The Bradley County Board of Education has voted to take legal action as part of an ongoing dispute with the city of Cleveland over previously collected liquor-by-the-drink taxes.
The board voted to pursue a declaratory judgment during its Thursday night meeting, a move school board members said they hoped would resolve the matter of the city allegedly owing the county school board more than $700,000 in back-tax revenues.
Tennessee state law requires a 15 percent tax to be charged on liquor sold by the drink. Tennessee Code Annotated 57-4-306 reads that “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 narrowly 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 school board meeting, Gary Hayes of the County Technical Advisory Service other counties statewide had been involved in liquor tax disputes. He said it began 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 looked into the matter as well.
Hayes said during the meeting the amount 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 Bradley County school board has repeatedly maintained that it is owed the money, while city government maintains it has been following the law and does not owe the money.
In late February, Tennessee Attorney General Robert Cooper Jr. issued an opinion on the case of a liquor-by-the-drink tax dispute between Hamilton County’s school system and the city of Chattanooga.
“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.’”
Though the opinion was issued at the request of state Rep. Gerald McCormick on the behalf of Chattanooga and Hamilton County, James Logan Jr., the attorney the Bradley County school board has retained in the matter, said after the opinion was released it “reaffirmed” the belief that the local school system is owed the money.
However, both Cleveland Mayor Tom Rowland and City Manager Janice Casteel said shortly after they believe the state attorney general’s opinion does not apply.
“We still believe we are exempt in regard to all the legal rulings we have received,” Rowland said Feb. 28. “I think it’s two different issues.”
The city had already voted to delay discussion on the issue. 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 said then the city should meet to discuss it again “in about 120 days to see if another city in similar circumstances is involved in a lawsuit and we will follow [the results] of that lawsuit.”
During Thursday night’s school board meeting, Board Chair Vicki Beaty said she had extended the invitation for city officials to attend and discuss the issue, but they declined to attend.
“We have certainly made efforts to work with the city,” she said.
Logan said he still believed the school board had a right to the $725,000 and reiterated his view that the state attorney general opinion bolstered that argument.
While he said other cities and counties were considering taking action on their local cases, most were still in the decision-making stage of things. Logan said that the city waiting to see what other cities would do would not negate the school board’s entitlement of the previously collected tax money.
“I don’t think they can do away with the past,” Logan said, referencing the line in the attorney general opinion that said “the county school board does not have authority to waive its statutory right” to the revenues.
Board member Chris Turner asked Logan what kind of timeline there would be for the other counties considering taking legal action, and Logan said it would be months before any final decisions were made.
He then listed some options the Bradley County school board would have if it decided to litigate, including pursuing a declaratory judgment.
A declaratory judgment is a court case that results in a ruling of who is in the right on a certain matter. While the case goes through the court system, the resulting ruling could not be immediately enforced without the school board pursuing a second case.
When Turner asked Logan if he believed the board should pursue such a judgment, Logan said it would be “inappropriate” to suggest the move.
However, he said it would likely result in a quicker resolution than some other types of cases, and it would provide everyone involved with an official court ruling that is specific to the dispute between the two local parties and addresses how the state law applies.
Board member Troy Weathers made the motion that the school board pursue a declaratory judgment.
“I think it’s time,” he said. “I think it’s time we just move forward.”
Turner proposed a substitute motion to pass a resolution that outlined all the actions the board had taken so far, including a resolution passed on Dec. 18, 2013, that said the board believed the money was owed to the group. It also acknowledged the state attorney general opinion and the city’s vote to “table this issue for 120 days.”
Including language stating it is “appropriate” to ask the courts to weigh in on the matter, the resolution outlined the board’s latest step.
“The Bradley County school system by and through the Bradley County school board authorizes and requests the law firm of Logan-Thompson, P.C. to take steps such as are necessary to request a judicial ruling as to the meaning and enforcibility of those provisions of state law which require that the liquor tax be distributed in like manner to the county property tax for schools is expended and distributed,” it read.
The board approved the substitute resolution unanimously with one member absent.
Logan said he would be meeting with members of the school board in the coming days to pin down the exact details of the case.