             IN THE COURT OF APPEALS OF TENNESSEE
                         AT NASHVILLE
                                                            FILED
                                                                  May 15, 1998
EDWIN B. RASKIN CO.,                      )
                                          )                 Cecil W. Crowson
       Plaintiff/Appellee,                )                Appellate Court Clerk
                                          )   Appeal No.
                                          )   01-A-01-9708-CH-00392
VS.                                       )
                                          )   Davidson Chancery
                                          )   No. 96-850-III
RUTH E. JOHNSON,                          )
Commissioner of Revenue,                  )
State of Tennessee,                       )
                                          )
       Defendant/Appellant.               )


      APPEALED FROM THE CHANCERY COURT OF DAVIDSON COUNTY
                     AT NASHVILLE, TENNESSEE

             THE HONORABLE ELLEN HOBBS LYLE, CHANCELLOR




MICHAEL D. SONTAG
BRYAN W. METCALF
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238-2700
      Attorneys for Plaintiff/Appellee

JOHN KNOX WALKUP
Attorney General and Reporter

CHRISTINE LAPPS
Assistant Attorney General
Cordell Hull Building, Second Floor
425 Fifth Avenue North
Nashville, Tennessee 37243-0489
       Attorney for Defendant/Appellant



                             AFFIRMED AND REMANDED



                                              BEN H. CANTRELL, JUDGE

CONCUR:
TODD, P.J., M.S.
KOCH, J.
                                OPINION
              The issue in this case is whether the private manager of a city-owned

golf course is entitled to the city’s exemption from sales and use taxes. The Chancery

Court of Davidson County held that the operator was exempt from the taxes. We

agree.



                                           I.



              The city of Hendersonville owns the Country Hills Golf Course, an

eighteen hole course that also includes a driving range, a pro shop, and a snack bar.

Edwin B. Raskin Company (“Raskin”) is a management company, and in 1992, it

entered into an agreement with the City to manage the golf course. Raskin did not

charge any sales tax on greens fees, driving range fees, club membership, or cart

rentals, nor did it pay sales or use taxes on items it purchased for use in operating the

course. After an audit, the Commissioner of Revenue assessed Raskin with the

unpaid taxes and Raskin challenged the assessment in the Chancery Court of

Davidson County. The chancellor held that the City’s exemption extended to Raskin.



                                           II.



              The Tennessee Code imposes a sales tax on certain recreational

activities. The tax applies to the gross receipts or gross proceeds of:

              (1)    Dues or fees to membership sports and recreation
              clubs, . . .

              (3)   Charges made for the privilege of entering or
              engaging in any kind of recreational activity, when no
              admission is charged spectators, . . .

              (4)    Charges made for the privilege of using tangible
              personal property for amusement, sports, entertainment
              or recreational activities such as trampolines, golf carts,
              bowling shoes, skates or other sports and athletic
              equipment; . . .

Tenn. Code Ann. § 67-6-212.



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              The legislature has, however, provided an exemption for local

governments on events they conduct, produce, or provide. Tenn. Code Ann. § 67-6-

330(13).



              A use tax is imposed on certain personal property by Tenn. Code Ann.

§ 67-6-203:

              (a)     A tax is levied at the rate of six percent (6%) of the
              cost price of each item or article of tangible personal
              property when the same is not sold but is used,
              consumed, distributed, or stored for use or consumption
              in this state; . . . .

But, Tenn Code Ann. § 67-6-329(13)(1997 Supp.) exempts all sales made to the state

of Tennessee or any county or municipality within the state.



              The Code also imposes a tax on certain property used by contractors

or subcontractors. Tenn. Code Ann. § 67-6-209(b) provides:

              Where a contractor or subcontractor hereinafter defined
              as a dealer uses tangible personal property in the
              performance of the contract, or to fulfill contract or
              subcontract obligations, whether the title to such property
              be in the contractor, subcontractor, contractee,
              subcontractee, or any other person, or whether the title
              holder or such property would be subject to pay the sales
              or use tax . . . such contractor or subcontractor shall pay
              a tax at the rate prescribed by § 67-6-203 measured by
              the purchase price of such property . . . .



              That section is followed, however, by subsection (c) which provides:

              The tax imposed by this section shall have no application
              where the contractor or subcontractor, and the purpose
              for which such tangible personal property is used, would
              be exempt from the sales or use tax under any other
              provision of this chapter.



                                           III.



              We are of the opinion that the critical question in this case is whether

Raskin is operating the golf course as the City’s agent or as an independent

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contractor. This question was the determining factor in United States v. Boyd, 363

S.W.2d 193 (Tenn. 1962), a case involving the operation of the atomic energy facility

at Oak Ridge. See also Tidwell v. Goodyear Tire & Rubber Co., 520 S.W.2d 721

(Tenn. 1975). If Raskin is merely an agent, the City is operating the golf course

through Raskin’s agency; if Raskin is an independent contractor, it is operating the

golf course as an independent entity, and the operation is not the City’s.



              In United States v. Boyd, the court addressed the difficulty in deciding

whether a party is an agent or an independent contractor. Citing 2 C.J.S. Agency, §

2, the court said that the decision is based on the extent of control exercised over the

employee: the employee is an agent if the employer retains control over the means

of accomplishing the result; he is an independent contractor if the employer is

interested only in the result. 363 S.W.2d at 195. Then the court cited Carbide &

Carbon Chemicals Corporation v. Carson, 239 S.W.2d 27 (Tenn. 1951) for the

proposition that the distinction between an independent contractor and an agent

“depends upon the intention of the parties as expressed in the contract.” 239 S.W.2d

at 31.



              The trial judge in this case also considered evidence of how the parties

actually operated; how they observed certain conventions that were not mentioned in

the contract. The state does not raise that action as a specific issue on appeal but it

does argue (1) that only the written contract should control, or (2) that the extra-

contract controls exercised by the City do not change the conclusion that Raskin is the

party actually operating the golf course. We are of the opinion that the parties’ actual

conduct -- and not just our interpretation of their contract -- is relevant to the question

of whether the City conducts, produces, or controls the golf course. The practical

construction of a contract is strong evidence of its meaning, Dupont Rayon Co. v.

Roberson, 12 Tenn. App. 261 (1930). This rule has its limitations, see McQuiddy

Printing Co. v. Hirsig, 134 S.W.2d 197 (Tenn. App. 1939), but we think that it should


                                           -4-
be applied in this case. Here it is a third party (the state) insisting on its own

interpretation of the contract. The limits on the rule of practical construction lose most

of their force under these circumstances. How can the state insist on a strict

interpretation of the contract when the parties to it have chosen to interpret it

differently?



                                           IV.



               Turning to the contract, we note that in its “whereas” clauses it states

that Raskin desires to “operate and manage the City’s golf course for and on behalf

of the City.” The other provisions relative to the control and operation of the golf

course may be summarized as follows:

                      (1)  All the property, land, structures, golf course
               improvements, and all equipment located on the land,
               including any equipment acquired pursuant to the
               agreement, are the property of the City.

                      (2)      Raskin shall pay the City, on a monthly
               basis, all net operating income. All Raskin bank accounts
               receiving deposits from golf course receipt shall be
               accessible to the City at all times.

                      (3)    Raskin shall be paid an annual fee of
               $40,000 for its services or three and one-quarter percent
               of gross income, whichever is greater.

                      (4)   Either party may cancel the agreement upon
               ninety days written notice.

                      (5)     No capital improvements may be made
               without the City’s approval, and said approval shall be
               solely at the discretion of the City.

                      (6)    All on-site employees are Raskin’s
               employees, and Raskin shall be responsible for their
               training and support. However, personnel practices shall
               be subject to the City’s approval.

                     (7)    The City may visit and inspect the property,
               the books and accounts during any regular business day.

                     (8)   Raskin is required to operate the park in
               compliance with all laws, rules, and regulations of the
               Land and Water Conservation Fund Act of the State of
               Tennessee.


                                          -5-
                    (9)     Raskin shall provides a certified annual audit
              to meet the requirements of the Comptroller of the State
              of Tennessee.

                     (10) Raskin is prohibited from entering into any
              franchise agreement, management contract, or other
              contract, license, or permit affecting the property without
              the prior written consent of the City.



              In addition to the contractual provisions, the record shows the following

course of dealing: From the beginning, Raskin’s president appeared before and

reported to the City’s finance committee at its monthly meeting. In 1995 the City

established a Golf Course Commission, which now oversees the operation of the

course, and Raskin’s president attends and reports to the Commission monthly. The

Commission, according to the City’s Finance Director, was established to formulate

policies, rules, and regulations, to set rates and fees, and to provide close supervision

for the golf course. The Commission considered and rejected a proposal to allow the

use of private golf carts on the course and a proposal to sell memberships.




                                           V.



              Considering the contractual provisions and the course of dealing

between the parties, we conclude that Raskin was the City’s agent, hired to operate

the City’s golf course. The City retains control over Raskin’s operation, exercising that

control first through the City Finance Committee, and then through the Golf Course

Commission which was created for that very purpose.



              The conclusion we have reached is a complete defense to all the sales

and use taxes claimed by the Commissioner. It results that the course is conducted

and controlled by the City (for the purposes of Tenn. Code Ann. § 67-6-330(13)); the



                                          -6-
sales of tangible personal property to Raskin are in fact sales to the City1 (for the

purposes of Tenn. Code Ann. § 67-6-329(13)); and Raskin is not the contractor or

subcontractor described in the contractor’s use tax; it stands in the shoes of the City

itself. See Tenn. Code Ann. § 67-6-209(c).



                                                VI.



                We are not unaware of the Commissioner’s argument about the

presumption against exemptions. See Kingsport Publishing Corp. v. Olsen, 667

S.W.2d 745 (Tenn. 1984). We are satisfied that Raskin has carried its burden to

overcome the presumption.




                The judgment of the trial court is affirmed and the cause is remanded

to the Chancery Court of Davidson County for any further proceedings that may

become necessary. Tax the costs on appeal to the Commissioner.




                                                         ____________________________
                                                         BEN H. CANTRELL, JUDGE




CONCUR:




_______________________________
HENRY F. TODD, PRESIDING JUDGE


        1
         As an additional fact indicating the soundness of this conclusion we note that Raskin places
a notice to the vendor on each purchase order that Raskin is acting as an agen t only and is not
purcha sing the g oods o r services on its own accou nt.

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MIDDLE SECTION




_____________________________
WILLIAM C. KOCH, JR., JUDGE




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