State court upholds liquor revenue ruling


Posted 12/28/17

The city of Cleveland does not have to share liquor-by-the-drink sales tax revenue with Bradley County.After a years-long process, the Tennessee Court of Appeals in Knoxville affirmed Wednesday the …

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State court upholds liquor revenue ruling


The city of Cleveland does not have to share liquor-by-the-drink sales tax revenue with Bradley County.

After a years-long process, the Tennessee Court of Appeals in Knoxville affirmed Wednesday the original ruling made by Chancellor Jerri S. Bryant in 2015.

The question before the court was whether the state statutes in effect before the July 2014 amendment of those statutes requires a municipality governed by its own liquor-by-the-drink referendum and operating its own school system to share half of its liquor-by-the-drink revenue with the county in which the municipality was located when the county had not enacted a liquor-by-the-drink referendum.

As described in the court’s decision, private clubs operated within the city limits before the 2002 referendum and legally sold liquor-by-the-drink on their premises.

The clubs collected liquor taxes and remitted the taxes to the state, which then returned half of those revenues to the city. The city then allocated 50 percent of the revenues received back from the state to its school system.

The court noted the city had continuously operated its own school system since 1966, one year before the liquor-by-the drink tax was initially enacted by the General Assembly.

“Since passage of the 2002 referendum, the city had continued to receive 50 percent of gross receipt taxes arising from sales of liquor-by-the drink,” the court said. “The city had not distributed any of its liquor-by-the-drink revenue to the Bradley County School System or the Bradley County Education Fund.”

The county schools filed a complaint on April 14, 2014 with Chancery Court seeking declaratory judgment regarding the rights and responsibilities of the parties concerning the tax. One month later, the city filed a motion to dismiss the complaint.

The county’s response was eventually consolidated with similar actions filed by the McMinn County Board of Education against the cities of Athens, Niota and Etowah. The trial court denied the various motions to dismiss in an order entered Sept. 24, 2014.

The General Assembly amended the statutes effective July 1, 2014, which set forth a detailed process by which counties that were owed funds by municipalities under the statutes could seek those funds and negotiate settlements as applicable.

The trial court conducted a hearing on March 2, 2015, and granted the city’s motion for summary judgment, finding that only political subdivisions that had authorized liquor-by-the-drink sales had the rights and responsibilities under state statutes.

It also concluded that liquor-by-the-drink funds were “to be paid to the local political subdivision which has passed the referendum thereby allowing the city to keep all funds raise by this tax.”

A final judgment was entered by the trial court in May 2, 2016, finding the city was entitled to retain all funds from “pre-referendum taxes collected from private clubs.”

“Although the 2014 amendment provided for a process by which counties that were owe funds by municipalities under the Tennessee Code Annotate could seek those funds and negotiate settlements as applicable, nothing in the amend statutory language provided that municipalities operating their own K-12 school systems, separate from the counties in which the municipalities were located, owed such funds to the corresponding counties,” the appeal court’s finding reads.

“The county has proffered no authority, and this court had fund none, to support a conclusion that pre-referendum, liquor-by-the-drink gross receipt taxes should have been expended and distributed differently than post-referendum taxes during a time period when neither the city nor the county had passed a referendum authorizing liquor-by-the-drink sales.”

The costs for the appeal, which will be assessed against the Bradley County School System, will now be determined by the trial court.


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