                                                                                        01/25/2019
               IN THE COURT OF APPEALS OF TENNESSEE
                          AT KNOXVILLE
                               October 18, 2018 Session

       EAST TENNESSEE PILOT’S CLUB, INC. v. KNOX COUNTY,
                      TENNESSEE, ET AL.

                 Appeal from the Chancery Court for Knox County
                  No. 187187-1      John F. Weaver, Chancellor
                     ___________________________________

                           No. E2018-00649-COA-R3-CV
                       ___________________________________

After a state administrative law judge concluded the proper tax classification for the
property owned and operated by a private pilot’s club in 2010 and 2011 to be “farm
property,” the county property assessor reclassified it in 2013 as split property,
commercial and farm. The club paid its 2013 to 2016 taxes “under protest” and filed
consolidated complaints in chancery court, seeking a refund under Tennessee Code
Annotated section 67-5-901. The club argued that the chancery court had jurisdiction
over its claim because purely legal issues were involved and the doctrines of res judicata
and/or collateral estoppel prevented such reclassification. Upon determining that it
lacked subject matter jurisdiction, the trial court granted the government’s motion to
dismiss. We affirm.




               Tenn. R. App. P. 3 Appeal as of Right; Judgment of the
                    Chancery Court Affirmed; Case Remanded



JOHN W. MCCLARTY, J., delivered the opinion of the court, in which THOMAS R.
FRIERSON, II, and KENNY W. ARMSTRONG, JJ., joined.

Charles G. Taylor, III, Knoxville, Tennessee, for the appellant, East Tennessee Pilot’s
Club, Inc.

Daniel A. Sanders, Knoxville, Tennessee, for the appellee, Knox County, Tennessee, and
Douglas Gordon, Knoxville, Tennessee, for the appellee, City of Knoxville.
                                              OPINION

                                          I. BACKGROUND

        Sky Ranch Airport, with its grass runway, various airplane hangars, and other
structures, is located on 26 acres1 in Knox County and is owned and operated by East
Tennessee Pilot’s Club, Inc. (“Pilot’s Club” or “the Club”), a “not for profit” corporation.
In 2009, a property assessor reclassified the entire airport from “farm property”2 to
“commercial property.”3 In a timely manner, Pilot’s Club appealed the reclassification to
the county board of equalization and then to the state board of equalization. The 2010
and 2011 appeals were consolidated for hearing before the state board of equalization,
and an administrative law judge (“ALJ”) found that the airport property was properly
classified as farm property.4 “Farm property” is assessed at a rate of 25% of the
appraised value, whereas “commercial property” is assessed at 40% of the appraised
value. Tenn. Code Ann. § 67-5-801.

       A second dispute regarding the airport property’s tax assessment arose after Knox
County’s 2013 reappraisal cycle. The property assessor determined that the property was
best classified as split between commercial and farm. Pilot’s Club received timely notice
of the assessment change and paid its taxes under protest beginning in 2013 and
continuing through 2016. In 2013, Pilot’s Club filed a chancery court action, seeking to
apply the ALJ’s determination from 2011 as binding under the doctrine of res judicata.
Pilot’s Club further filed a direct appeal to the state board of equalization, to which an
ALJ responded that the proper challenge to a change in assessment must be made to the
county board of equalization.

       Upon determining that it had subject matter jurisdiction to hear the res judicata
and/or collateral estoppel issue, the trial court ruled that the doctrines did not apply. The
court further concluded that it did not have subject matter jurisdiction to determine
whether the property assessor had legally changed the tax classification because the
issues raised were not “primarily legal.” Thus, the trial court dismissed the complaint
because Pilot’s Club had not exhausted its administrative remedies by appealing to the

1
  Because the property is designated as “flood plain,” the Tennessee Valley Authority placed the
following restrictions on it: (a) No residential or commercial development of any kind may be placed on
the property; (b) No enclosed structures (having walls) may be placed on the property; and (c) No sewage
or septic systems may be placed on the property.” Local pilots began using the property for a private,
recreational flying club in the early 1950s.
2
  “Farm property” includes “acreage used for recreational purposes by clubs.” Tenn. Code Ann. §67-5-
501(3).
3
  “Commercial property” includes “all property of every kind used, directly or indirectly, or held for use,
for any commercial, . . . club whether public or private, . . . whether conducted for profit or not. . . .”
Tenn. Code Ann. §67-5-501(4).
4
  The assessor was represented by office staff at the hearing. No appeal was filed.
                                                   -2-
Knox County Board of Equalization prior to seeking judicial review.            Pilot’s Club
thereafter timely filed this appeal.


                                          II. ISSUES

       We restate the issues raised on appeal by Pilot’s Club as follows:

       A.     Whether the trial court was correct in finding a lack of subject matter
       jurisdiction when plaintiff had failed to exhaust its administrative remedies.

       B.      Whether the trial court was correct in finding that the legal doctrines
       of res judicata and collateral estoppel do not prohibit the property assessor
       from reassessing or reclassifying real property.


                             III.   STANDARD OF REVIEW

       The issue of subject matter jurisdiction, which “call[s] into question the court’s
lawful authority to adjudicate a controversy brought before it,” is a question of law.
Redwing v. Catholic Bishop for the Diocese of Memphis, 363 S.W.3d 436, 445 (Tenn.
2012) and Cheatham Cnty. v. Kong, No. M2008-01914-COA-R3-CV, 2009 WL
1910952, *3 (Tenn. Ct. App. June 30, 2009) (citing Northland Ins. Co. v. State, 33
S.W.3d 727, 729 (Tenn. 2000)). Therefore, the review is de novo, without any
presumption of correctness. Kong, 2009 WL 1910952, at *3 (citing Northland Ins. Co.,
id.).


                                     IV. DISCUSSION

                                             A.

       Pilot’s Club argues that the chancery court has subject matter jurisdiction to hear
this case because the complaint raises purely legal issues. The taxpayer contends that it
may file such direct action because the issue is not one of valuation but of classification.
The Club asserts that it has never engaged in any business and provides no products or
services to the public. The governmental entities observe, however, that factual issues
surround “whether plaintiff is engaging in commercial activity by offering flight
instruction for fees at the property and maintaining aircraft available for rent for cross
country flying and instruction.”



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       Knox County and the City of Knoxville point to Tennessee Code Annotated
section 67-5-1401, which expressly provides for exhaustion of administrative review in
disputed tax assessments as follows:

              If the taxpayer fails, neglects or refuses to appear before the
              county board of equalization prior to its final adjournment,
              the assessment as determined by the assessor shall be
              conclusive against the taxpayer, and such taxpayer shall be
              required to pay the taxes on such amount; provided, that
              nothing herein shall be taken as conclusive against the state,
              county or municipality.

Tenn. Code Ann. § 67-5-1401 (emphasis added); see also Tenn. Code Ann. § 67-5-
1407(a)(1) (granting jurisdiction to county board of equalization for classification
disputes). As noted by the trial court, “[t]he use of the word ‘shall’ . . . indicates that the
legislature intended the requirements to be mandatory, not directory.” Myers v. AMISUB
(SFH), Inc., 382 S.W.3d 300, 308 (Tenn. 2012). “Where the statutory language is not
ambiguous . . . , the plain and ordinary meaning of the statute must be given effect.”
Calaway ex rel. Calaway v. Schucker, 193 S.W.3d 509, 516 (Tenn. 2005). We presume
that the legislature intended for each word to be given its full effect. Lanier v. Rains, 229
S.W.3d 656, 661 (Tenn. 2007).

       When applying the doctrine of exhaustion of administrative remedies, courts must
determine whether a statute provides an administrative remedy. When a statute explicitly
provides an administrative remedy, it is a long-established principle that a party must
exhaust this remedy prior to seeking relief from the courts. Thomas v. State Bd. of
Equalization, 940 S.W.2d 563, 566 (Tenn. 1997); Bracey v. Woods, 571 S.W.2d 828, 829
(Tenn. 1978); Tennessee Enamel Mfg. Co. v. Hake, 194 S.W.2d 468, 470 (Tenn. 1946);
see also State v. Yoakum, 297 S.W.2d 635, 641 (Tenn. 1956); State ex rel. Jones v. City
of Nashville, 279 S.W.2d 267, 283 (Tenn. 1955). “[W]hen exhaustion of administrative
remedies is required by statute, the failure to do so will deprive the court of subject
matter jurisdiction.” Chattanooga-Hamilton Cnty. Hosp. Auth. v. UnitedHealthcare Plan
of the River Valley, 475 S.W.3d 746, 758 (Tenn. 2015). On the other hand, exhaustion of
administrative remedies is not mandatory unless the statute “by its plain words” requires
it. Thomas, 940 S.W.2d at 566; Reeves v. Olsen, 691 S.W.2d 527, 530 (Tenn. 1985).
When not mandated by statute, the question of whether to require a party to exhaust
available administrative remedies is a matter of judicial discretion. Kong, 2009 WL
1910952, at *5 (citing Thomas, 940 S.W.2d at 566 n.5).

       If a taxpayer disputes a change in classification, his or her remedy is to appeal the
assessment to the county board of equalization. See Tenn. Code Ann. § 67-5-1401. The
county board of equalization has original jurisdiction to hear complaints on grounds that
property has been “erroneously classified or subclassified.” Tenn. Code Ann. § 67-5-
                                           -4-
1407(a)(1)(A). The proper tribunal for Pilot’s Club’s appeal of reclassification is the
county board of equalization.

       Regarding the matter at hand, Pilot’s Club was urged by the ALJ in 2013 to follow
correct procedure for appealing the tax classification by the property assessor. The ALJ
recommended that the Club “take proper steps to appeal any disputed assessment for a
future tax year to the County Board in case the taxpayer’s efforts in chancery court and/or
a future effort to appeal this Order ultimately prove unsuccessful.” The ALJ explained to
the Club that it “misconstrues the State Board Initial Decision & Order for tax years
2010-2011; it did not confer a perpetual tax classification on the subject property . . . .
[T]he taxpayer misunderstands the annual system of assessment, the appeals process, and
the State board’s duties and jurisdiction.” Nevertheless, the taxpayer paid its county and
city real property taxes under protest and filed this action for direct judicial review
without exhausting its administrative remedies.

       In contrast to exemption cases that are regarded as involving “primarily questions
of law with the fact questions being incidental thereto,” the trial court found this case to
involve key issues of fact as to commercial activity. Rosewood, Inc. v. Garner, 476
S.W.2d 273, 276 (Tenn. Ct. App. 1971). The claim before us presents a dispute
regarding the proper classification of the Club’s real property from 2013 to 2016. As
found by the trial court, this issue is not purely legal; it is a factual matter best left to the
expertise of the county board. See Schutte v. Johnson, 337 S.W.3d 767, 770-71 (Tenn.
Ct. App. 2010); Rosewood, Inc., 476 S.W.2d at 276. Thus, the trial court correctly
determined that it lacked jurisdiction to hear this case.


                                               B.

       Pilot’s Club argues that a ruling on land use and tax classification from a court of
competent jurisdiction is thereafter binding on the parties in future litigation when
nothing has occurred to change the classification. The Club contends that absent a
material change in conditions or circumstances, the property assessor should not
reconsider the same evidence in order to announce a different finding.

        “[T]he plea of res judicata in tax cases is to be limited to the taxes actually in
litigation and is not conclusive in respect to taxes assessed for other and subsequent
years.” Union & Planters’ Bank v. Memphis, 46 S.W. 557, 561 (Tenn. 1898).
Furthermore, under Tennessee law, “[t]he doctrine of Collateral Estoppel cannot be
applied in tax cases unless the identical taxes are involved in the second or later suit.”
Roane-Anderson Co. v. Evans, 292 S.W.2d 398, 402 (Tenn. 1956) (citing Union &
Planters’ Bank, 46 S.W. at 561). At the time the first ALJ handed down the order
classifying the airport property as farm property for the tax years 2010 and 2011, the
obligation to pay taxes for the years now in dispute, 2013-2016, had not yet arisen. “[A]
                                           -5-
party will not be prejudiced by a judgment as to the rights not then accrued.” White v.
White, 876 S.W.2d 837, 839 (Tenn. 1994).

        Given the statutory scheme of annual tax assessments in Tennessee, the property
assessor has a duty to reassess each parcel by a continuous cycle comprised of on-site
review or photo of the real property. Tenn. Code Ann. § 67-5-1601(a). Changes of
classification of property entitle the property owner to notice of such change, and any
disputes are to be brought to the local board of equalization. See Tenn. Code Ann. § 67-
5-1601(e).

        The trial court properly held that the legal doctrines of res judicata and/or
collateral estoppel do not apply to the dispute over the reclassification of the airport
property in 2013 through 2016. Earlier rulings by the state board of equalization of tax
classification of the property for prior years do not bar the property assessor from
reclassifying the Club’s property in the future.


                                   V. CONCLUSION

       We affirm the decision of the trial court and remand this cause for all further
proceedings as may be necessary and consistent with this opinion. The costs of this
appeal are assessed to the appellant, East Tennessee Pilot’s Club, Inc.




                                               _________________________________
                                               JOHN W. MCCLARTY, JUDGE




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