Sales tax dispute headed for Wednesday court date
by DAVID DAVIS, Managing Editor
Sep 30, 2012 | 1294 views | 0 0 comments | 7 7 recommendations | email to a friend | print
Barring an appeal to the Tennessee Supreme Court, the longstanding sales tax dispute between the city of Cleveland and Bradley County could be settled this week in Knoxville.

Oral arguments are scheduled for Wednesday morning in the Tennessee Court of Appeals Eastern Division though it could be months before an opinion is written.

The city will continue its argument that the proceeds of the 1967, 1972, and 1982 sales taxes should be divided between the city and county based on the point of the sale as stated in Tennessee Code.

The city will also advance its claim that it should receive all proceeds collected within the city limits from the 2009 sales tax, if the county's 2009 referendum is unconstitutional.

If the county referendum is constitutional, then the city argues it should receive all of the tax collected within the city limits through June 30, 2010.

The county asserts the proceeds of each local option sales tax should be divided between the two local governments in accordance with the formula established in the 1967 contract, which is based on school population.

According to state law, the first 50 percent of any local sales tax collected must be given to the local school systems.

Under the 1967 agreement, two-thirds of the sales tax collected in the city goes to the city government. The remaining one-third is given to the county government.

The dispute over sales tax distribution began at a joint city and county work session Oct. 21, 2008, in which discussion concerned 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.

The City Council approved an ordinance for 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 again presented to voters and approved in 1982.

Cleveland voters approved increasing the city sales tax rate by .5 percent on March 10, 2009. The 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.

Chancellor Jerri Bryant ruled in March that the sales tax from the 2009 increase will go to the government jurisdiction where the tax is collected and the rest of the local sales tax will be divided based on a 1967 agreement.

She determined the city is not entitled to sales tax collected from previous years and no money already given to Bradley County Schools would be affected.

Bryant stated the first day the additional half-percent sales tax approved by city voters could be collected was July 1, 2009. Since FY2009 ended June 30, 2009, the city was able to collect only a couple of months’ worth of taxes, instead of a full year, without sharing with the county.

The Cleveland City Council voted May 14 to appeal the latest court ruling in an effort to break the 1967 sales tax agreement with Bradley County.