Lamar Advertising of Tennessee, Inc. v. City of Knoxville

I N THE COURT OF APPEALS OF TENNESSEE

EASTERN SECTI ON

LAMAR ADVERTI SI NG OF ) KNOX COUNTY TENNESSEE, I NC. ) 03A01- 9609- CH- 00294 ) Pl a i nt i f f - Appe l l a nt ) ) ) HON. FREDERI CK D. M DONALD, c v. ) CHANCELLOR ) ) CI TY OF KNOXVI LLE ) ) De f e nda nt - Appe l l e e ) REVERSED AND REMANDED

LAWRENCE P. LEI BOW TZ OF KNOXVI LLE FOR APPELLANT I

SHARON E. BOYCE OF KNOXVI LLE FOR APPELLEE

O P I N I O N

Godda r d, P. J .

La ma r Adve r t i s i ng of Te nne s s e e ( La ma r ) a ppe a l s f r om a n o r d e r o f t he Cha nc e r y Cour t of Knox Count y t ha t uphe l d t he v a l i d i t y of a pr ovi s i on of t he Knoxvi l l e Ci t y Code , Ar t i c l e V, Se c t i o n 10- N ( Or di na nc e ) t ha t a s s e s s e s a l i c e ns e f e e pe r a nnum f o r t h e i ns pe c t i on of a l l e xi s t i ng gr ound a nd por t a bl e s i gns wi t h i n t he Ci t y of Knoxvi l l e . La ma r owns a nd ma i nt a i ns 350 *2 o u t d o o r a dve r t i s i ng s t r uc t ur e s wi t hi n t he Ci t y of Knoxvi l l e a n d h a s c h a l l e nge d t he va l i di t y of t he or di na nc e .

La ma r ’ s c ha l l e nge r a i s e s nume r ous i s s ue s . La ma r c l a i ms t ha t t he o r di na nc e i s i n r e a l i t y a t a x a nd, a s s uc h, r e s ul t s i n i mp e r mi s s i bl e doubl e t a xa t i on a s t o i t ; t ha t t he or di na nc e i s n o t u n i f o r m a nd e qua l a s r e qui r e d by t he Te nne s s e e Cons t i t ut i on; t h a t t h e o r d i na nc e i s i n vi ol a t i on of t he Equa l Pr ot e c t i on Cl a us e o f t h e Fo u r t e e nt h Ame ndme nt of t he Cons t i t ut i on of t he Uni t e d St a t e s ; a nd t ha t t he or di na nc e i s i n vi ol a t i on of t he Fi r s t Ame n d me nt of t he Cons t i t ut i on of t he Uni t e d St a t e s . As a l r e a d y n o t e d , t he Tr i a l Cour t uphe l d t he va l i di t y of t he or di na nc e .

I n J une 1986, t h e Ci t y of Knoxvi l l e pa s s e d a n or di na n c e r e q u i r i ng a n a nnua l i ns pe c t i on of a l l e xi s t i ng gr ound a nd p o r t a bl e s i gns f or c ompl i a nc e wi t h z oni ng, e l e c t r i c a l , me c ha ni c a l a n d a n y ot he r a ppl i c a bl e c ode s . Ar t i c l e V, Se c t i on 10- N of t h e Kn o x v i l l e Ci t y Code r e a ds a s f ol l ows :

N. Annua l i ns pe c t i o n f e e s .

1. I n a ddi t i on t o t he pe r mi t f e e s s e t f or t h i n Se c t i on M a nd c omme n c i ng on J ul y 1, 1987, a n a nnua l , i n s pe c t i on f e e s ha l l be a s s e s s e d f or a ny e xi s t i ng g r ound s i gn or por t a bl e s i gn a s f ol l ows :

a. Si gns of f i f t y ( 50) s qua r e f e e t a nd l es s . $12. 00 b. Si gns f i f t y- one ( 51) t o one hundr e d ( 100) s qua r e f e e t . . . . . 25. 00 c. Si gns one h undr e d one ( 101) t o f our hundr e d f i f t y ( 450) s qua r e f e e t . . . . . . . . . . . . . . . . . . . . . . . . . . 50. 00

d. Si gns l a r ge r t ha n f our hundr e d f i f t y ( 450) s qua r e f e e t . . . . . 100. 00

2. These inspection fees shall not apply to any on-premises sign owned by an organization if said organization is exempt from taxation pursuant to paragraph (3) of subsection (C) of Section 501 of the Internal Revenue Code of 1954 as amended, if said organization submits proof of its tax-exempt status to the sign inspector.

3. The sign inspector shall make an annual inspection of existing ground and portable signs for compliance with the provisions of zoning, electrical, and other city codes. The inspector shall attach a permanent numbered tag to each inspected sign and shall maintain records of all inspected signs.

I n pr e pa r a t i on f or t he a dmi ni s t r a t i on a nd e nf or c e me n t o f t h e or di na nc e , a 1987 c ont r a c t wa s e nt e r e d i nt o be t we e n t he

Ci t y o f Knoxvi l l e a nd t he M t r opol i t a n Pl a nni ng Commi s s i on ( M e PC) ,

wh e r e b y t he MPC, a s a ge nt f or t he Ci t y of Knoxvi l l e , wa s t o p e r f o r m t he i ns pe c t i on dut i e s out l i ne d i n t he or di na nc e . Ewi n g J o h n s o n , di r e c t or of l ong r a nge pl a nni ng f or t he MPC, wa s a s ke d t o s u p e r vi s e t he s ur ve y of t he s i gns f or t he Ci t y of Knoxvi l l e .

The MPC e mpl oye e s who c a r r i e d out t he dut i e s unde r t h e

o r d i n a n c e , a nd who we r e s upe r vi s e d by M . J ohns on, di d not r

c on d u c t e l e c t r i c a l , me c ha ni c a l or c ode i ns pe c t i ons of t he s i gn s a s d i r e c t e d by t he or di na nc e , but onl y i nve nt or i e d t he s i gns . Th e s e i ndi vi dua l s ha d no t ool s or e qui pme nt f or us e i n t he i n v e n t o r y, ha d no t r a i ni ng i n e ngi ne e r i ng a nd mos t ha d onl y a h i g h s c hool e duc a t i on. Th e f or ms c ompl e t e d by t he s ur ve y t e a m c o n t a i n e d a n e nt r y f or t he c ont e nt of t he s i gn a nd i f t he s i gn ’ s p u r p o s e wa s t o a dve r t i s e , a not a t i on wa s ma de on t he f or m.

St e ve El l i s wa s t he n hi r e d a s t he Ci t y Si gn I ns pe c t or t o i ns p e c t t he s i gns a f t e r t he y we r e i ni t i a l l y i nve nt or i e d. He h a d n o e xpe r i e nc e or t r a i ni ng i n e l e c t r i c a l or me c ha ni c a l i n s p e c t i ons a nd wa s not t r a i ne d i n t he c i t y e l e c t r i c a l c ode . In

f a c t , M . El l i s t e s t i f i e d t ha t he di d not know wha t r e qui r e me nt s r

a r e c on t a i ne d i n t he c i t y e l e c t r i c a l c ode r e l a t i ng t o gr ound

s i gns . M . El l i s c onduc t s t he s e s i gn i ns pe c t i ons by dr i vi ng t o r

t h e s i g n l oc a t i on, vi s ua l l y i ns pe c t i ng t he s i gn, of t e n f r om hi s c a r , a n d not i ng on a f or m t he da t e of t he i ns pe c t i on a nd whe t he r

t h e s t r uc t ur e wa s a ppr ove d or di s a ppr ove d by hi ms e l f . M . El l i s r

c o n d u c t s s t r i c t l y a vi s ua l i ns pe c t i on.

At t r i a l , La ma r c a l l e d St e ve Ha r b, a c e r t i f i e d publ i c

a c c ou n t a nt , t o t e s t i f y a s a n e xpe r t wi t ne s s . M . Ha r b pr e pa r e d r

c h a r t s c onc e r ni ng t he a mount of t i me t ha t M . El l i s r out i ne l y r

s p e n t p e r f or mi ng hi s j ob of i ns pe c t i ng s i gns . Ba s e d upon M . r

El l i s ’ r e por t s a nd de pos i t i on t e s t i mony, M . Ha r b c a me t o t he r

c o n c l u s i on t ha t M . El l i s s pe nds a n a ve r a ge of 5. 478 mi nut e s on r

e a c h i n di vi dua l s i gn i ns pe c t i on. M . Ha r b a l s o de t e r mi ne d t ha t r

t h e a v e r a ge c os t f or t he Ci t y f or t hi s i ns pe c t i on s e r vi c e wa s $ 1 . 5 9 p e r s i gn.

Al l f unds ge ne r a t e d by t hi s s i gn i ns pe c t i on pr oc e s s a r e p l a c e d i nt o t he ge ne r a l a c c ount of t he Ci t y of Knoxvi l l e . The s i g n i n s pe c t i on f e e s a r e n ot s e gr e ga t e d. The f or m whi c h t he Ci t y s i g n i n s pe c t i on bi l l s a r e pr i nt e d on i s t he s a me f or m t ha t i s *5 u s e d f o r t he a d va l or e m t a xe s t he Ci t y l e vi e s on bus i ne s s . Th e Ci t y Fi na nc e De pa r t me nt ha s r e s pons i bi l i t y f or c ol l e c t i ng d e l i n q u e nt s i gn i ns pe c t i on f e e s a nd t he Ta x Col l e c t i on Di vi s i o n o f t h e Ci t y Fi na nc e De pa r t me nt pur s ue s t he c ol l e c t i on of t he s e f e e s i n t he s a me ma nne r a s t he y c ol l e c t de l i nque nt t a xe s .

W mus t f i r s t d e t e r mi ne whe t he r t he i ns pe c t i on f e e i s e

a c t ua l l y wha t i t pur por t s t o be or whe t he r i t i s i n r e a l i t y a t a x. I n Te nne s s e e , t a xe s a r e di s t i ngui s he d f r om f e e s by t he o b j e c t i ve s f or whi c h t he y a r e i mpos e d. I f i t i s pr i ma r i l y f or t h e p u r pos e of r a i s i ng r e ve nue , i t i s a t a x. Howe ve r , i f i t s p u r p o s e i s f or t he r e gul a t i on of s ome a c t i vi t y unde r t he pol i c e

p o we r o f t he gove r ni ng a ut hor i t y, i t i s a f e e . M mphi s Re t a i l e

Li q u o r De a l e r s ’ As s oc i a t i on, I nc . v. Ci t y of M mphi s , 547 S. W 2 d e .

2 4 4 ( Te nn. 1977) ; S & P Ent e r pr i s e s , I nc . v. Ci t y of M mphi s , 67 2 e

S. W 2 d 213 ( Te nn. App. 1983) . .

Si nc e a muni c i pa l i t y i nc ur s c os t s i n di s c ha r gi ng c e r t a i n dut i e s c r e a t e d by t hi s t ype of or di na nc e , i t i s onl y r e a s o n a bl e t o r e qui r e t hos e be ne f i t i ng f r om t he s e r vi c e t o de f r a y t h e c o s t s c omme ns ur a t e wi t h t he e xpe ns e s i nc ur r e d by t he mu n i c i p a l i t y. I t i s onl y r e qui r e d t ha t t he f e e s be a r s ome r e a s o n a bl e r e l a t i on t o t he e xpe ns e i nvol ve d a nd i t i s no o b j e c t i on t o a r e gul a t or y l i c e ns e t ha t i t pr oduc e s mor e i nc ome t h a n i s r e qui r e d f or i t s a dmi ni s t r a t i on a nd e nf or c e me nt . S & P

En t e r p r i s e s , I nc . v. Ci t y of M mphi s , s upr a . e

The Ci t y of Knoxvi l l e a r gue s t ha t a l t hough t he f e e pe r s i g n i s mor e t ha n t he a c t ua l e xpe ns e i nc ur r e d by t he i ns pe c t i o n , t h e f e e mus t onl y be a r s ome r e a s ona bl e r e l a t i ons hi p t o t he e x p e n s e s i nvol ve d. The Ci t y of Knoxvi l l e a s s e r t s t ha t a c ha r g e o f $ 1 0 0 f or a s i gn i ns pe c t i on of a s i gn l a r ge r t ha n 450 s qua r e f e e t i s r e a s ona bl e . Thi s a r gume nt i s ma de de s pi t e t he f a c t t ha t t h e Ci t y Si gn I ns pe c t or a d mi t s t ha t hi s i ns pe c t i ons a r e onl y vi s ua l i ns pe c t i ons a nd of t e n i nvol ve s ne ve r l e a vi ng hi s c a r . In s u p p o r t of t hi s a r gume nt , t he Ci t y of Knoxvi l l e r e l i e s upon

M mp h i s Re t a i l Li quor De a l e r s ' , s upr a . e

I n M mphi s Re t a i l Li quor De a l e r s ' , t he Supr e me Cour t e

u p h e l d a Ci t y of M mphi s or di na nc e t ha t i mpos e d a n i ns pe c t i on f e e e

u p o n wh ol e s a l e r s a nd r e t a i l e r s of a l c ohol i c be ve r a ge s . The Te nn e s s e e Le gi s l a t ur e pa s s e d a s t a t ue t ha t a l l owe d muni c i pa l i t i e s t o c h a r ge a f e e f or l i quor i ns pe c t i on of no mor e t ha n f i ve p e r c e nt of t he whol e s a l e pr i c e of a l c ohol i c be ve r a ge s . Pur s ua nt

t o t h e pr e c e di ng gr a nt e d a ut hor i t y, t he Ci t y of M mphi s pa s s e d a n e

o r d i n a n c e whi c h i mpl e me nt e d t he f i ve pe r c e nt i ns pe c t i on f e e . Th e l i q u o r de a l e r s c ha l l e nge d t he or di na nc e be c a us e t he r e ve nue g e n e r a t e d by t he or di na nc e i s 200 t i me s t he c os t of r e gul a t i on .

I n uphol di ng t he or di na nc e , t he Cour t c onc e de d t ha t a c h a l l e n ge ba s e d upon t he d i s pa r i t y i n t he f e e c ha r ge d a nd c os t o f r e g u l a t i on i n t hi s c a s e mi ght be va l i d i f t he a c t i vi t y r e gul a t e d wa s a n y t hi ng ot he r t ha n t h e l i quor bus i ne s s . The Cour t r e l i e d u p o n t h e St a t e ' s i nhe r e nt pol i c e powe r t o s ubj e c t t he l i quor *7 t r a f f i c t o s t r i c t s upe r vi s i on or pr ohi bi t i on be c a us e i t i s

p o t e n t i a l l y, i f not a c t ua l l y, da nge r ous t o t he publ i c he a l t h, 1 mo r a l i t y a nd we l f a r e . Fur t he r mor e , t h e St a t e Le gi s l a t ur e

a u t h o r i z e d a f i ve pe r c e nt i ns pe c t i on f e e on a l c ohol i c be ve r a ge s wi t h n o r e qui r e me nt t ha t t he f e e be a r a ny r e l a t i ons hi p t o t he c o s t o f t he i ns pe c t i on.

W f i nd t ha t t he de c i s i on i n M mphi s Re t a i l Li quor e e

De a l e r s ’ i s di s t i ngui s ha bl e f r om t he c a s e a t ba r . The s i gns c a n n o t be c ons i de r e d ha r mf ul t o t he publ i c he a l t h, mor a l i t y a nd we l f a r e . As a r e s ul t , we hol d t ha t out door a dve r t i s i ng s i gn i n s p e c t i on f e e s mus t be a r a r e a s ona bl e r e l a t i ons hi p t o t he s e r v i c e s r e nde r e d by t he muni c i pa l i t i e s .

W f i nd t he de c i s i on i n M r t i n M di a v. He mpf i e l d e a e

To wn s h i p Zoni ng He a r i ng Boa r d , 671 A. 2d 1211 ( Pa . Commw. Ct . 1 9 9 6 ) , pe r s ua s i ve on t he i s s ue of whe t he r t he f e e c ha r ge d be a r s a r e a s o n a bl e r e l a t i ons hi p t o t he s e r vi c e s r e nde r e d by t he

mu n i c i p a l i t i e s . The or di na nc e c ha l l e nge d i n M r t i n M di a a e

a s s e s s e d a $100 l i c e ns e f e e pe r a nnum f or t he i ns pe c t i on a nd

1 The Court quoted with approval a decision of the Supreme Court of Illinois which stated as follows:

"It is true, as a general proposition, that a regulatory license fee must bear 'some reasonable relation' to the expenses involved in the supervision and inspection of the licensed business. (citations omitted.) But this general proposition 'does not apply where the license charge is imposed on those occupations which, while they are tolerated, are recognized as being hurtful to public morals, productive of disorder, or injuries to the public such as the liquor traffic' . . . the amount of the license fee may itself have a permissible regulatory effect."

Memphis Retail Liquor Dealers’ Association at page 246, quoting Lalumio v. Fasseas, 171 N.E.2d 43, 44 (Ill. 1960).

r e g u l a t i on o f b i l l boa r ds wi t h He mpf i e l d Towns hi p. At t r i a l , t h e s i g n i n s pe c t or t e s t i f i e d t ha t he c onduc t e d vi s ua l i ns pe c t i ons onl y. He a l s o a dmi t t e d t ha t f or s ome i ns pe c t i ons , no one got o u t o f t h e c a r a nd i n s ome c a s e s t he c a r di d not s t op movi ng. An e x p e r t t e s t i f i e d f or t he pl a i nt i f f a nd opi ne d t ha t t he i ns pe c t i o n c os t wa s muc h l e s s t ha n t h e f e e c ha r ge d. Ba s e d upon t he s e f a c t s , t h e c o u r t s t r uc k down t he or di na nc e .

The Cour t i s mi n df ul t ha t t he r e i s a pr e s umpt i on i n f a v o r o f va l i di t y of a n or di na nc e , a nd t he one que s t i oni ng t he v a l i d i t y of t he or di na nc e ha s t he bur de n of pr oof t o s how i t s

i nv a l i d i t y. S & P Ent e r pr i s e s , s upr a . W f i nd t ha t La ma r ha s e

s a t i s f i e d t ha t bur de n a nd t ha t t he or di na nc e i s i n r e a l i t y a t a x . As p r e v i ous l y s t a t e d, t he s i gn i ns pe c t or di d not c onduc t e l e c t r i c a l o r me c ha ni c a l i ns pe c t i ons of t he s i gns a s i ns t r uc t e d b y t h e s t a t ut e . The s i gn i ns pe c t or c onduc t e d onl y vi s ua l i n s p e c t i ons of t he s i gns , of t e n f r om hi s c a r . Fur t he r mor e , La ma r p u t o n pr oof de mons t r a t i ng t he di s pa r i t y i n t he a c t ua l c os t of t h e s i g n i ns pe c t i ons a nd t he f e e s c ha r ge d. The r e c or d c l e a r l y d e mo n s t r a t e s t ha t t he s i gn i ns pe c t i on f e e s di d not be a r a r e a s o n a bl e r e l a t i ons hi p t o t he s e r vi c e s r e nde r e d by t he s i gn i n s p e c t or .

Af t e r de t e r mi ni ng t ha t t he s i gn i ns pe c t i on f e e s a r e i n r e a l i t y a t a x, we mus t n e xt de t e r mi ne whe t he r t he or di na nc e i s a n i mp e r mi s s i bl e doubl e t a xa t i on. Doubl e t a xa t i on i s pr ohi bi t e d b y t he Te n ne s s e e Cons t i t ut i on unl e s s i t i s pl a i n t ha t t he *9 l e g i s l a t ur e i nt e nde d t o t a x t he s a me pr ope r t y t wi c e . St a l c up v .

Ci t y o f Ga t l i nbur g , 577 S. W 2d 439 ( Te nn. 1978) . . I f a s t a t ut e i s

e n a c t e d by t he Te nne s s e e Le gi s l a t ur e , whi c h a l l ows f or doubl e t a x a t i o n, t he s t a t ut e mus t c ont a i n l a ngua ge whi c h pl a i nl y i n d i c a t e s s uc h a n i nt e nt i on a nd t he r e i s a l s o a pr e s umpt i on

a g a i n s t s uc h a n i nt e nt i on. W l l i a ms v. M s s a c hus e t t s M ua l Li f e i a ut

I n s u r a n c e Co. , 221 Te nn. 508, 427 S. W 2d 845 ( 1968) . .

La ma r pa ys a gr os s r e c e i pt s t a x t o t he Ci t y on r e ve n u e g e n e r a t e d f r om l e a s i ng out door a dve r t i s i ng s i gns . The a bove

d i s c u s s e d or di na nc e i s a s e c ond t a x t ha t La ma r mus t pa y t he Ci t y 2 o f Kn o x vi l l e . Thus , La ma r i s s ubj e c t t o doubl e t a xa t i on. Th e

Ci t y o f Knoxvi l l e poi nt s t o no l a ngua ge t ha t i ndi c a t e s t he Le g i s l a t ur e i nt e nde d t o do ubl e t a x a dve r t i s i ng c ompa ni e s . Th e r e f o r e , we hol d t ha t t he a bove di s c us s e d or di na nc e r e s ul t s i n i mp e r mi s s i bl e doubl e t a xa t i on.

Si nc e we f i nd t he f i r s t i s s ue t o be di s pos i t i ve , we d o n o t a d d r e s s t he ot he r i s s ue s r a i s e d by La ma r . Fur t he r mor e , i t i s we l l e s t a bl i s he d t ha t a c our t wi l l not pa s s on t he i s s ue of t he c o n s t i t ut i ona l i t y o f a s t a t ut e unl e s s i t i s a bs ol ut e l y ne c e s s a r y f o r t h e de t e r mi na t i on of t he c a s e a nd of t he pr e s e nt r i ght s of

t he p a r t i e s t o t he l i t i ga t i on. W s t v. Ca r r , 212 Te nn. 367, 37 0 e

S. W 2 d 469 ( 1963) . . Cour t s s houl d a voi d de a l i ng wi t h

2 W d o n o t f i n d i t n e c e s s a r y t o d e c i d e wh e t h e r t h e a b o v e d i s c u s s e d e o r d i n a n c e i s a n a d v a l o r e m t a x o r a p r i v i l e g e t a x o n a d v e r t i s i n g c o mp a n i e s .

c o n s t i t ut i ona l que s t i ons a bs t r a c t l y or i s s ui ng a dvi s or y opi ni o n s .

St a t e v . Ki ng, 635 S. W 2d 113 ( Te nn. 1982) . .

For t he r e a s ons s t a t e d a bove , t he j udgme nt of t he Tr i a l Co u r t i s r e ve r s e d. The $19, 577 pa i d i nt o t he Re gi s t r y of t he Co u r t , pl us a c c r ue d i nt e r e s t , i s di r e c t e d t o be pa i d t o La ma r , a n d t h e c a us e i s r e ma nde d t o t he Tr i a l Cour t f or s uc h f ur t he r p r o c e e d i ngs a s ma y be ne c e s s a r y a nd c ol l e c t i on of c os t s be l ow wh i c h a r e , a s a r e c os t s o f a ppe a l , a dj udge d a ga i ns t t he Ci t y.

_______________________________ Hous t on M Godda r d, P. J . .

CONCUR:

_ _ _ _ _ _ _ _________________________ Ch a r l e s D. Sus a no, J r . , J .

_ _ _ _ _ _ _ _ __________________ ______ W l l i a m H. I nma n, Sr . J . i