# Williamson County, Tennessee v. Tennessee State Board of Equalization

> Court of Appeals of Tennessee · November 28, 2023

URL: https://www.frixlaw.com/law-library/cases/9905243

## Case

- **Court:** Court of Appeals of Tennessee
- **Decided:** November 28, 2023
- **Precedential status:** Published
- **Opinion:** Opinion
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9905243

## How later opinions describe it (automated extraction)

- recognizing “[t]he weight of the theories and the resolution of legitimate but competing expert opinions are matters entrusted to the trier of fact”

## Opinion text

11/28/2023
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
August 2, 2022 Session

WILLIAMSON COUNTY, TENNESSEE ET AL. v. TENNESSEE STATE
BOARD OF EQUALIZATION ET AL.

Appeal from the Chancery Court for Williamson County
No. 47743 James G. Martin, III, Judge
___________________________________

No. M2021-01091-COA-R3-CV
___________________________________

A taxpayer appealed a County Board of Equalization’s property valuation to the State
Board of Equalization. The State Board reduced the valuation. The County then sought
judicial review. After a new hearing in which the trial court heard testimony from
competing appraisers, it affirmed the State Board’s valuation. It also determined that the
County’s request to reclassify the property was untimely. We affirm.

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

W. NEAL MCBRAYER, J., delivered the opinion of the court, in which FRANK G. CLEMENT,
JR., P.J., M.S., and THOMAS R. FRIERSON II, J., joined.

Robert T. Lee, Mt. Juliet, Tennessee, for the appellants, Williamson County, Tennessee,
and Brad Coleman, Williamson County Assessor of Property.

Stephen J. Jasper, and Matthew J. Sinback, Nashville, Tennessee, for the appellee, AT&T
Services, Inc.

Herbert H. Slatery III, Attorney General and Reporter, Andrée Sophia Blumstein, Solicitor
General, and Mary Ellen Knack, Senior Assistant Attorney General, for the appellee,
Tennessee State Board of Equalization.

OPINION

I.

In late 2013, DC402 Franklin Road LLC purchased an office building/data center
located in Brentwood, Tennessee, from AT&T Services, Inc. as part of a sale-leaseback
transaction. DC402 Franklin Road paid $109,220,000 for the approximately 43-acre
property. It then leased the property back to AT&T for an initial term of ten years, with
three ten-year renewal options. The lease was triple net with base rent starting at
$7,645,330 per year, which increased 2 percent annually. So, over the initial term, AT&T
would pay total rent of $83,714,230.47 plus taxes, insurance, and maintenance.

After the purchase, Williamson County assumed responsibility for assessing the
property for ad valorem tax purposes.1 Its assessor of property assessed the property at
$85,850,000 as of January 1, 2015. This assessment triggered the current dispute over the
proper valuation of the property.

A.

DC402 Franklin Road appealed the assessment to the Williamson County Board of
Equalization. See Tenn. Code Ann. § 67-5-1407(a) (2018). The County Board upheld the
assessment. So DC402 Franklin Road appealed to the State Board of Equalization,
identifying AT&T as its authorized representative and the taxpayer. See id.
§ 67-5-1412(a)(1) (2018).

AT&T contended the value of the property was lower than assessed. Williamson
County countered that the value was actually higher than assessed. The administrative
judge determined that neither party carried its burden of proof to alter the assessed value.
See TENN. COMP. R. & REGS. 0600-01-.11 (2022) (placing the burden of proof on the “party
seeking to change the current classification and/or assessment”). So it affirmed the 2015
valuation.

AT&T then appealed to the State Board’s Assessment Appeals Commission. See
Tenn. Code Ann. § 67-5-1502(a) (Supp. 2017). Again, both parties objected to the 2015
valuation. The Commission conducted a new evidentiary hearing on the valuation of the
property as permitted by then-existing law.2 It heard from four witnesses.

AT&T called James “Jimmy” Brown, Ron Neyhart, and Richard Sullivan.
Mr. Brown, an AT&T employee, oversaw the data center’s operations when it was sold to
DC402 Franklin Road. He testified to the building’s outdated infrastructure and the
extensive renovations that would have been necessary for the building to meet 2015 data

1
Before the purchase, the Office of State Assessed Properties, a division of the Comptroller of the
Treasury, assessed the property as public utility property. See Tenn. Code Ann. §§ 67-5-801(a), 67-5-1301
(Supp. 2017); see also Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 833 (Tenn. 2008).
2
For appeals filed to the Commission before July 1, 2017, as here, the parties could provide “any
additional or supplemental evidence . . . relevant to an issue raised in the appeal.” TENN. COMP. R. & REGS.
0600-01-.13 (2016).

2
center standards. And Mr. Sullivan, a representative from AT&T’s property tax group,
said that AT&T did not intend to exercise the option to extend the initial lease term.
Mr. Neyhart, an appraiser with a commercial real estate services firm, opined that the
property’s highest and best use was for mixed use development. Based on this use, he
believed its fee simple value was $21,850,000.

Mr. Sullivan also explained the 2013 sale-leaseback transaction had “little or
nothing to do with market value of the applicable propert[y].” It was a financial transaction
negotiated to maximize AT&T’s cash proceeds up front. AT&T often entered into such
transactions, leasing the facilities back “at above-market rental rates to essentially pay back
the loans.” So the sales price and lease payments were linked, irrespective of the property’s
market value.

To support its valuation, Williamson County offered the testimony of David Horner,
an appraiser in its assessor’s office. He opined that the value of the property was higher
than originally assessed. His valuation was based on DC402 Franklin Road’s “leased fee”
interest in the property, specifically its interest subject to the lease with AT&T.

The Commission issued a final decision and order classifying the property as
commercial property and reducing its valuation. In reaching its decision, the Commission
agreed with AT&T that the 2013 sale-leaseback was “not representative of market value.”
Rejecting the opinions of both parties’ appraisers, the Commission arrived at its own
valuation of $45,700,000.3

Williamson County filed a petition for reconsideration, asserting that the
Commission failed to value the property in accordance with Tennessee law. Williamson
County also argued, for the first time, that the property should be classified as public utility
property for ad valorem tax purposes. The Commission denied the petition.4

B.

Williamson County and the assessor (together, “Williamson County”) petitioned for
judicial review. They asked the trial court to find that the fair market value of the property
was $103,500,000 as of January 1, 2015, and to reclassify the property as a public utility
rather than commercial property. Rather than confining themselves to the record created
before the Commission, the parties retained new valuation experts and engaged in
discovery.

3
The Commission utilized the income approach to valuation, using data from AT&T’s appraisal
report.
4
Because the State Board did not seek to review the action, the Commission’s decision became the
final decision of the State Board. See Tenn. Code Ann. § 67-5-1502(j) (Supp. 2017).

3
Williamson County’s expert, Peter F. Korpacz, determined the “leased fee” value
of the property based on an assumption that the sale-leaseback contract rent was “market
rent” that would continue in perpetuity. And the property’s highest and best use was as a
data center. But he had not spoken to anyone at AT&T regarding the functional capabilities
of the property in 2015 or whether AT&T intended to stay.

The appraisal also referenced DC402 Franklin Road’s sale of the property to a third-
party buyer in 2017.5 As Mr. Korpacz explained, the 2017 sale was not used to value the
property. Rather it showed the “demand for the property” and supported his valuation for
the property as of 2015. The 2017 sale was a “portfolio sale” in which the third-party buyer
purchased fourteen data centers, including the Franklin Road property, for a total price of
$750,000,000. The deed conveying the Franklin Road property stated the consideration
was $110,000,000. Mr. Korpacz was uncertain how the parties determined the portion of
the total portfolio price to allocate to the Franklin Road property. He had not spoken with
the parties about the price allocation.

In response, AT&T offered David C. Lennhoff as an expert on real estate appraisal
methodology. Mr. Lennhoff testified that Mr. Korpacz’s reliance on the 2013
sale-leaseback transaction was not appropriate. The transaction was a financing vehicle.
And, in appraisals, sale-leaseback transactions are “appropriate to ignore” when they are
financing vehicles. He also diminished the significance of the 2017 portfolio sale. In such
sales, the parties may “just allocate [the total portfolio sale price] as a matter of
convenience.”

Mr. Brown, the AT&T employee who oversaw the data center’s operations, and
Russ McFadden, AT&T’s vice president of portfolio management and strategy, testified
about the property’s condition and use. The property’s infrastructure, technology, and
power capabilities were all obsolete in 2015. Modernizing the property would require
tearing the building down. AT&T entered into the sale-leaseback transaction because it
needed time to remove the property’s infrastructure while maintaining connectivity to its
broader network. It never intended to renew the lease after the initial term.

Finally, AT&T offered the appraisal report and testimony of Richard Perutelli.
Mr. Perutelli consulted with AT&T employees, a broker with specialized knowledge about
data centers, and local zoning officials and developers. And he concluded that
redevelopment, which would require demolition of the building, was the highest and best

5
Although the 2017 sale occurred just a few months before the April 2018 hearing, the Commission
allowed Williamson County to offer the evidence “for the limited purpose of substantiating a reasonable
pre-assessment-date assumption” that the property continued to be marketable as a data center. The
transaction did not affect AT&T’s lease.

4
use for the property. For purposes of redevelopment, Mr. Perutelli valued the property at
$45,700,000.6

Before rendering its decision, the trial court requested that the parties and the State
Board of Equalization provide post-trial arguments as to the appropriate standard of review.
The trial court ultimately applied a de novo standard of review based on Tennessee Code
Annotated § 67-5-1511(b) and case law. See Anderson Cnty. Tenn. v. Tenn. State Bd. of
Equalization, No. E2018-00142-COA-R3-CV, 2020 WL 762511, at *7 (Tenn. Ct. App.
Feb. 14, 2020) (citing Richardson v. Tenn. Assessment Appeals Comm’n, 828 S.W.2d 403,
406 (Tenn. Ct. App. 1991)).

Based on this standard of review and the evidence, the trial court found the
property’s value was $45,700,000 as of January 1, 2015. In doing so, the court credited
Mr. Perutelli’s testimony and relied on his opinion of the fair market value. It noted that
the Commission had independently arrived at the same valuation. It also found that the
property was functionally obsolete and unmarketable as a data center in 2015. It concluded
that “Tennessee law require[d] valuation of the fee simple estate available to be leased at
market rate.” Neither the 2013 sale-leaseback transaction nor the 2017 portfolio sale
reflected the market rate.

The trial court also concluded that the property was properly classified as industrial
and commercial property. Williamson County had waived the classification issue because
it failed to act to reclassify the property within the statutory time limit. And even if the
issue had not been waived, Williamson County had failed to establish the property should
be reclassified. The court “ha[d] received little evidence demonstrating the [p]roperty’s
use as a public utility in 2015.”

II.

Williamson County appeals, raising three issues. The first two issues focus on the
valuation of the property. The last focuses on the classification of the property. But before
reaching those issues, we must address the proper standard of review.

A.

Williamson County and AT&T agree on the standard of review. Because this case
originated with a decision from the State Board of Equalization, they contend the

6
Mr. Perutelli arrived at his valuation by first determining the property’s value with the existing
building was $47,327,940. He then deducted $2,016,000, the projected cost of demolition based on
estimates obtained from local construction companies. And he added $393,000 for the value of some
generators that could be salvaged. This resulted in a net value of $45,704,940, which Mr. Perutelli rounded
to $45,700,000.

5
deferential standard of review under the Uniform Administrative Procedures Act
(“UAPA”) should apply. See Tenn. Code Ann. § 4-5-322(h) (2021). Under the UAPA, a
court may reverse or modify an administrative decision only

if the rights of the petitioner 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)(i) [U]nsupported by evidence that is both substantial and material in
light of the entire record;
(ii) 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.

Id.

The State Board contends that the standard of review should be de novo. Under
Tennessee Code Annotated § 67-5-1511(b), the statute providing for judicial review of
State Board decisions, the review must “consist of a new hearing in the chancery court
based upon the administrative record and any additional or supplemental evidence which
either party wishes to adduce relevant to any issue.” Id. § 67-5-1511(b) (2018). Here, the
trial court did conduct a new hearing and the parties submitted additional evidence. The
State Board reasons that receipt of additional evidence is incompatible with the UAPA
standard. Judicial review under the UAPA is confined to the administrative record, except
“[i]n cases of alleged irregularities in procedure before the agency, not shown by the
record.” Id. § 4-5-322(g). If the evidence on which the State Board relies must be
measured by a “substantial and material” standard as required by the UAPA, the
introduction of “additional or supplement evidence” would make no difference.

More importantly, the Tennessee Supreme Court has defined “de novo judicial
review” using the same language that appears in Tennessee Code Annotated
§ 67-5-1511(b). See Frye v. Memphis State Univ., 671 S.W.2d 467, 469 (Tenn. 1984). In
other words, “[a] statute requiring de novo judicial review means ‘a new hearing in the
chancery court based upon the administrative record and any additional or supplemental
evidence which either party wishes to adduce relevant to any issue.’” Tenn. Waste Movers,
Inc. v. Loudon Cnty., 160 S.W.3d 517, 520 (Tenn. 2005) (quoting Frye, 671 S.W.2d at
469).

6
Under the version of the statute in effect when Williamson County sought judicial
review of the decision of the State Board, this Court has held in at least one reported
decision that the standard of review is de novo.7 Maury Cnty. ex rel. Maury Reg’l Hosp.
v. Tenn. State Bd. of Equalization, 117 S.W.3d 779, 782 (Tenn. Ct. App. 2003). But, in
other reported decisions, this Court has held that judicial review falls under the deferential
standard found in the UAPA. Coal Creek Co. v. Anderson Cnty., 546 S.W.3d 87, 97 (Tenn.
Ct. App. 2017); Willamette Indus., Inc. v. Tenn. Assessment Appeals Comm’n, 11 S.W.3d
142, 147 (Tenn. Ct. App. 1999). Because later decisions did not expressly reverse earlier
decisions, it is difficult to discern which reported decision should be deemed controlling.
See TENN. SUP. CT. R. 4(G)(2) (providing that “[o]pinion[s] reported in the official reporter
. . . shall be considered controlling authority for all purposes unless and until such opinion
is reversed or modified by a court of competent jurisdiction”). Most of this Court’s
unreported decisions have held that the UAPA governs judicial review of decisions of the
State Board. See, e.g., Am. Bus. Supply, Inc. v. Tenn. State Bd. of Equalization, No. M2022-
01411-COA-R3-CV, 2023 WL 7101290, at *5 (Tenn. Ct. App. Oct. 27, 2023); In re TWT
Acquisition, LLC, No. M2020-01100-COA-R3-CV, 2022 WL 554312, at *1 (Tenn. Ct.
App. Feb. 24, 2022); Cress v. Tenn. State Bd. of Equalization, No. E2021-00093-COA-R3-
CV, 2021 WL 5148088, at *4 (Tenn. Ct. App. Nov. 5, 2021); Vanderbilt Univ. v. Tenn.
State Bd. of Equalization, No. M2014-01386-COA-R3-CV, 2015 WL 1870194, at *5
(Tenn. Ct. App. Apr. 22, 2015); Spring Hill, L.P. v. Tenn. State Bd. of Equalization, No.
M2001-02683-COA-R3-CV, 2003 WL 23099679, at *4 (Tenn. Ct. App. Dec. 31, 2003).
But the trial court relied on a recent, unreported case of this Court that described the review
of final decisions as de novo. See Anderson Cnty. Tenn., 2020 WL 762511, at *7.

Given this Court’s conflicting precedent, we rely on the Tennessee Supreme Court’s
definition of de novo judicial review. It means, as Tennessee Code Annotated
§ 67-5-1511(b) provides, “a new hearing in the chancery court based upon the
administrative record and any additional or supplemental evidence which either party
wishes to adduce relevant to any issue.” See Frye, 671 S.W.2d at 469. It does not “mean
a complete repetition of all of the evidence.” Id. at 469 n.2. But the parties may avail
themselves of the opportunity to submit additional or supplemental evidence.

We use the scope of review from Tennessee Rule of Appellate Procedure 13(d). See
Wells v. Tenn. Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999). The trial court’s findings
of fact derived from the additional or supplemental evidence are reviewed de novo upon
the record, accompanied by a presumption of correctness, unless the preponderance of the

7
For appeals filed on or after July 1, 2023, the Legislature has resolved the question of the proper
standard of review by amending Tennessee Code Annotated § 67-5-1511(b) to clarify that the review “is a
de novo appeal, with no presumption of correctness of the decisions of the lower tribunals of the case at
hand.” See S.B. 148, 113th Gen. Assemb., Reg. Sess. (Tenn. 2023). An earlier version of the judicial
review statute also used the words “de novo appeal.” Cress v. Tenn. State Bd. of Equalization, No. E2021-
00093-COA-R3-CV, 2021 WL 5148088, at *4 n.3 (Tenn. Ct. App. Nov. 5, 2021).

7
evidence is otherwise. TENN. R. APP. P. 13(d). We review the trial court’s conclusions of
law de novo with no presumption of correctness. Colonial Pipeline Co. v. Morgan, 263
S.W.3d 827, 836 (Tenn. 2008).

B.

Turning to the issues raised on appeal, Williamson County first faults the trial court
for allegedly failing to consider the property’s intrinsic value. It argues that part of that
intrinsic value is the AT&T lease. Property value must “be ascertained from the evidence
of its sound, intrinsic and immediate value, for purposes of sale between a willing seller
and a willing buyer without consideration of speculative values.” Tenn. Code Ann.
§ 67-5-601(a) (Supp. 2017). Williamson County reasons that it would be “highly unlikely
that a ‘willing seller’ would sell the subject property on January 1, 2015, for the proposed
value of $45,700,000 . . . when the property would generate over $76,000,000 in rent over
the remaining term of the lease.”

In valuing property, assessors must “be guided by, and following the instructions
of, the appropriate assessment manuals issued by the division of property assessments and
approved by the [State Board].” Id. § 67-5-602(b) (2018). Those manuals consider several
factors, including “current use” and “whether the property is income-bearing or non-
income bearing.” Id. § 67-5-602(b). But those manuals also consider “other factors and
evidence of value generally recognized by appraisers as bearing on the sound, intrinsic and
immediate economic value at the time of assessment.” Id. Here, the court determined,
based upon the report of AT&T’s appraiser, Mr. Perutelli, that “[i]t is widely accepted and
recognized in the appraisal field that, when valuing the fee simple interest in a property, all
rentable space must be estimated at market rent levels, and any rent attributed to specific
leases must be disregarded.” And it found the 2013 sale-leaseback transaction “was a
financing transaction and not an arm’s length sale.” So the sales price and rent were not
reflective of the market. Use of the 2013 transaction would inflate the market value of the
property and not be credible.

We discern no error in the court’s acceptance of Mr. Perutelli’s opinion that the
2013 sale-leaseback transaction should not be taken into account in valuing the property.
See Brown v. Crown Equip. Corp., 181 S.W.3d 268, 275 (Tenn. 2005) (recognizing “[t]he
weight of the theories and the resolution of legitimate but competing expert opinions are
matters entrusted to the trier of fact”). Mr. Perutelli demonstrated sufficient experience
and familiarity with real estate appraisals. And professional literature supported his
opinion that the terms of a sale-transaction should not be used to value property unless
those terms can be confirmed to be at market. The evidence also supports the findings that
the sales price and rent from the 2013 sale-leaseback transaction were above market. The
proof showed that the terms of the transaction were negotiated like a loan, with the purchase
price dependent on the rent AT&T was willing to pay.

8
Williamson County next faults the trial court’s determination of the highest and best
use of the property. It claims that the court found that the highest and best use of the
property was for the improvements on the property to be demolished and the land
redeveloped. But we agree with AT&T that the court made no such determination. Rather,
the court recognized that “Mr. Perutelli ultimately concluded that the [p]roperty’s highest
and best use was ‘redevelopment,’ which requires demolition of the building.” This
conclusion informed the appraiser’s opinion of the property’s value, including which
valuation approaches were appropriate. Although it might be surmised that the court
agreed with this aspect of Mr. Perutelli’s opinion, the court made no finding concerning
the property’s highest and best use.

C.

For taxation purposes, property classified as real property is subclassified according
to its use. The use subclassification, in turn, determines the applicable assessment ratio
(and tax burden for the taxpayer):

(1) PUBLIC UTILITY PROPERTY. Public utility property shall be assessed
at fifty-five percent (55%) of its value;

(2) INDUSTRIAL AND COMMERCIAL PROPERTY. Industrial and
commercial property shall be assessed at forty percent (40%) of its value;

(3) RESIDENTIAL PROPERTY. Residential property shall be assessed at
twenty-five percent (25%) of its value; and

(4) FARM PROPERTY. Farm property shall be assessed at twenty-five
percent (25%) of its value.

Tenn. Code Ann. § 67-5-801(a) (Supp. 2017). When real property is used for more than
one purpose, the property is apportioned among the different subclasses according to State
Board guidelines. Id. § 67-5-801(b)(1). As its final issue, Williamson County contends
that the property should be subclassified as public utility property and not as industrial and
commercial property.

We conclude that the issue was waived. The trial court denied Williamson County’s
request to reclassify the property on two alternative and independent grounds. The court
concluded that Williamson County “ha[d] failed to timely preserve the issue and waived
its right to pursue classification,” and the court determined that Williamson County had
failed to prove that the property should be classified as public utility property. In its brief,
Williamson County only addressed the latter ground. It addressed the former ground in its
reply brief.

9
“Generally, where a trial court provides more than one basis for its ruling, the
appellant must appeal all the alternative grounds for the ruling.” Hatfield v. Allenbrooke
Nursing & Rehab. Ctr., LLC, No. W2017-00957-COA-R3-CV, 2018 WL 3740565, at *7
(Tenn. Ct. App. Aug. 6, 2018). When an appellant fails to do so, the lower court must be
affirmed. Id. at *8. Although the timeliness issue is addressed in the reply brief, reply
briefs are not “vehicle[s] to correct deficiencies in initial briefs.” Augustin v. Bradley Cnty.
Sheriff’s Office, 598 S.W.3d 220, 227 (Tenn. Ct. App. 2019).

III.

The evidence did not preponderate against the trial court’s valuation of the property.
And the issue of the correct subclassification of the property was waived. So we affirm.

s/ W. Neal McBrayer
W. NEAL MCBRAYER, JUDGE

10

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9905243. Public record. Not legal advice.