By Angie Mayes
Mt. Juliet News Correspondent
After careful review of a recent Tennessee Supreme Court ruling that dealt with lawsuits by counties against cities concerning liquor-by-the-drink taxes, Wilson County attorney Mike Jennings decided to go ahead with the county’s suit against the city of Mt. Juliet.
The local suit is slated for Nov. 14 in Wilson County chancery court and stems from money the county said Mt. Juliet owes the school system from past liquor-by-the-drink taxes.
The issue goes back to 2014 when Wilson County Schools sued Mt. Juliet for a portion of the back-tax revenue to be given to Wilson County Schools.
The state imposed a 15 percent tax on liquor-by-the drink sales. Liquor-by-the-drink is only allowed in cities and counties that approved the issue by referendum. Businesses collect the tax and forward it onto the state comptroller’s office. They then pass half of the tax revenues collected onto the cities, which must also pass a portion onto the local school systems, according to the state legislature.
Cities collected liquor-by-the-drink taxes for more than 30 years, when first passed into law by the state legislature. They have repeatedly kept their portion of the taxes for themselves, not sharing it with the counties. However, those cities operated their own independent school systems.
During the 30-year period, the Tennessee General Assembly amended the liquor-by-the-drink tax a number of times. However, it did not amend the requirements by cities to share with counties.
The recent rulings by the Supreme Court concerned counties without the liquor-by-the-drink option, who sued cities with their own school system. Since Mt. Juliet doesn’t have its own school system, but is served by Wilson County Schools, the county argued the money must be passed on to Wilson County Schools.
Lebanon also doesn’t have its own school system. Instead, the Lebanon Special School District operates with kindergarten through eighth-grade schools within but independent to the city. Students then go to Wilson County Schools for high school.
There is a difference between a city school and a special school district, Jennings said,
“Broadly speaking, a city school system is under the government of the city,” he said. “A special school district, like the Lebanon Special School District, has its own government and taxing authority.”
The issue the county didn’t have liquor-by-the-drink was also part of the ruling in the Supreme Court decisions, handed down by Justice Holly Kirby.
Part of the recent appeal to the Supreme Court was because county residents did not approve liquor by the drink, they were not entitled to the money from the cities with their own school systems.
According to court filings from 2014, Wilson County Schools said it should receive the back funds and would then pay a portion of that money to Lebanon Special School District. The amount paid to both school systems is based on the daily average attendance, as recognized by the Tennessee Board of Education, according to court records.
When the school board sued Mt. Juliet in 2014 for the back taxes, Mt. Juliet cited state court rulings that went back to 1883 that said cities didn’t have to pay the taxes to county schools.
The school board discovered the lack of payments in 2013, court records said. Mt. Juliet paid part of what it owed, nearly $31,000, but still owed the school board nearly $450,000, court records said.
The payment amount was determined by the daily average attendance percentage of tax revenue collected, and the court said Mt. Juliet should pay the amount, from the inception of the liquor-by-the-drink tax until June 30, 2013.
In a filing from 2014, Mt. Juliet attorneys said the county was not eligible to collect a portion of the tax revenues because liquor-by-the-drink statutes were not passed in the county, but rather in the cities. They said the liquor-by-the-drink was not passed in the unincorporated areas of the county. Therefore, the school board was not entitled to a portion of the tax revenue.
Mt. Juliet filed a motion to dismiss in 2015, but it was denied. In the motion, the city offered other lawsuits in the state it considered precedent that found in the defendant’s favor.
A 2018 judgment by Chancellor C.K. Smith denied Mt. Juliet’s motion for summary judgment, and Wilson County Schools was eligible to receive the money.
The amount of unremitted revenue was to be determined in a future evidentiary hearing, the order said.
In October 2018, the Mt. Juliet City Commission voted to offer a settlement of $325,000 to the school board. The school board denied the offer at its November meeting.
City Manager Kenny Martin said the city is currently paying the necessary liquor-by-the-drink tax revenue to the school system.
To read the unanimous opinions in Blount County Board of Education v. City of Maryville, Bradley County School System ex rel. Bradley County Board of Education v. City of Cleveland, Coffee County v. City of Tullahoma, Sullivan County v. City of Bristol, and Washington County School System ex rel. Washington County Board of Education v. City of Johnson City, all authored by Justice Holly Kirby, visit the opinions section at tncourts.gov.