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Appeals court orders consolidation of Washington, Sullivan, Bradley counties' liquor-by-the-drink tax suits

Gary B. Gray • Feb 3, 2017 at 10:16 PM

Tennessee’s Court of Appeals at Knoxville has ordered a consolidation of three cases involving liquor-by-the-drink taxes and their distribution to school districts, including two from Northeast Tennessee, and scheduled oral arguments for them all on the same day.

The three cases are Washington County School System v. Johnson City, Sullivan County v. Bristol, Tennessee, and Bradley County School System v. the City of Cleveland.

A fourth case — Blount County Board of Education v. the City of Maryville — involves similar issues, but the order states it was not included in the consolidation because doing so would “unduly delay the hearing of the other cases.”

Attorney James Logan, who requested the order and represents both Washington and Bradley counties, argued that state statute is, indeed, ambiguous, and that the law says liquor-by-the-drink sales tax revenue should be distributed in the same manner as property tax revenues.

“These three cases are in appeal status,” Logan said Friday. “The issues present within these cases reflect all of the alternative judgments that could be issued regarding the distribution of money.”

Each of the cases will be argued in front of a three-judge panel in Knoxville, and their opinion will set the standards for all other similar cases statewide, Logan added. The arguments will likely be heard in May or June.

According to law, the state collects all taxes and keeps half. This goes toward education, much like the lottery. The other half is sent back to the local political subdivisions, according to the amounts collected.

Attorney Rick Herrin represents Johnson City, as well as Kingsport and Bristol. He has maintained that when the amounts are divvied up on the local level, that half goes to cities with their own school systems, such as Johnson City Schools.

Johnson City gets about $500,000 a year from this source.

“No monetary judgement has been made against any of these municipalities,” Herrin said Friday. “The litigation really only includes cities that operate their own school systems. If these cities did not, we would be throwing in the towel.”

Herrin said he supports the order “with the nuance that it is not a consolidation (which the order states) of the cases, but a scheduling of all the cases on the same day.”

“I still feel the issue will be reviewed by the Tennessee Supreme Court, regardless of the coming opinion,” he said.

On Nov. 1, Sullivan County Chancellor E.G. Moody went against the trend of similar cases elsewhere in Tennessee by declaring Washington County the winner in its bid to share in Johnson City’s liquor-by-the-drink tax revenues.

Moody ruled for Washington County in its lawsuit seeking back payment from the city for taxes collected since the city's voters approved liquor by the drink in 1980. That ruling is being appealed.

Moody also ruled that Washington County present the evidence establishing its claim at an evidentiary hearing to establish the the proper sum. That was not completed.

Washington County's suit seeks $3.4 million, money county officials say the city should have shared with the county's school system. The city, like other cities across the state, including Kingsport and Bristol, has taken the position the revenue was generated inside the city, the city operates its own school system and the money does not have to be shared.

The whole issue became a hot topic statewide a couple of years ago after Hamilton County filed a lawsuit against the city of Chattanooga, which wasn't sharing the liquor-by-the-drink tax revenues even though it had ceased to operate a city school system. Johnson City, though, still operates such a system.

On Sept. 30, First Judicial District Chancellor John Rambo denied Sullivan County’s claim to liquor-by-the-drink tax revenues, and instead ordered the cities of Bristol and Kingsport monetarily compensated.

Rambo, who was overseeing the case in the Second Judicial District Chancery Court in Bristol, ordered that Sullivan County pay Bristol $75,802 and Kingsport $107,286. Sullivan County appealed that decision.

Bradley County Schools filed a lawsuit to recover about $800,000 it felt was owed by the City of Cleveland from past inaccurate distribution of the tax. In August, Chancellor Jerri S. Bryant ruled in favor of the municipality. That ruling also was appealed.

Email Gary Gray at [email protected]. Like Gary B. Gray on Facebook at www.facebook.com/garybgrayjcp. Follow him on Twitter @ggrayjcpress.

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