because it was directed to the incorrect zip code; United
learned of the assessment through a conversation with an OSAP analyst on September 28, 2005.
        3
           Despite being untimely under the statute, United requested in letter to the Board of Equalization
on October 24, 2005, that the Board defer “certification” of the assessment and allow United’s appeal due
to fact that United did not receive proper notice of the assessment. Although the record contains no response
from either OSAP or the Board, it is apparent that the Board allowed United’s appeal to go forward.

                                                    -2-
The ALJ found that OSAP had the authority to retroactively assess taxes and found no proof
that OSAP had selectively enforced its authority or issued the back assessments in retaliation
for United’s appeal of the 2005 assessment; the ALJ found, therefore, that United was liable
for the 2003 and 2004 assessments. United appealed the ALJ’s decision to the Assessment
Appeals Commission of the State Board of Equalization. Following a hearing, the
Commission issued its Final Decision and Order, which upheld the tax assessments for 2005
through 20084 on the grounds that United was properly classified as a water transportation
carrier company and that application of the classification statute did not violate the
Commerce Clause; the decision also upheld the back assessments for 2003 and 2004 finding
insufficient proof to establish a constitutional violation. United appeals the Commission’s
Final Decision and Order.

II. Standard of Review

       This is a direct appeal from a final decision of the Tennessee State Board of
Equalization Assessment Appeals Commission pursuant to Tenn. Code Ann. § 4-5-
322(b)(1)(B)(iii). Judicial review of decisions of commissions is governed by the narrow
standard contained in Tenn. Code Ann. § 4-5-322(h) rather than the broad standard of review
used in other civil appeals. Wayne County v. Tenn. Solid Waste Disposal Control Bd., 756
S.W.2d 274, 279-80 (Tenn. Ct. App. 1988). A court may modify or reverse the decision of
the commission if the petitioner’s rights have been prejudiced because the administrative
findings, inferences, conclusions or decisions are:

        1) In violation of constitutional or statutory provisions;
        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 which 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.

Tenn. Code Ann. § 4-5-322(h).



        4
          United was assessed ad valorem property taxes by OSAP in 2007 and 2008 for those tax years.
United appealed of each of these assessments, which appeals were consolidated with United’s original appeal
of the 2005 tax assessment.

                                                   -3-
III. Analysis

       As a preliminary matter, we must determine the extent to which the Commission had
the authority to consider and decide United’s challenge to the assessments on the
constitutional bases asserted. The matter before us was brought before the Board of
Equalization to challenge the classification of the taxpayer and the resulting assessment of
taxes imposed in 2005 and subsequent years pursuant to Tenn. Code Ann. § 67-5-1301. In
addition, United challenged the assessment of taxes for 2003 and 2004, which were imposed
pursuant to the power granted at Tenn. Code Ann. § 67-1-1002.

       The powers of the state board of equalization are set forth at Tenn. Code Ann. §§ 4-3-
5103 and 67-1-305. Under both statutes, the board is authorized, inter alia, to consider
evidence and determine appeals relative to the “value, classification and assessment of
property.”5 The ability of administrative tribunals such as the board to hear constitutional
claims was before our Supreme Court in Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827
(Tenn. 2008), and the following discussion gives guidance to our consideration of this
question:

       Administrative tribunals do not lack the authority to decide every
       constitutional issue. It is essential, however, to distinguish between the
       various types of constitutional issues that may arise in an administrative
       context. In Richardson [v. Board of Dentistry, 913 S.W.2d 446 (Tenn. 1995)],
       we developed three broad categories of constitutional disputes: (1) challenging
       the facial constitutionality of a statute authorizing an agency to act or rule, (2)
       challenging the agency’s application of a statute or rule as unconstitutional, or
       (3) challenging the constitutionality of the procedure used by an agency.
       [Citation omitted]. Administrative tribunals have the power to decide
       constitutional issues falling into the second and third categories, but the first
       category falls exclusively within the ambit of the judicial branch.



       5
           The language of Tenn. Code Ann. § 4-3-5103 applicable to the instant proceeding is as follows:

       The state board of equalization has the following duties and functions to: . . .
       (4) Receive, hear, consider and act upon complaints and appeals made to the board regarding
       the valuation, classification and assessment of property in the state;....

The applicable language of Tenn. Code Ann. § 67-1-305 is:

       (a) The board is vested with the power to : . . .
       (2) Obtain such evidence, information and statistics as may be deemed material as to the
       values, classifications and assessments of properties to be equalized.

                                                   -4-
263 S.W.3d at 843.

       Before the Commission, United contended that the tax imposed by Tenn. Code Ann.
§ 67-5-1301, as applied to it, violated the Commerce Clause of the U.S. Constitution.6
United also contended that taxes assessed pursuant to Tenn. Code Ann. § 67-1-1002 were
imposed in retaliation for its appeal of the 2005 assessment, thereby penalizing United for
the exercise of its First Amendment right to petition for the redress of grievances. The
Commission rejected the constitutional challenges and upheld both assessments. In so doing,
the Commission acknowledged that United was not making a facial attack on the
constitutionality of Tenn. Code Ann. §§ 67-5-1301 or 67-1-1002. The Commission properly
confined its consideration of the constitutional concerns to the limits set in Colonial Pipeline.

        Our review of the Commission’s decision necessarily involves a three-step analysis.
McEwen v. Tenn. Dept. of Safety, 173 S.W.3d 815, 820 (Tenn. Ct. App. 2005). We first
determine whether the Commission identified the appropriate legal principles applicable to
the case and then examine the Commission’s factual findings, if any, to determine whether
the findings are supported by substantial and material evidence. Id. Finally, we examine
how the Commission applied the law to the facts. Id. The application of the law to the facts
is a highly judgmental process involving mixed questions of law and fact. Miller v. Civil
Service Comm’n of Metropolitan Government of Nashville and Davidson County, 271
S.W.3d 659, 664 (Tenn. Ct. App. 2008) (citing Armstrong v. Metro. Nashville Hosp. Auth.,
No. M2004-01361-COA-R3-CV, 2006 WL 1547863, at *2 (Tenn. Ct. App. Jun. 6, 2006).
Consequently, courts may neither reweigh the evidence nor substitute their judgment for the
commission’s, rather courts “must determine whether a reasonable person could
appropriately have reached the same conclusion reached by the commission, consistent with
a proper application of the controlling legal principles.” Miller, 271 S.W.3d at 664;
McEwen, 173 S.W.3d at 820.

                                      Commerce Clause Claim

        In determining Commerce Clause challenges, we are instructed by the U.S. Supreme
Court to evaluate the validity of state law pursuant to the four-pronged standard established
in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). Under the Complete Auto test,
state taxes are upheld as nonviolative of the federal Commerce Clause provided that (1) the


        6
            In addition to its “as applied” constitutional claim, United also asserted before the Commission
that its classification as a water transportation carrier company under Tenn. Code Ann. § 67-5-1301(a)(13)
was improper based on United’s interpretation of the language of the statute. The parties’ appellate briefs
included arguments on this issue; however, during oral argument, United’s attorney informed the Court that
it did not intend to pursue its statutory construction argument. Consequently, we do not address the parties’
statutory construction arguments.

                                                    -5-
tax is applied to an activity with a substantial nexus with the taxing state, (2) is fairly
apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related
to the services provided by the state. Id. at 279; accord Maryland v. Louisiana, 451 U.S.
725, 754 (1981); see also General Motors Corp. v. Washington, 377 U.S. 436 (1964);
Northwestern Cement Co. v. Minnesota, 358 U.S. 450 (1959); Memphis Gas Co. v. Stone,
335 U.S. 80 (1948); Wisconsin v. J. C. Penney Co., 311 U.S. 435, 444 (1940). In announcing
this four-part test, “the court . . . rejected the line of cases holding that the direct taxation of
interstate commerce was impermissible and adopted instead a ‘consistent and rational method
of inquiry [that focused on] the practical effect of [the] challenged tax.’” Quill Corp. v.
North Dakota By and Through Heitkamp, 504 U.S. 298, 303-04 (1992) (quoting Mobil Oil
Corp. v. Comm’r of Taxes of Vt., 445 U.S. 425, 443 (1980)) (emphasis added).

        The Supreme Court made it clear in Quill Corp. that the “four-part test [of Complete
Auto] . . . continues to govern the validity of state taxes under the Commerce Clause” and
confirmed that under our current Commerce Clause jurisprudence, “with certain restrictions,
interstate commerce may be required to pay its fair share of state taxes.” 504 U.S. at 310;
D.H. Holmes Co. v. McNamara, 486 U.S. 24, 31 (1988); see also Commonwealth Edison Co.
v. Montana, 453 U.S. 609, 623-24 (1981) (“It was not the purpose of the commerce clause
to relieve those engaged in interstate commerce from their just share of [the] state tax burden
even though it increases the cost of doing business.”).

       United does not assert that the tax assessment at issue discriminates against interstate
commerce or that it was unfairly apportioned in this case; rather, United contends that the
assessment violates the first and fourth prong of the Complete Auto test. We, therefore,
address these specific contentions.

       1. Substantial Nexus

       The tax at issue, Tenn. Code Ann. § 67-5-1301, authorizes and directs the comptroller
of the treasury to assess for taxation property within the state that is owned, used, and/or
leased by certain types of companies including:

       water transportation carrier companies which operate boats and barges over the
       waterways of this state for hire, which are registered with the United States
       army corps of engineers or any other federal or state agency and/or domiciled
       in this state and/or owning or leasing real or personal property located in this
       state.

Tenn. Code Ann. § 67-5-1301(a)(13). The tax expressly applies only to property used within
the State.



                                                -6-
        United’s President, David O’Neill, testified before the ALJ that, during the tax years
at issue, United owned and operated 20 tugboats and 700 barges, which principally traveled
over the Ohio, Illinois and Mississippi Rivers, including the portion of the Mississippi River
that flows through Tennessee. Mr. O’Neill explained that 95-98 percent of United’s
operations within Tennessee consisted of boat and barge traffic on the Mississippi River.
The other two to five percent consisted of barges that traveled over the Tennessee River from
points in Alabama, through Tennessee, to a facility owned by United in Paducah, Kentucky;
United did not operate any tugboats on the Tennessee River. Mr. O’Neill testified that in
2005, the first year the tax was assessed, United loaded forty-four barges in Alabama that
traveled through Tennessee along the Tennessee River destined for Kentucky; United loaded
two barges on the Tennessee River within Tennessee borders. With respect to loadings on
the Mississippi River, Mr. O’Neill testified that none of United’s barges terminated in
Tennessee, but that in 2005, United had seventeen loadings of products originating from
Tennessee; Mr. O’Neill did not testify as to the total number of United’s boats and barges
that traveled on the Mississippi River through Tennessee in 2005. Mr. O’Neill testified that
the loadings in Tennessee were not scheduled or part of United’s “normal operating
procedure”; rather, they were done at the request of other barge lines and only represented
.02-.03 percent of United’s 5,561 barge loadings system wide. While United’s loadings
within Tennessee represented a small portion of its system-wide loadings, Mr. O’Neill’s
testimony supports the Commission’s determination that United regularly traveled within
Tennessee over the Mississippi and Tennessee Rivers to conduct its boat and barge
operations during the tax years in question.

       United contends, without citation to any authority, that “[v]essels must habitually use
a state’s ports in substantial numbers to justify requiring the vessels to share in the tax
burden.” (Emphasis added). United argues that substantial use of a state’s ports, as opposed
to merely “regular traffic,” should be the basis for finding a substantial nexus with respect
to taxes levied on boats and barges because boats and barges floating along a river do not
burden a state’s infrastructure to the same extent as trucks or railroads.

       We find no support for such a contention in either state or federal law. To the
contrary, the U.S. Supreme Court has repeatedly held that water transportation carriers are
held to the same constitutional standards as other interstate transportation carriers. Ott v.
Mississippi Valley Barge Line Co., 336 U.S. 169, 174 (1949) (“We can see no reason which
should put water transportation on a different constitutional footing than other interstate
enterprises.”); Standard Oil Co. v. Peck, 342 U.S. 382, 384 (1952). Since Ott, both state and
federal courts have held that regular traffic through a state, including boat and barge traffic
over a state’s waterways, is sufficient to create a substantial nexus. See Central R.R. Co. of
Pa. v. Commonwealth of Pa., 370 U.S. 607, 614 (1962); Braniff Airways, Inc. v. Nebraska
Board of Equalization, 347 U.S. 590, 600 (1954); Standard Oil, 342 U.S. at 384; Jack Cole



                                              -7-
Co. v. Ellington, 372 S.W.2d 204, 208 (Tenn. Ct. App. 1961); see also Union Barge Line
Corp. v. Marcum, 360 S.W.2d 130, 132-33 (Ky. Ct. App. 1962).

       In Central Railroad, the U.S. Supreme Court, relying in part on its prior ruling in
Standard Oil, held that “the State through which the regular traffic flowed could impose a
property tax measured by some fair apportioning formula.” Central R.R. Co. of Pa., 370 U.S.
at 614. The Court noted that the record in Standard Oil showed that the boats and barges
which Ohio sought to tax in full had been traveling along three regular routes on the
Mississippi and Ohio Rivers: from Memphis, Tennessee, to Mt. Vernon, Indiana; from
Memphis, Tennessee, to Bromley, Kentucky; and from Baton Rouge or Gibson’s Landing,
Louisiana, to Bromley, Kentucky. The Court then observed that “[t]he States in which the
vessels landed, as well as those through which they regularly traveled, could undoubtedly
have traced these regular trips and levied appropriately apportioned ad valorem taxes.” Id.
at 615, n. 6 (emphasis added). Applying the principles of Central Railroad to this case, we
find that United’s regular traffic over both the Mississippi and Tennessee Rivers through the
State of Tennessee provide the substantial nexus required to allow Tennessee to impose a
property tax measured by a fair apportioning formula.

         United also suggests that, because more than 95 percent of its River traffic within
Tennessee is on the Mississippi River and since the Mississippi River is a federally regulated
waterway, there is insufficient nexus with Tennessee. This argument also lacks merit. While
it is true that navigation of the Mississippi River is regulated by Congress, such regulation
does not divest Tennessee of title to the beds and banks of the river or the authority to tax
vessels traveling over the river through the territory of the State. See, e.g., Braniff, 347 U.S.
at 596-97. In Braniff, the U.S. Supreme Court analogized planes flying interstate with boats
traveling inland waters and explained a state’s authority to tax such enterprises thusly:

       The commerce power, since Gibbons v. Ogden, 9 Wheat. 1, 193, 6 L.Ed. 23,
       has comprehanded [sic] navigation of streams. Its breadth covers all
       commercial intercourse. But the federal commerce power over navigable
       streams does not prevent state action consistent with that power. Since, over
       streams, Congress acts by virtue of the commerce power, the sovereignty of
       the state is not impaired. The title to the beds and the banks are in the states
       and the riparian owners, subject to the federal power over navigation. Federal
       regulation of interstate land and water carriers under the commerce power has
       not been deemed to deny all state power to tax the property of such carriers.

Braniff, 347 U.S. at 596-97 (internal citations omitted); see also Bean Dredging Corp. v.
Olsen, 742 S.W.2d 259 (Tenn. 1987) (“The boundary between Tennessee and Arkansas lies
generally in the Mississippi River.”); Higman Towing Co. v. Cocreham, 70 F.Supp. 628, 636
(D.C.La. 1947) (“[T]he fee of the beds of navigable waters became the property of the

                                               -8-
individual states when admitted into the Union, by virtue of their inherent sovereignty. This
ownership, however, was subject to the paramount control of the Federal Government over
navigation and commerce on those waters.”). As aforestated, we find that United’s habitual
and systematic utilization of and presence on the waterways of Tennessee established a
substantial nexus with Tennessee to subject United to the State’s taxation.

       2. Fairly Related to Services Provided

        Under the Complete Auto test, a state’s tax will be upheld if, along with the other three
criteria, it is “fairly related to the services provided by the state.” Complete Auto Transit,
430 U.S. at 279. “The validity of the tax rests upon whether the State is exacting a
constitutionally fair demand for that aspect of interstate commerce to which [it] bears a
special relation.” Commonwealth Edison, 453 U.S. at 625. There is no requirement,
however, that the amount of the tax collected from a particular activity be reasonably related
to the value of the services provided to the activity. Id. at 622. In Commonwealth Edison,
the U.S. Supreme Court examined this prong of the Complete Auto test in detail and
explained that:

       The relevant inquiry under the fourth prong of the Complete Auto Transit test
       is not . . . the amount of the tax of [sic] the value of the benefits allegedly
       bestowed as measured by the costs the State incurs on account of the
       taxpayer’s activities. Rather, the test is closely connected to the first prong of
       the Complete Auto Transit test. Under this threshold test, the interstate
       business must have a substantial nexus with the State before any tax may be
       levied on it. Beyond that threshold requirement, the fourth prong of the
       Complete Auto Transit test imposes the additional limitation that the measure
       of the tax must be reasonably related to the extent of the contact, since it is the
       activities or presence of the taxpayer in the State that may properly be made
       to bear a “just share of [the] state tax burden.”

Id. at 626 (internal citations omitted). Consequently, the Court explained, “[t]he simple but
controlling question is whether the state has given anything for which it can ask return.” Id.
at 625 (quoting Wisconsin v. J.C. Penney Co., 311 U.S. at 444).

       United asserts that it “derives no benefits from state and local governments in its
Tennessee operations with very few sporadic exceptions.” United relies on Mr. O’Neill’s
testimony that United’s boats and barges do not use local assistance while “in transit.” United
argues that it has no need for Tennessee emergency services such as police or firefighters as
its boats and barges would use federal assistance if such services were needed while in




                                               -9-
transit.7 United also asserts that it does not regularly purchase supplies from vendors located
in Tennessee nor does it regularly use any maintenance or repair facilities located in
Tennessee. Finally, United again attempts to distinguish its operation of vessels over inland
waterways from those of railroads and trucks that travel across the state on rails and roads
by asserting that the Federal government, not the State, maintains and controls navigation of
the Mississippi River. United asserts that its boats and barges “just go[] up and down a river
contiguous to Tennessee without stopping, without taking on crew, without taking on
provisions and without obtaining repairs or maintenance services.”

        United’s attempt to quantify the exact services, such as police and fire protection, that
it does not regularly use while traversing the State is misplaced. United’s actual use or non-
use of these services is irrelevant to the inquiry. See Commonwealth Edison, 453 U.S. at 628.
So long as there is some service or benefit provided by the State and the tax levied is
apportioned to the extent of the contact with the State the tax does not run afoul of the
Commerce Clause. Id. Further, we remain unpersuaded by United’s argument that water
transportation carriers are different from other interstate transportation carriers in the context
of government provided services. We acknowledge that vessels traveling over inland
waterways may not use all of the same services that vehicles traveling on an interstate
highway or railroad may use, but such differences do not change the analysis as “interstate
commerce may be required to contribute to the cost of providing all governmental services,
including those services from which it arguably receives no direct benefit.” Id. at 628, n. 16.
“The only benefit to which the taxpayer is constitutionally entitled [is] that derived from his
enjoyment of the privileges of living in an organized society, established and safeguarded by
the devotion of taxes to public purposes.” Id. at 628-29 (quoting Carmichael v. Southern
Coal & Coke Co., 301 U.S. 495, 521-22 (1937)).

        The tax here was levied on United’s personal property located within the State of
Tennessee. There is no dispute that the tax was not properly apportioned to the property
actually located within the borders of Tennessee. We find, therefore, that the tax is in
“proper proportion” to United’s activities within the State and, as a result, to its “consequent
enjoyment of the opportunities and protections which the State has afforded” in connection
with those activities. See Commonwealth Edison, 453 U.S. at 626-27. Having also found
that a substantial nexus exists between United and the State of Tennessee, we find that the
ad valorem property tax assessments from 2005 through 2008 satisfy the four prongs of the
Complete Auto test and, thus, are nonviolative of the Commerce Clause. Consequently, we
affirm the Commission’s Final Decision and Order holding the same.


        7
          Mr. O’Neill testified that if United was in need of law enforcement, it would contact the U.S. Coast
Guard. He also testified that under federal law, water transportation companies like United were required,
as a condition to operate on inland waterways, to provide their own fire suppressant systems and certified
fire suppressant operators.

                                                    -10-
                                      First Amendment Claim

        United argued before the Commission that, in assessing taxes for 2003 and 2004,
OSAP selectively enforced Tenn. Code Ann. § 67-1-1002, et. seq., in violation of the Equal
Protection Clause of the Fourteenth Amendment and that such enforcement “evidence[d]
retaliation for United’s exercise of its First Amendment right to redress grievances.” The
majority of the Commission8 found that there was “[in]sufficient proof to establish a
constitutional violation,” holding:

        We believe the assertion that OSAP’s actions were vindictive or selective is
        not borne out by the record. The proof does not establish that [United] was
        singled out by OSAP and does not establish that OSAP’s actions rested on an
        impermissible consideration or purpose. Nor can OSAP be estopped from
        carrying out is duty under Tenn. Code Ann. §[§] 67-5-1301(c),
        67-1-1002(a)(1), and 67-1-1005(a) on the basis of presumably innocent
        misinterpretations of the statue by its employees and/or [United].

On appeal, United does not assert that OSAP’s assessment for prior tax years was selective,
only that the back assessments were issued in retaliation for United’s appeal of the original
tax assessment in 2005, which United characterizes as its First Amendment right to redress
grievances.

        It is well-established that governmental action, which standing alone does not violate
any law or constitution, may nonetheless be a tort if motivated in substantial part by a desire
to punish an individual for exercise of a statutory or constitutional right. See, e.g., Mount
Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 283-84 (1977) (untenured
teacher who could have been fired for no reason may nonetheless establish a claim if the
decision not to rehire him was made because of his exercise of First Amendment freedoms);
Thaddeus-X v. Blatter, 175 F.3d 378, 386 (6th Cir. 1999) (inmate moved allegedly in
retaliation for his effort to litigate the claim of another inmate was actionable); Board of
County Comm’rs, Wabaunsee County v. Umbehr, 518 U.S. 668 (1996) (nonrenewal of
plaintiff’s government contract in retaliation for his exercise of free speech is actionable);
Valot v. Southeast Local Sch. Dist. Bd. of Educ., 107 F.3d 1220, 1225 (6th Cir. 1997) (“[A]
claim of retaliation for exercise of the constitutional right of access is cognizable under



        8
          Two of the five members of the Commission dissented from the conclusion that the back
assessments for the years 2003 and 2004, as applied to United under the circumstances, were constitutionally
sound.

                                                   -11-
[U.S.C.] § 1983.”); Zilich v. Longo, 34 F.3d 359, 365 (6th Cir. 1994) (“retaliation under color
of law for the exercise of First Amendment rights is unconstitutional”).

        A person making a claim that governmental action was improperly motivated, e.g.,
in retaliation for that person’s exercise of statutory or constitutionally protected rights, bears
the initial burden of establishing a prima facie case that the challenged action was so
motivated.9 Mount Healthy, 429 U.S. at 287; McDonnell Douglas v. Green, 411 U.S. 792
(1973). This can be done either by presenting direct evidence of retaliation or through
circumstantial evidence. In this case, the evidence relied upon by United in support of its
claim was circumstantial.10 When the claim is based on circumstantial evidence, such as the
timing of events or the disparate treatment of similarly situated individuals, courts are to
apply the burden-shifting analysis established in McDonnell Douglas. 411 U.S. at 802;
McClain v. Nw. Community Corr. Ctr. Judicial Corr. Bd., 440 F.3d 320, 332 (6th Cir. 2006);
see also Thaddeus-X, 175 F.3d at 399.

       Once the claimant has met the initial burden of establishing a prima facie case, the
burden of going forward shifts to the governmental entity to articulate a legitimate,
constitutional reason for the challenged action. See McDonnell Douglas, 411 U.S. at 802;
Tex. Dep’t of Cmty. Affairs v. Burdine, 450 U.S. 248, 252-53 (1981). If the entity comes
forward with a legitimate, constitutional reason, the presumption of retaliation is rebutted and
the burden of going forward returns to the claimant to produce sufficient evidence from
which the fact-finder may reasonably reject the entity’s explanation. Burdine, 450 U.S. at

        9
           The analytical framework of such a challenge, as discussed more fully below, is essentially the
same regardless of context (e.g., employment, prison, regulatory), allegation (e.g., discrimination or
retaliation) or the grounds (e.g., common law, state or federal law or constitutional). See, e.g., Thaddeus-X,
175 F.3d at 399 (applying the Mount Healthy burden-shifting analysis to inmate First Amendment retaliation
case and explaining that many other circuits have applied such in other non-employment cases); McCray
v. Vanderbilt Univ., No. M2008-00364-COA-R3-CV, 2009 WL 1819247, at *5-6 (Tenn. Ct. App. Jun. 23,
2009) (applying the McDonnell Douglas burden-shifting analysis to Family and Medical Leave Act
retaliation and common law retaliatory discharge claims); Love v. Electric Power Bd. of Chattanooga, No.
1:07-cv-80, 2009 WL 1514436 (E.D. Tenn. May 29, 2009) (applying the McDonnnel Douglas burden-
shifting analysis to an age discrimination claim under the ADEA);
        10
           Direct evidence is that evidence which, if believed, requires the conclusion that improper motive
was at least a motivating factor in the governmental action, Jacklyn v. Schering-Plough Healthcare Prods.
Sales Corp., 176 F.3d 921, 926 (6th Cir. 1999), and does not require a fact finder to draw any inferences in
order to conclude that the challenged action was motivated, at least in part, by the claimant’s protected
activity. Johnson v. Kroger Co., 319 F.3d 858, 865 (6th Cir. 2003). When a plaintiff presents direct
evidence of discrimination or retaliation, the burden of both production and persuasion shifts to the
governmental entity to prove that it would have taken the same action in the absence of the protected activity.
Mount Healthy, 429 U.S. at 287; Thaddeus-X, 175 F.3d at 399; Nguyen v. City of Cleveland, 229 F.3d 559,
563 (6th Cir. 2000).


                                                     -12-
255-56; Manzer v. Diamond Shamrock Chemicals Co., 29 F.3d 1078, 1083 (6th Cir.1994).
A claimant may show that the reason offered was mere pretext by demonstrating by a
preponderance of the evidence either that the proffered reasons had no basis in fact or that
a prohibited reason more likely than not motivated the entity. Burdine, 450 U.S. at 252-53;
Terry v. Gallegos, 926 F.Supp. 679, 693 (W.D. Tenn. 1996) (quoting Manzer, 29 F.3d at
1084); see also McCray v. Vanderbilt University, No. M2008-00364-COA-R3-CV, 2009 WL
1819247, at *5-6 (Tenn. Ct. App. Jun. 23, 2009).

        While the intermediate burdens of going forward shift back and forth under this
framework, the ultimate burden of persuasion remains at all times with the claimant. Reeves
v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 143 (2000). In making a determination
of whether the evidence proves a statutory or constitutional violation, “the court should
consider reasonable inferences drawn from the totality of facts, the conglomerate of
activities, and the entire web of the circumstances presented by the evidence on the record
as a whole.” Gallegos, 926 F.Supp. at 693 (citing Ford v. Nicks, 703 F.Supp. 1296, 1303
(M.D. Tenn. 1988)); accord EEOC v. St. Joseph Paper Co., 557 F.Supp. 435, 439 (W.D.
Tenn. 1983)).

      Before engaging in the burden-shifting analysis, we must examine the record to
determine the facts as the Commission did not make specific findings of fact.

       In 2005, OSAP added seven companies, including United, to the master list of
assessable water transportation carriers and assessed those companies the ad valorem
property tax authorized at Tenn. Code Ann. § 67-5-1301 for the first time. United appealed
the assessment in accordance with Tenn. Code Ann. § 67-5-1327, first to the Comptroller of
the Treasury and then to the State Board of Equalization for review pursuant to Tenn. Code
Ann. § 67-5-1328. Within a year of United’s original assessment and appeal, OSAP “back
assessed” United ad valorem property taxes for the tax years 2003 and 2004 in accordance
with Tenn. Code Ann. §§ 67-1-1002 and 1005. Gary Harris, OSAP Assistant Director of
Assessments, testified that OSAP’s policy or “routine” with respect to back assessments was
to “giv[e] the benefit of the doubt to the taxpayer” in the initial year of discovery and,
therefore, not issue a back assessment. Mr. Harris testified that of the 25 taxpayers added
to OSAP’s assessable master list between 1997 and 2006, only two were back assessed [per
67-1-1002]. One was United; the other was Alter Barge Line, which was “force assessed”
because it had refused to complete and submit an ad valorem tax report questionnaire or to
pay any of the taxes assessed.11 The record also shows that of the companies originally
assessed in 2005, as United was, United was the only one that appealed the assessment.




       11
            Alter Barge Line was not one of the new companies added in 2005.

                                                 -13-
        The foregoing circumstantial evidence established a prima facie case that the
assessment of taxes for 2003 and 2004 may have been made in response to United’s appeal
of the 2005 assessment;12 OASP was then required to articulate the reason for its decision to
impose the back assessment. Barry Murphy, Director of OSAP testified that it was OSAP’s
responsibility when it discovered properties which had not been assessed “to go back to what
the extent of the law would allow.” In its argument, OSAP also relies on Tenn. Code Ann.
§ 67-1-1002 to support director Murphy’s testimony that OSAP is required by the statute to
back assess properties that have been omitted or escaped taxation. OSAP, therefore, satisfied
its burden of production, which shifted the burden back to United to demonstrate by a
preponderance of the evidence that these reasons were merely pretext for OSAP’s improper
motive. We, therefore, turn to a consideration of the entire evidence to determine if United
met its burden of persuasion.

        In deposition testimony of OSAP director Murphy, Gary Harris, the assistant director,
Patricia Dodson, an analyst, and Shannon Tucker, an analyst, introduced at the hearing,
several possible reasons why the six other companies added in 2005 were not back assessed
were given, including that some additions may have represented name changes rather than
new taxpayers,13 that some may have been locally assessed for previous years, or that some
may not have operated over Tennessee waterways for previous years. The OSAP employees,
however, did not know whether any of these possible explanations actually applied to any
of the six other companies added to the assessable master list in 2005. Consequently, this
testimony had no probative value. Additionally, while Mr. Harris testified that “[i]f we can
discover that that company did indeed operate on the waterways in Tennessee . . . we can go
back and back assess the company,” he also testified that it was OSAP’s “routine” to give the
taxpayer the benefit of the doubt the initial year that the taxpayer is discovered and not issue
an assessment for previous tax years. When asked by United’s counsel to explain the reason


        12
           Sufficient circumstantial evidence showing a causal connection between the protected activity and
the challenged action raises an inference that an improper motive was, at least in part, a motivating factor
in the decision to act. See, e.g., Wade v. Knoxville Utilities Bd., 259 F.3d 452, 463 (6th Cir. 2001); Walburn
v. Erie County Care Facility, 150 F.3d 584, 589 (6th Cir. 1998); Lyons v. Metro. Gov’t of Nashville and
Davidson County, No. 3:08-0804, 2009 WL 2431430, at *6 (M.D. Tenn. Aug 07, 2009); Harris v. Metro.
Gov’t of Nashville and Davidson County, No. 3:04-0762, 2005 WL 3143973, *4 (M.D. Tenn. Nov 23, 2005);
Sanders v. New York City Human Resources Admin., 361 F.3d 749 (2d Cir. 2004); Heymann v. Tetra Plastics
Corp., 640 F.2d 115 (8th Cir. 1981).
        13
           Each year, OSAP conducted, what it called, a discovery process to discover new or previously
unreported taxpayers. Mr. Tucker testified that any newly discovered taxpayer would be added to the
assessable master listing in the year it was discovered. OSAP created a new assessable master listing each
year. Mr. Tucker testified that when a taxpayer’s name changed, whether as a result of a merger or
acquisition or any other reason, the taxpayer’s new name would be used in the next year’s assessable master
listing; however, the list did not indicate which taxpayers on the list were newly discovered taxpayers as
compared to an existing taxpayer that simply changed its name.

                                                    -14-
for the back assessment against United, Mr. Harris provided no explanation other than that
United’s appeal “had nothing to do with the back assessment.” Director Murphy testified
that the assessment analyst was the person that would know whether a company had been
operating over Tennessee waterways in previous years and would make the decision to issue
a back assessment; however, the water transportation carrier analyst, Shannon Tucker,
testified that either Mr. Harris or Mr. Murphy made the decision to back assess a company
and that, in the case of United, “we got some ad valorem returns, and they were for back
years, so I just went ahead and worked up what [Mr. Harris] told me to work up.” Mr.
Tucker also testified that the only back assessment he had ever done since he began working
at OSAP in 2001 was that issued against United.

        The preponderance of the evidence shows that the 2003 and 2004 assessments were
imposed after United had exercised its right under Tenn. Code Ann. § 67-5-1327 to appeal
the 2005 assessment to the board of equalization. Further, the evidence shows that United
was the only water transportation carrier of the seven originally assessed in 2005 that
exercised its statutory right to appeal the assessment and was the only one assessed back
taxes. This evidence is sufficient to infer that the reexamination of United’s operations prior
to 2005 was prompted by the appeal and resulted in the assessment of taxes for 2003 and
2004, especially in light of OSAP’s failure to explain why, in the case of United, it chose to
deviate from its “routine” of giving the taxpayer the benefit of the doubt in the initial year
of discovery and not issue an assessment for previous tax years. OSAP’s assertion that, from
correspondence with United in 2000 and 2002, it knew that United was operating barges on
Tennessee waterways prior to 2005 and that, pursuant to the statute, OSAP had a statutory
duty to assess property that had escaped taxation, fails to rebut the inference that the decision
to make the back assessment was predicated upon United’s appeal of the 2005 assessment.14
See Wade, supra, 259 F.3d at 463. Being unrebutted, the inference allows us to conclude that
the 2003 and 2004 assessments were made as a result of United’s appeal of the 2005
assessment. See Gallegos, supra, 926 F.Supp. at 693 (“Rejection of the defendant’s
proffered reasons will permit the trier of fact to infer the ultimate fact of intentional
discrimination.”); see also Zanders v. National R.R. Passenger Corp., 898 F.2d 1127, 1135
(6th Cir. 1990) (If the claimant proffered sufficient evidence to raise the inference that her
protected activity was the likely reason for the adverse action and can subsequently show that
the excuse offered for the action was merely a pretext for discrimination or retaliation, then
a causal link is established and liability results); Cf. Hamilton v. Rodgers, 791 F.2d 439, 442



        14
           In 2000 and 2002, United provided OSAP with information about its operations and it was not
added to the assessable master list in those years. The record showed that companies were only added to the
assessable master list if the company was determined to be subject to the ad valorem property tax. The back
assessment issued in 2005 for tax years 2003 and 2004 is inconsistent with the non-assessment in the years
in which the information was provided to OSAP.

                                                   -15-
(5th Cir.1986); Cohen v. Fred Meyer, Inc., 686 F.2d 793, 796 (9th Cir.1982); Price
Waterhouse v. Hopkins, 490 U.S. 228 (1989).

        The General Assembly, in enacting Tenn. Code Ann. §§ 67-5-1327 and 1328,
expressly provided for a taxpayer’s right to appeal tax assessments and the mechanism by
which such right should be exercised. When a governmental entity acts in such a way that
punishes or deters an individual or organization from exercising rights granted by the
legislature of this State, such action is against the public policy of Tennessee. Accordingly,
the Commission’s holding based on constitutional grounds15 relied on improper legal
principles in addition to being made without reference to any factual findings. Having found
evidence that, under the circumstances, the issuance of the back assessments violated
United’s statutory right to appeal the original assessment and, thereby, OSAP violated the
public policy of Tennessee, we reverse that portion of the Commission’s Final Order
upholding the back assessment and absolve United of its liability for the ad valorem property
assessments for tax years 2003 and 2004.

IV. Conclusion

       As aforestated, we find that the Commission correctly determined that Tenn. Code
Ann. § 67-5-1301 as applied to United did not contravene the Commerce Clause of the
United States Constitution and, consequently, we affirm the Commission’s decision to
uphold the ad valorem property tax assessments against United for the tax years 2005-2008.
We must, however, reverse the Commission’s decision to uphold the assessments for tax
years 2003 and 2004 for the reasons set forth above.

        Costs of the appeal are assessed to the parties equally.




                                                          ___________________________________
                                                          RICHARD H. DINKINS, JUDGE




        15
            While the Commission held generally that there was “[in]sufficient proof to establish a
constitutional violation,” it appears to have limited its legal analysis to United’s claim under the Equal
Protection Clause of the Fourteenth Amendment as the Commission’s Final Decision and Order only
referenced the elements of a selective or vindictive enforcement claim, which is a doctrine developed within
equal protection law.

                                                   -16-
