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Carter school board to sue city over liquor taxes

Staff Report • May 29, 2014 at 10:21 AM

ELIZABETHTON — In a called meeting on Wednesday, the Carter County School Board reluctantly agreed to file a lawsuit against the city of Elizabethton in order to collect its share of taxes the city has collected in liquor by the drink sales inside the city since 1998.

The Board voted 7-0 to file the lawsuit, with board member Rusty Barnett, a city of Elizabethton employee, abstaining. The board’s attorney, John Banks, said he will probably file the lawsuit today in Chancery Court.

Several board members expressed reservations about filing a lawsuit and expressed their desire to build good relations with the city.

Banks said relations have been good with the city. He said he has worked closely with City Manager Jerome Kitchens and he said there has been an honest effort to resolve the issue. Banks said the amount in question is “less than $100,000. That is a lot for us, it is two positions, but there are other counties dealing with this problem and the amounts are in the millions.”

Banks said that was the reason the board is now compelled to file the lawsuit. It is a hot issue in several counties in the state, especially Hamilton County, which contains Chattanooga.

To resolve the state issue, the legislature and Gov. Bill Haslam approved a bill which has very short deadlines, and Banks said if the county school board does not act to meet those deadlines it could lose its rights to a portion of the outstanding tax money.

Banks told the board that one of the options has already been lost because the deadline was May 14. That option was to reach an agreement between the city and county school board by that time.

With that option off the table, Banks said the next deadline is June 1. He said if the county school board does not file a lawsuit by that time, the only way a lawsuit could be filed was in the Chancery Court of Davidson County. He said he did not think the board wanted to bear the financial burden of having a lawsuit decided in Nashville.

Banks said the new law also allows for binding arbitration through the comptroller’s office. Banks warned the board that the law specifies that failure to exercise one of the options by Dec. 31 would mean the county could not pursue any means toward obtaining the outstanding revenue.

Banks said it was only to keep the county’s options open that he recommended filing the lawsuit now. The action was primarily aimed at keeping the county’s right to file the suit in Carter County Chancery Court.

Board member Bobby Blevins asked if the lawsuit could be dismissed if the city and county do reach a settlement. Banks said that was a probable outcome. He said Chancery Courts in East Tennessee usually wait to see if an agreement can be reached between the parties before going ahead and setting a trial date.

Banks said he was sure there was no intent on the part of the city to keep money that rightfully belonged to the county. He said it was simply a case of a law that had been written with an unusual means of disbursing the revenue. In most cases, taxes are disbursed by the state to each government body that is entitled to receive a portion. In this unusual case, all the liquor by the drink tax money went to the city, with the city to distribute it in accordance with the percentage of students in city and county schools.

Banks said this requirement was so unusual that the city probably did not realize it had the responsibility to make disbursement to the county. The amount each year was so small that the city finance people though the county’s amount had already been deducted as other state tax collections are done. It was only after several years that these small amounts began to add up.

The lawsuit will ask the court to compel the city to pay the Carter County Board of

Education the full amount of the unremitted tax revenues and pay future liquor by the drink taxes to the county.

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