Liquor-by-the-drink lawsuit heads to state’s highest court

By TIM SINIARD
Posted 5/27/18

The Tennessee Supreme Court has granted an appeal in connection to a lawsuit between the city of Cleveland and Bradley County that has undergone a circuitous path through the court system.The case …

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Liquor-by-the-drink lawsuit heads to state’s highest court

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The Tennessee Supreme Court has granted an appeal in connection to a lawsuit between the city of Cleveland and Bradley County that has undergone a circuitous path through the court system.

The case stems from a dispute between the city and county regarding tax revenue generated from liquor-by-the-drink sales. In the lawsuit, the county claims the city is required to share 50 percent of the revenue generated by tax receipts, with half of the proceeds going to education and the other half going to local governments.

In 2002, Cleveland voted to allow mixed alcohol beverages to be purchased and consumed at the same location. Bradley County has not passed a similar resolution.

In December of last year, the Tennessee Court of Appeals in Knoxville affirmed a 2015 ruling made by Bradley County Chancellor Jerri S. Bryant. In that decision, Bryant ruled in favor of the city, which would allow it to retain all liquor sales tax revenue.

In the preceding decision, the court stated “since passage of the 2002 referendum, the city had continued to receive 50 percent of gross receipt taxes arising from sales of liquor by the drink. The city had not distributed any of its liquor-by-the-drink revenue to the Bradley County School System or the Bradley County Education Fund,” according to a story published in the Cleveland Daily Banner.

In affirming Bryant’s ruling, the court allowed the city to retain the tax revenues in question.

In the same ruling, the city asserted “the trial court properly interpreted the governing statute as directing that because the city operated its own school system, the portion of its liquor-by-the-drink revenue not paid into the state’s general education fund was to be split between the city and the city itself.”

The court stated  “we determine that the governing statute was ambiguous in that the distribution scheme for a city operating its own school system could be reasonably interpreted in more than one way.”

However, the court concluded  “the trial court did not err in determining that the city was not required to share one-half of its liquor-by-the-drink tax revenue with the county’s school system.”

The case was remanded to trial court.

The lawsuit is similar to one between the Coffee County Board of Education and the City of Tullahoma, where voters in Tullahoma had authorized the sale of liquor by the drink and Coffee County voters had not.  In that case, the Court of Appeals in Nashville noted  “a trial court ruled that the distribution provisions of a [state law] were not effective in Coffee County and that the statute was ambiguous.” However, the court stated “we do not find the statutory language ambiguous.” 

The court addressed a ruling made in trial court.

“The trial court found that, because Coffee County had not approved liquor by the drink by referendum, the distribution provisions of [the statue] were not effective in Coffee County. We disagree.”

The court then reversed the decision.

James Logan, the attorney representing the county, told the Banner last week  the Supreme Court recently granted an application for permission to appeal. The appeal was filed May 17. 

Oral arguments will begin within the next several weeks.

“No date has been set, but we will be writing briefs,” Logan said Friday.

The current case is consolidated with similar lawsuits between cities and counties.

Nashville attorney Douglas Johnston Jr., who is representing the city, told the  Banner on Friday  it was inevitable the Supreme Court decided to hear the case because of the disparity in rulings made by the Middle and Eastern districts. 

In those cases, the Eastern district ruled in favor of the city, while the Middle district ruled in favor of the county.

“We are looking forward to proceeding and looking for a thorough decision from the Supreme Court,” said Johnston, who added he expects the hearing to take place in June.

Logan also noted the differing opinions handed down by the preceding courts also resulted in ambiguity. Both attorneys hope the Supreme Court will settle the issue soon.


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