Casteel: AG ruling does not apply: City maintains it follows liquor-by-the-drink revenue distribution law
by RICK NORTON Associate Editor
Mar 02, 2014 | 1648 views | 0 0 comments | 18 18 recommendations | email to a friend | print
A nonbinding legal opinion rendered last week by Tennessee Attorney General Robert Cooper Jr. on the distribution of collected liquor-by-the-drink taxes does not impact a similar debate in Bradley County, Cleveland City Manager Janice Casteel contends.

In a statement issued late Friday, Casteel reiterated comments made earlier in the day by Cleveland Mayor Tom Rowland, who said Cooper’s ruling was made in response to questions coming out of Chattanooga and Hamilton County. The scenarios differ from an ongoing argument between the Cleveland City Council and Bradley County Board of Education.

As she has done in past interviews since the local question surfaced, Casteel stressed, “Cleveland has been following the state law’s formula for liquor-by-the-drink sales tax revenue all along.”

The question at hand is whether the city of Cleveland owes the Bradley County School System an estimated $725,000 — as of June 30, 2013 — based on state law, as interpreted by Cleveland attorney James Logan Jr., who first brought up the question to the county school board several weeks ago, and who has since been contracted by the local board to represent them in negotiations with the city and potentially in litigation, if needed.

In her statement Friday, Casteel alluded to Tennessee Code Annotated [TCA] 57-4-306(a)(2)(A), which was referenced in Cooper’s opinion.

The TCA section reads, “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 (1/2) of their proceeds of the gross receipts [from] liquor-by-the-drink to the county school fund.”

In the local dispute, the bottom line is this: Casteel and Rowland believe the city of Cleveland is properly following state law. Logan, acting as legal counsel for the county school board, believes the city is not.

In Friday’s edition of the Cleveland Daily Banner, Logan spoke to the state AG’s ruling.

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

That was one of the questions posed to the state attorney general by state Rep. Gerald McCormick, R-Chattanooga, who represents the 26th Legislative District and who also serves as House Majority Leader.

McCormick had been asked to seek the AG’s opinion by the Hamilton County school system which — in a case similar, but apparently not identical, to that of the Bradley County school system and the city of Cleveland — is in debate over liquor-by-the-drink tax revenues with the city of Chattanooga.

In that community, Mayor Andy Berke and Chattanooga city officials are currently reviewing Cooper’s ruling.

But in Cleveland, Rowland and Casteel contend they’re following the law. Logan disagrees.

Like Rowland did earlier in the day, Casteel, who was not available for comment Friday morning, said she believes Cooper’s opinion deals with conditions related only to Chattanooga and Hamilton County schools, and not Cleveland and Bradley County schools.

“An opinion by Attorney General Robert E. Cooper issued Feb. 26, 2014, deals with specific questions submitted to the attorney general’s office regarding circumstances unique to the City of Chattanooga and its negotiations with the Hamilton County school system,” Casteel’s statement cited.

She said the state AG’s opinion was answering questions posed specifically by McCormick about the Chattanooga and Hamilton County schools scenario.

“In his analysis that accompanies the answers to Leader McCormick’s questions, Attorney General Cooper quotes the state law which provides that a portion of the liquor-by-the-drink sales tax revenue be returned from the state to municipalities that have authorized the sale of liquor-by-the-drink,” Casteel contended.

The city manager added, “The City of Cleveland does operate its own school system, separate from the county.”

She pointed out Cleveland city voters approved liquor-by-the-drink sales in 2002.

While discussing the issue with the Bradley County Board of Education, Logan has in the past said the back tax revenues believed to be owed to the school system dated back to 1980, and he believed no statute of limitations would apply in pursuing the issue because it concerned two government entities, rather than private citizens.

In his assessment, which was also published in Friday’s edition of the Banner, Logan pointed to what he described as a notable difference between the cases in Hamilton and Bradley counties.

Logan said Chattanooga students attend school in the Hamilton County school system while students living in Cleveland can attend potentially either the Cleveland City or Bradley County school systems.

On Friday, Rowland said he concurred with Cooper’s opinion as it relates to the City of Chattanooga and Hamilton County schools because of that community’s unique circumstances. But it’s not a one-size-fits-all scenario, he suggested. The issue in Cleveland and Bradley County differs, the mayor argued.

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

Vicky Beaty, who chairs the Bradley County Board of Education, told the Banner on Friday she believes Cooper’s opinion is “very encouraging” and that it “does reaffirm” the position taken by the county school board and Logan.

As she has done previously, Beaty also left the door open for continued talks with Cleveland officials. She pointed to a scheduled session of the county school board on March 13 and invited city representatives to attend for further discussion.

The Cleveland City Council approved a motion Feb. 10 not to take any action yet, pending the possibility of litigation in some other Tennessee community that might help to resolve similar questions in Cleveland and Bradley County.

On Feb. 3, the Bradley County Commission voted to name the county school board as the “party of interest,” thereby authorizing the county school board to pursue litigation against the city, if necessary.

Questions over the payment of alleged back taxes involving the sale of liquor-by-the-drink are not exclusive to Cleveland and Bradley County nor Chattanooga and Hamilton County.

According to published reports, as many as 15 cities across Tennessee are trying to interpret how existing state laws relate to their municipal government and county schools jurisdictions. Among them are Knoxville, South Pittsburg, Jasper and Manchester, as well as others.

In response to statewide confusion over the liquor-by-the-drink tax distribution, Tennessee Department of Revenue Commissioner Richard H. Roberts posted a statement earlier on

It reads:

“The Department of Revenue is aware of some recent disputes between cities, counties and school districts regarding liquor by the drink tax revenues.

“State law (Tenn. Code Ann. Section 57-4-306) requires the department to distribute half of liquor-by-the-drink tax receipts to Tennessee's general fund for education purposes. The law further requires the department to send the other half of the liquor-by-the-drink money to the localities where the taxes were collected.

“With respect to the liquor-by-the-drink revenues that are distributed to the municipalities where the taxes were collected, state law requires those recipients to make further distributions of those funds in certain circumstances.

According to state law, cities that do not operate their own school systems separate from the county are required to pay half of the liquor-by-the-drink funds from the state to the county school fund.

“The department does not oversee the distribution of liquor-by-the-drink taxes after it disburses the funds to local governments. The Department generally has no oversight responsibility with respect to local government finances. The department believes it has appropriately distributed the liquor-by-the-drink taxes as required by law.”

According to state law, a 15 percent tax must be charged on liquor sold as individual drinks, such as in restaurants. TCA 57-4-306 cites, “... 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.”