After about an hour of hearing attorneys argue points of law, Chancery Court Judge Jerri Bryant ended the debate and said it would be sometime after the first of the year before she will make a decision.
The latest motion, filed Aug. 4, asked Bryant to alter or amend the summary judgment issued July 5, regarding the half-cent sales tax increase in 2009.
The motion also asks for a clarification of the date on which the city could collect its own sales tax without sharing with the county.
The judgment states the city can collect its own sales tax until the end of the fiscal year in which it was adopted. The date listed in Bryant’s order is June 30, 2010; however, the county’s motion stated the date should have been June 30, 2009.
The dispute over sales tax distribution began at a joint city and county work session Oct. 21, 2008, in which discussion concerning the need to fund capital projects and the possibility of a referendum allowing the voters to decide to raise the sales tax by .5 percent was discussed.
The City Council approved an ordinance for a referendum on Nov. 24, 2008. County commissioners voted not to participate in a countywide referendum as they had on three previous occasions in 1967, 1972, and a failed referendum in 1980, which was presented again to voters and approved in 1982.
Cleveland voters approved increasing the city sales tax rate by .5 percent. The March 10, 2009, ballot referenced the ordinance, which limited the funds for capital needs of the city and Cleveland City Schools.
Bradley County commissioners changed their position and voted 9-5 to approve a referendum for voters residing outside the city of Cleveland on May 14, 2009. The referendum passed by county voters did not restrict the use of funds solely for capital needs.
In the lawsuit filed by Bradley County against the city, Bryant ruled the city was allowed to collect its own sales tax through June 30, 2010, and is therefore due $1.424 million that was distributed to Bradley County Schools.
The county is arguing the end date should have been set at June 30, 2009.
The city contends the date stated in the judge’s order is correct and according to the state’s situs-based distribution formula, the city’s General Fund is also due — in addition to the $1.424 million — the funds accumulated by the Bradley County Trustee’s Office while the lawsuit was pending. That amount is now about $900,000, including interest.
Bryant’s order provided that after June 30, 2010, the state’s situs-based distribution formula — not the 1967 sales tax agreement between the city and the county — provided the basis for which the 2009 sales tax is to be divided in the future.
As part of the “motion to alter or amend judgment,” the city asked the court to amend its prior order to state: Beginning March 7, 2009, the second half of the proceeds of the 1982 sales tax agreement should be distributed in accordance with Tennessee code, which would amount to about $750,000 annually in operational funds for the city.
The city argues the original 1967 contract between the city and county did not extend to the 1982 tax increase. Therefore, it is entitled to receive its statutory share of proceeds of the tax increases since 1982.
The county contends the 1967 agreement was reauthorized prior to the failed 1980 referendum. There was no need to pass additional resolutions in 1982 because that referendum presented to the public was identical to the 1980 agreement. Therefore, the 1980 agreement was still valid. The city argues the agreement was not in effect.
After Bryant issued the latest order in July, county commissioners asked the city to accept an $850,000 settlement. However, that amount is $1.424 million less than city officials say they are entitled.
According to the July 5 decision handed down by Bryant, had the city accepted the county’s offer, the Council would have given up its rights to the additional funds.
Also, the city would have relinquished its right to claim the distribution of the 1982 local option sales tax increase of .75 percent should be distributed according to the state’s situs-based formula and not the 1967 sales tax agreement.
The city would also have given up the right to seek further judicial review of its right to terminate the existing sales tax agreement in its entirety.
Cleveland City Council members unanimously declined the county’s offer and chose instead to make a counteroffer which would have deferred any payments from the county until fiscal year 2014.
