The city of Cleveland is entitled to keep all funds collected since city voters approved “liquor by the drink” in the Nov. 5, 2002 election. Bradley County Schools sued the city for taxes owed based on the school board’s interpretation of state law.
Cleveland City Schools will be allowed to keep its money. The city of Cleveland distributed the liquor by the drink tax to Cleveland City Schools, which was proper since Cleveland had a K-12 school system.
Chancellor Jeri S. Bryant stated in her ruling entered into the record Thursday that the tax receipts were to be paid “to the local political subdivision, which has passed the referendum, thereby allowing the city to keep all the funds raised by this tax.”
A similar referendum was defeated by Bradley County voters to allow “liquor by the drink.” She acknowledged that the city has operated its own kindergarten through 12th grade school system separate from Bradley County Schools and that the Tennessee Department of Revenue paid distributed funds to the city from the tax codified in Tennessee Code Annotated 57-4-301.
Chancellor Bryant wrote in the five-page order that both parties agreed on the facts, but it was the interpretation of Tennessee Code Annotated 57-4-301 that was disputed.
The city and county agreed that the first 50 percent of the tax went to the general fund of the state pursuant to state codes. The other half were to be "expended and distributed in the same manner as the county property tax for schools is expended and distributed," in this case, to the city or town where the tax is collected.
The city took the position that TCA §57-4-301 did not apply to the county because the county never authorized liquor by the drink. TCA §57-4-103(a)(l) states in part, "… (t)his chapter shall be effective in any jurisdiction which authorizes the sale of alcoholic beverages for consumption on the premises in a referendum ... . This court agrees that the county defeated the referendum and, therefore, has neither rights nor responsibilities under TCA §57-4-101. It is therefore, ORDERED, ADJUDGED and DECREED that the Defendant's Motion for Summary Judgment is hereby granted. The city is entitled to keep all funds collected pursuant to TCA §57-4-301.”
The county argued that a 2014 amendment declared the legislature's original intent was to require the municipality to distribute consumption tax proceeds to the county in which the municipality lies, regardless of whether the municipality operates its own school system.
“This court disagrees,” the chancellor wrote. “The 2014 Amendment to TCA §57-4-306 rewrote 306(a)(2) and provided a one-year timeframe that allowed the county to share in the collection of the taxes based on the average daily attendance of the students in the city system with the remaining amount to be distributed to the county trustee for the county school system. After July I, 2015, the proceeds pursuant to 306(a)(2) reverted back to the old language. The court finds this is an indication that the original language was intended to only allow funds to be paid to the local political subdivision which has passed the referendum thereby allowing the City to keep all funds raised by this tax.”
The Bradley County Board of Education and Bradley County versus the City of Cleveland was heard March 2, in Chancery Court for Bradley County. Cleveland Attorney James F. Logan represented the county and Douglas S. Johnston Jr., Nashville, represented the city.
This was the second dispute over tax distributions between the city and county in recent years. Bradley County Schools was ordered in November 2012 by the Appeals Court of East Tennessee to repay $1.422 million to the city. That legal entanglement began after Cleveland voters approved increasing the city sales tax rate by .5 percent on March 10, 2009.
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