Liquor tax lawsuits consolidated: Chancellor gives 10 days for filing additional court brief
by JOYANNA LOVE Banner Senior Staff Writer
Jul 02, 2014 | 1361 views | 0 0 comments | 14 14 recommendations | email to a friend | print
A motion to consolidate the Bradley County Schools liquor-by-the-drink tax lawsuit with one by the McMinn County Schools was accepted by Chancellor Jerri Bryant in Bradley County Chancery Court Tuesday.

The motion was filed by attorney James Logan who is representing the Bradley County Schools.

The argument phase of the case has been consolidated. The discovery phase of the case, which will follow a decision regarding the motion to dismiss filed by the cities, will likely be handled separately.

Attorney Chris Trew, representing the city of Athens, said the attorneys agreed with the motion to consolidate, because “we agree whatever is decided in this case will affect our case in McMinn County.”

Bryant gave attorney Russ Blair, representing the cities of Etowah and Niota, 10 additional days to file a brief for the case. The school systems will have five days after that to respond.

Bryant said this will be the final response she will allow as part of the case.

The chancellor heard from all of the attorneys involved during the hearing.

Attorney Douglas Johnston is representing the city of Cleveland and has filed a motion for the case to be dismissed.

"The problem we see is that there is a threshold question. Does this county entity have any claim to these funds?" Johnston said.

The attorney said Tennessee Code Annotated 57, Chapter 4 does not apply in this case because Bradley County did not have a liquor-by-the-drink tax referendum. 
He said the law does not address counties that do not have a liquor tax, stating it implies that the law “is not effective in any county that has not passed a liquor-by-the-drink tax."

Attorney Scott Bennett said the law does not grant exemption for cities which have had a referendum and are inside counties that do not offer liquor by the drink.

He cited an attorney general’s opinion from 1980, which he said reinforced the city of Cleveland’s position. Bennett, who is representing McMinn County Schools, argued that the school systems are a separate government entity from the county government.

The attorneys did not agree on what the law meant when it said the revenue was to be divided the same way the county property tax is divided. When Bryant asked if the law was ambiguous, both parties said is was not. Yet, Logan said it meant that the liquor tax revenue should be divided based on the average daily attendance of the county and city schools. This is the way the county property tax education portion is divided.

Johnston said the law was referring to the formula used to distribute the city’s portion of the county property tax after it is received. He said this clause was put in the law so that the school systems did not use the revenue entirely for one project.

Niota is a special case, Blair said. Niota has not had a liquor-by-the-drink tax referendum, yet it receives revenue from an establishment with alcohol consumed on the premises. Blair said the liquor license had been approved before the area was annexed by Niota. He maintained that since the city never had a referendum, the law did not apply. Logan said the law applies to the revenue no matter how it was collected.

“They claim an exemption that is not put forth. It’s not there,” Logan said.

He said the cities do not collect the revenue. It goes to the state and then is distributed.

Bennett maintained the law was written to require the cities to share the liquor tax revenue because those living in a “dry county” will go to the city in order to get a drink.

State law requires that a 15 percent tax be charged on liquor bought and consumed at the same location. Tennessee Code Annotated 57-4-306 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 Bradley County School board voted to pursue legal action after the Cleveland City Council voted to delay a decision for 120 days. The rationale was to wait to see if another government or school system jurisdiction in Tennessee pursued litigation, and then to comply with that legal decision. The school system did not wait the 120 days, believing the Tennessee General Assembly might change the law and eliminate the option of school systems receiving back payments of the revenue.

The issue was discussed in the Legislature and a law was passed giving a specific outline for how the revenue should be distributed for the 2014-15 fiscal year. How to handle the revenue in the future and address issues with past distribution were left to local governments to decide. Bradley County, including the city of Cleveland, was exempted from the law because the local lawsuit had already been filed.