The sales tax is currently 9.75 percent in Bradley County. The state of Tennessee collects the sales tax and retains 7 percent of the tax revenue collected to fund state government. The remaining 2.75 percent is then returned to local governments.
State law dictates that the first half of the local portion of the sales tax revenue be used exclusively for education. With two school systems in Bradley County, the funds are split between Bradley County Schools and Cleveland City Schools based on Average Daily Attendance (ADA) or the number of students in each school system. Currently, 67 percent of students attend Bradley County Schools and 33 percent attend Cleveland City Schools.
State law permits local governments to work out agreements on the division of the second half of the sales tax revenue. If there is no agreement in place, the revenue will be distributed to the local government where the tax was collected.
When the countywide sales tax began in 1967, county and city leaders met together and negotiated an agreement for sharing the second half of the local sales tax revenue. The negotiated agreement reverses the percentages paid to the two school systems. This 1967 agreement is still in place today with Bradley County receiving 33 percent of the second half of sales tax revenue and the city of Cleveland receiving 67 percent.
In the 1990s, the city of Cleveland challenged and tried to terminate the 1967 negotiated sales tax agreement. Terminating the agreement with Bradley County would have resulted in additional sales tax revenues for the city of Cleveland because the majority of sales tax is collected within the city limits. Ironically, when the agreement was signed in 1967, the majority of sales tax was collected outside of the city limits of Cleveland.
Chancellor Henley heard the city of Cleveland’s challenge and ruled that the agreement could not terminated by the city of Cleveland, and that the city and county should divide the revenue as both governing bodies agreed to do in the 1967 sales tax agreement. Chancellor Henley’s ruling was appealed by the city of Cleveland, but the Court of Appeals upheld the chancellor's ruling in 1999.
The city and county have divided sales tax revenue since 1967 according to the agreement.
In late 2008, the Cleveland City Council called for a referendum on whether or not to increase the sales tax one-half cent. The referendum took place in March 2009, and was approved by voters in the city of Cleveland. Since this was a city-only referendum, the city receives all revenues generated by the increase above the county sales tax level and the first half of the revenue is not earmarked for education.
The County Commission chose not to participate in this referendum initially because commissioners felt it was not an appropriate time for a tax increase. Unfortunately, because the majority of retail businesses are located within the city limits of Cleveland, the citizens that reside outside the city limits were also paying this sales tax increase approved by city voters.
The County Commission called for a referendum to allow county voters an opportunity to benefit from the increase in sales tax revenue. The referendum was approved by county voters in May 2009. This action changed the half-cent increase to a countywide tax requiring the first half of revenue to go toward education.
This is the point where the most recent disagreement between the county and the city began. The city of Cleveland argued that revenue from the half-cent increase should be distributed based on where the sales tax is collected. The County Commission argued the revenue from the half-cent increase should be distributed according to the 1967 agreement.
The sales tax is collected by the state of Tennessee and paid to the County Trustee’s Office for distribution. County Trustee Mike Smith requested guidance from the county attorney on the proper division of the half-cent sales tax revenue. The county attorney advised that this difference of opinions should be resolved by the chancellor.
Bradley County requested a ruling from Chancellor Jerri Bryant on the correct distribution of the revenue from the half-cent sales tax increase. Chancellor Bryant ruled that the 2009 sales tax increase was not governed by the 1967 agreement and the revenue from the half-cent increase should be divided based on where the sales tax is collected.
Although this ruling is unfavorable to Bradley County, I am not in favor of an appeal. Five different judges have ruled that the 1967 sales tax agreement between the city of Cleveland and Bradley County cannot be terminated by the city of Cleveland and should remain in full force and effect under the terms of the contract.
An appeal by Bradley County or the city of Cleveland creates additional attorney's fees, anxiety and possible delays in needed projects. As County Commission chairman, I urge commissioners and Council members to accept the decision of the chancellor.
A good working relationship between the City Council and County Commission is critical for the continued success of our community. I will work to maintain and strengthen this relationship.