As interpreted by Cleveland attorney James Logan, who has been authorized by the Bradley County Board of Education to pursue legal action via a declaratory judgment, the money has been distributed incorrectly since the inception of current liquor tax laws governing how the funds are to be divided.
In a resolution that passed Monday, the Commission agreed to pay the county schools $81,437 and the city schools $39,101 in back taxes; plus, the taxes that would be owed for 2014. The 2014 amount has been estimated to be $6,000 to the county schools and $3,000 to the city schools.
Funds will come out of the county’s general fund.
These are the amounts Logan believes are owed based on his research.
“What those numbers represent is one half of the liquor-by-the-drink tax since its inception through June 30 of last year,” Logan told county government leaders.
Commissioners voted to suspend the governing body’s normal rules to allow a budget amendment to pass without sending it through the finance committee first.
“Based on our position that we would support the (Bradley County) school board, when the school board had voted to move forward with a suit or a declaratory judgment … I think that it’s only fair the county step up and do what’s right and to strengthen our position on the suit that we pay the city the portion of the taxes that have been collected in the county,” 2nd District Commissioner Ed Elkins said.
The motion passed unanimously. Commissioner Bill Ledford was absent.
“If it’s undisputed that this money should be done this way, how come it has never been done this way?” asked Mayor D. Gary Davis.
Trustee Mike Smith said he brought in auditors in 2006 to review certain distribution issues. Those auditors did not cite the county as having any distribution issues with liquor-by-the-drink taxes, Smith explained.
“The money in question was never in question with auditors. We received perfect audits,” Smith said.
He said he felt the issue stemmed from “... a change in the interpretation of that law. According to auditors, the Bradley County Trustee’s Office was doing it correctly.”
This revenue is less in the county than in the city due to more on-premises alcohol consumption establishments in the city than in the county.
The issue arose statewide after an auditor reportedly noticed the tax distribution was allegedly not following the Tennessee Code Annotated 57-4-306 requirements for distribution.
The law states, “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.”
The law lists exceptions for tourism towns, areas with a very specific population and municipalities that do not operate their own school system.
Presumably, a municipality that does not operate a school system does not get to keep any of the educational portion of the funding, based on Logan’s interpretation.
In several meetings, city officials have said they do not owe the county school system any portion of this money because Cleveland does in fact operate its own school system, and the entire educational portion it receives should go to the city system.
“We believe that their (the city’s) argument they don’t owe the tax is inappropriate and we have expressed that, as has the county school board,” Logan said.
Logan said legislation in committee in the General Assembly could affect this issue. Logan said the proposed bill could change how the liquor-by-the-drink tax is distributed, such as by limiting that distribution to the government jurisdiction that collected it. He said it would also address funds that have not been distributed correctly.
Logan emphasized he is uncertain whether the bill will pass.
Commissioners passed a resolution stating they are not in favor of legislation that would make the tax “situs based,” a legal term that specifies how a tax is collected based on geographic locale.
If the tax were made situs based, any taxes collected in the city would go only to the city. Any tax collected in the county would go only to the county, and neither would be required to divide it with the other.
The Commission also passed rezoning requests for a Georgetown Road address from rural residential (R-1) to rural commercial (C-1), a Waterlevel Highway property from high density residential (R-2) to general commercial (C-2) and a Georgetown Road address from forestry/agricultural/residential (FAR) to general commercial (C-2).