Liquor tax: City to wait and see
by JOYANNA LOVE Banner Senior Staff Writer
Feb 11, 2014 | 873 views | 0 0 comments | 12 12 recommendations | email to a friend | print
Liquor-by-the-drink sales tax revenue remains a disputed topic after the Cleveland City Council voted to delay action during a meeting Monday.

The Cleveland City Council passed a motion made by Councilman At-Large Richard Banks to delay action regarding previously collected liquor-by-the- drink tax (mixed drinks) revenue.

“We agree to meet 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,” Banks said in his motion.

It was approved unanimously.

The similar situation refers to a city that has liquor by the drink establishments in a county that does not.

A consensus between the city government and Bradley County Schools on what was dictated by the Tennessee Code Annotated was not reached Monday.

The City Council has remained firm that it has followed state law and is not required to split its educational portion of liquor-by-the-drink tax revenue, because it operates its own school system.

Tennessee Code Annotated 57-4-306 dictates that half of liquor- by-the-drink tax is kept at the state level. The other half goes to the local governments.

State law dictates how this money will be divided. It 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 provided, however, that except in counties having a population of not less than twenty-seven thousand nine hundred (27,900) nor more than twenty-seven thousand nine hundred twenty (27,920), 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 (½) of their proceeds of the gross receipts liquor-by-the-drink tax to the county school fund.”

“If you take the ‘however’ you are making an exception, (as in) except in this case … If it does not apply then the original statement is true,” BCBOE member Nicholas Lillios said.

He said since the city does operate its own school system, the exception does not apply.

“Why would they put that in there?” Banks asked.

“Because there are cities that do not operate their own school systems,” Lillios said.

There are an estimated 21 municipalities facing similar issues as Cleveland over the tax.

Attorney James Logan said if a municipality did not operate its own school system, then it would not get to keep any of the educational portion.

Banks’ motion was designed to deal with taxes that have already been collected. Logan said the state legislature might amend the law to effect future revenue.

Banks and Councilman at-Large George Poe had concerns the issue may lead to the county suing the city.

Logan, speaking on behalf of the Bradley County Board of Education, who was also present, said the law was written to give the “maximum benefit to education” from the required 15 percent state tax. He said there are many students who may live in a city school zone but attend a county school and vice versa.

“My hope is that this does not enter into litigation,” Logan said.

He said some cities and counties have already entered negotiations about payment.

Bradley County Board of Education Chairman Vicki Beaty said the board “appreciated the opportunity to meet” with the City Council. She said she hoped the two government entities could come to an understanding by the end of the meeting.

“I know that we can work together to do what is in the best interest for students of Bradley County and Cleveland City,” Beaty said.

Cleveland has offered liquor by the drink since a citywide referendum in 2002. 
However, revenue was generated before that by the tax in Cleveland in certain civic club meeting facilities that met specific criteria. This is why Logan has stated the city owes the Bradley County School system funds from as far back as 1980. He said this is as far back as the records he has goes. Based on this information, he estimated the amount of money owed by city to the Bradley County Schools to be more than $700,000.

At a previous meeting, the Bradley County Commission voted to let the BCBOE decide hoe to proceed.

The revenue issues stem from an audit that led to several counties in Tennessee finding that the local portion of the revenue had been distributed incorrectly. No findings specific to this issue have appeared in city of Cleveland audits.

Banks said he did not want the county and the city being the “test case” for how the law should be interpreted.

Logan said there were ways to settle the issue without going to court. The city and county schools could enter into negotiations, Logan said.

Logan presented attorney general opinions from 1983 to the Council.

“The legislature could have stepped in ’84, ’85, ’86 and changed the law and cleared it up and they have not,” District 2 Councilman Bill Estes said.

Lillios suggested if the city did owe the county schools revenue that something could be worked out to reduce of eliminate current payments the school system is making to the city as a result of sales tax litigation.

The school system has about a year and a half before their remaining payments would equal the amount of liquor tax revenue that has been stated by Logan.