The Carter County Board of Education has sued the City of Elizabethton, seeking a portion of the city’s tax revenues from liquor-by-the-drink.
On Wednesday evening, the Board voted 7-0 to move forward with the lawsuit. Board member Rusty Barnett abstained from voting on the issue.
The suit was filed in Carter County Chancery Court at 9:25 A.M. on Thursday morning by School Board attorney John Banks. Banks’ Complaint claims that state law requires Elizabethton to “remit a portion of their liquor-by-the-drink tax revenue to the County school fund.”
Banks alleges that the “City of Elizabethton has not paid over to the Carter County Board of Education the funds required by statute, but has spent these funds without regard to its statutory duty to distribute the same to the Carter County Board of Education.”
Ambiguity in the Law
The Board’s Complaint for Declaratory Judgment and Other Relief does not request a specific amount of money. Instead it asks the Court “[f]or declaratory judgment as to the Carter County Board of Education’s rights and the City of Elizabethton’s obligations and responsibilities under TCA section 57-4-306(2).”
One reason for the ambiguity in the suit may be the ambiguity in that statute.
Tennessee Attorney General Robert Cooper
An opinion issued by Attorney General Robert Cooper in February has set off a statewide wave of litigation between counties and cities over liquor tax revenues. Sullivan County joined the fray this week by suing the City of Kingsport. Washington County has also sued Johnson City for allegedly delinquent taxes stretching back 34 years.
The Attorney General’s Opinion, No. 14-22, was requested by State Representative Gerald McCormick regarding a dispute between Hamilton County and the City of Chattanooga. The opinion concerned the authority of county School Boards to waive their right to liquor tax revenue from municipalities and other issues related to delinquent tax payments.
However, that opinion concerned a city’s obligation to the surrounding county when that city does not operate its own school system.
The State of Tennessee collects a 15% tax on intoxicating liquors. By statute, half of those proceeds are distributed to the state’s General Fund and earmarked for education, and the other half are distributed to the local political subdivision (county, city, or town) in which the liquor was sold.
Tenn. Code Ann. § 57-4-306(2)(A) describes when a city or town must remit part of its liquor tax collections to the county in which it is situated:
One half (1/2) 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 . . . 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 (1/2) of their proceeds of the gross receipts liquor-by-the-drink tax to the county school fund
The City of Elizabethton operates its own school system, Elizabethton City Schools. Thus it would appear that Elizabethton’s obligation to Carter County would depend on the first clause of that statute: “in the same manner as the county property tax for schools is expended and distributed.”
The procedure by which a county distributes funds to schools is defined by Tenn. Code Ann. § 49-3-315, which reads in relevant part:
“All school funds for current operation and maintenance purposes collected by any county, except the funds raised by any local special student transportation tax levy as authorized in this subsection (a), shall be apportioned by the county trustee among the LEAs [local education associations] in the county on the basis of the WFTEADA [weighted full time equivalent average daily attendance] maintained by each, during the current school year.”
The statute goes on to describe the procedure by which the county trustee distributes funds to the LEAs in the county.
Neither statute describes or contemplate sis a situation where a separate municipality–here the City of Elizabethton–would be required to distribute funds to the County.
Officials React
Elizabethton Mayor Curt Alexander
Elizabethton Mayor Curt Alexander told the Compass on Friday that the city does not currently pay any city tax money to the county. That caused him to question the basis for the School Board’s law suit.
“That was my concern with the suit. Since the City of Elizabethton operates a school system, I don’t believe we owe any money to Carter County.”
The Mayor said that the General Assembly set a June 1 deadline for municipalities to file suits regarding liquor-by-the-drink tax monies, and that he believed the Board filed suit as a prophylactic measure.
He said the City intends to ask for a stay to await the outcomes of higher-stakes litigation between larger counties and cities.
“In Nashville, Chattanooga, even Kingsport, they’re arguing over millions of dollars. We’re talking at most $80,000-$100,000 here.”
Ed Alexander, Director of Elizabethton City School said he too is unaware of any current situation in which Elizabethton sends city tax money to Carter County’s school fund. He noted that the city school system receives about 38% of Carter County’s total education funds.
Alexander emphasized that there was no personal animosity between city and county officials due to the suit. He said that Carter County Director of Schools Dr. Kevin Ward called him Thursday morning to let him know there were “no hard feelings” regarding the funds.
“I thought that was very professional of him. I really appreciated that.”
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