State AG says city must pay past taxes
by CHRISTY ARMSTRONG Banner Staff Writer
Feb 28, 2014 | 1586 views | 0 0 comments | 21 21 recommendations | email to a friend | print
James Logan Jr.
James Logan Jr.
The Tennessee attorney general has issued an opinion on how county school boards can handle previously collected liquor-by-the-drink taxes, an issue that has been heavily debated by the Bradley County Board of Education and the City of Cleveland.

The opinion by Attorney General Robert Cooper Jr. outlines how school boards can’t forgive past liquor taxes owed to them and how cities can pay those back tax revenues to county school systems.

Bradley County Board of Education Chair Vicky Beaty and the school board’s attorney, James Logan Jr., have expressed differing views from Cleveland Mayor Tom Rowland on what the official opinion means for the local liquor tax debate.

“Every issue that’s in this opinion addresses what we have said so far,” Logan said. “We maintain the position that the statute is clear. This reaffirms that the school board cannot forgive back revenue.” 

The recent attorney general’s opinion was requested by state Rep. Gerald McCormick, who did so at the request of those in Chattanooga and Hamilton County who have been embroiled in a similar debate over previously collected tax money.

The notable difference, Logan said, is that Chattanooga students attend school in the Hamilton County Schools system while students living in Cleveland could potentially either attend the Cleveland City Schools system or Bradley County Schools system.

Rowland acknowledged the state attorney’s opinion had a connection to Hamilton County and said he was in agreement with Cooper’s opinion on what should happen in that county. However, he said the city of Cleveland maintained its position that it does not owe those back tax revenues.

“We still believe we are exempt in regard to all the legal rulings we have received,” Rowland said. “I think it’s two different issues.”

State laws include the requirement that a 15 percent tax be charged on liquor sold as individual drinks. Tennessee Code Annotated 57-4-306, which concerns the “consumption of alcoholic beverages on premises,” says “one half of the proceeds shall be expended and distributed in the same manner as the county property tax for schools is expended and distributed.

“According to the 1980 federal census or any subsequent federal census, any proceeds expended and distributed to municipalities which do not operate their own school systems separate from the county are required to remit one half of their proceeds of the gross receipts liquor-by-the-drink tax to the county school fund,” it reads. That applied to counties with populations between 27,900 and 27,920 when that census was taken.

This state law has been debated statewide as county school systems try to determine what previously collected tax revenues may be owed to them by the cities within their counties.

During a Feb. 6 meeting of the Bradley County Board of Education, Gary Hayes of the County Technical Advisory Service explained that his organization had worked with other counties on liquor tax disputes throughout the state. He said it all started when a consultant with the Municipal Technical Advisory Service found a city he had been working with had not been properly distributing those tax revenues to the county school system there. Because of that, CTAS began looking into the matter as well.

Hayes said the amount that Cleveland owed the Bradley County Schools system was “right at” $725,000 as of the end of the previous fiscal year, which ended in June 2013.

The recent attorney general’s opinion “reaffirmed” the county school board’s views on the issue, Logan said.

“A county school board’s claim for recovery of unremitted liquor-by-the-drink tax revenues is not subject to any statute of limitations,” the state AG opinion read. “In seeking to recover tax revenues that should have been allocated to the school fund pursuant to state statutes governing education funding, the county would be exercising a sovereign function, and statutes of limitations do not apply to the exercise of such a function.”

Additionally, “The county school board does not have authority to waive its statutory right to receive liquor-by-the-drink taxes under Tenn. Code Ann. § 57-4-306. ... A county school board lacks the authority to waive its right to liquor-by-the-drink tax revenue. Moreover, even if a school board’s entitlement to such tax revenue could be waived, it would require the approval of the county commission, since it is the county commission that ‘has the authority to appropriate the funds necessary to carry out the county education program.’”

The Bradley County Commission voted to name the school board the “party of interest” in the liquor tax issue during its Feb. 3 meeting. The school board was given the go-ahead to pursue any litigation deemed necessary.

Beaty said early this morning the state attorney general’s opinion was “very encouraging,” adding she feels the opinion “does reaffirm” the stance the school board and Logan had taken on the issue.

Logan has said in the past that he and the school board hoped to settle the issue without pursuing court litigation, though that has not been eliminated as a possibility.

“We would like to discuss this with the city to find a solution,” Beaty said.

Following a discussion of Cleveland city government and Bradley County school board representatives, the Cleveland City Council approved a motion on Feb. 10 saying it would not yet take any action on the matter.

City Councilman Richard Banks, who made that motion, said early today he would not comment on the Tennessee Attorney General’s recent opinion because he had not yet read it and would refer any questions about it to the city’s attorney, John Kimball. Kimball could not be reached for comment before press time.

Beaty said the issue would be discussed at the next county school board meeting on March 13, and she would welcome any Cleveland officials who want to attend and discuss the issue with the board.