Judicial Update: Leasehold Interest Is Subject to Property Tax Despite Payment In Lieu of Tax Agreements

State and Local Tax Bulletin - Tennessee Edition



The Tennessee Court of Appeals recently held in Creative Label, Inc. v. Weakley County Assessor of Property that payments made in lieu of property tax (“PILOT”) reduce the value of taxable leasehold interests but do not exempt taxpayers from ad valorem taxes on the leasehold interest. This case serves as an important reminder for businesses negotiating property tax incentives with local taxing authorities that the tax exempt status of real property owned by an industrial development board and leased to the business extends only to the fee simple interest in the real property; the leasehold interest in the property remains taxable notwithstanding PILOT agreements if the leasehold has value.

To read the complete newsletter, click here.