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Bradley County School System v. City of Cleveland

Supreme Court of Tennessee, Knoxville

May 8, 2019

BRADLEY COUNTY SCHOOL SYSTEM, ET AL.
v.
THE CITY OF CLEVELAND, TENNESSEE

          Session Heard at Nashville October 4, 2018

          Appeal by Permission from the Court of Appeals Chancery Court for Bradley County No. 2014-CV-84 Jerri S. Bryant, Chancellor

         This is one of five cases on appeal to this Court regarding the proper distribution of liquor-by-the-drink tax proceeds between a county and a municipality within the county. In each case, the county had not approved the liquor-by-the-drink sales, but the city had approved such sales. The Commissioner of the Tennessee Department of Revenue, who collects taxes on all liquor-by-the-drink sales, distributed tax proceeds to the defendant cities in accordance with the liquor-by-the-drink tax distribution statute, Tennessee Code Annotated section 57-4-306. The statute required the recipient cities to then distribute half of their proceeds "in the same manner as the county property tax for schools is expended and distributed." Tenn. Code. Ann. § 57-4-306(a)(2)(A) (2013). In each case, the recipient city distributed half of its tax proceeds to its own city school system and did not share the proceeds with the county. The counties sued the cities, claiming that the statute required the cities to distribute the tax proceeds as the counties distribute the county property tax for schools, which is pro rata among all schools in the county based on average daily attendance. In the instant case, the trial court granted summary judgment in favor of the city. The Court of Appeals affirmed, concluding that the distribution statute was ambiguous and that the statutory framework, legislative history, and other sources supported the trial court's interpretation of the statute. We affirm.

         Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Trial Court and the Court of Appeals Affirmed

          James F. Logan, Jr., Cleveland, Tennessee, for the appellants, Bradley School System, by and through the Bradley County Board of Education, and Bradley County, Tennessee.

          Douglas S. Johnston, Jr., Nashville, Tennessee, for the appellee, City of Cleveland, Tennessee.

          Kristin Ellis Berexa and Mark E. McGrady, Nashville, Tennessee, for amicus curiae, Municipal League Risk Management Pool, Inc.

          Holly Kirby, J., delivered the opinion of the Court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Sharon G. Lee, and Roger A. Page, JJ., joined.

          OPINION[1]

          HOLLY KIRBY, JUSTICE

         The issues in this case are better understood with some knowledge of the development of the pertinent liquor-by-the-drink statutes. Consequently, we offer some background on the history of the statutes before we outline the facts and analyze the issues.

         The Liquor-By-The-Drink Act

         During the years of federal prohibition (1920-1933), Tennessee had "bone dry" laws, which criminalized the sale, purchase, receipt, possession, transport, and manufacture of alcoholic beverages. City of Chattanooga v. Tenn. Alcoholic Beverage Comm'n, 525 S.W.2d 470, 472 (Tenn. 1975); Tenn. Op. Att'y Gen. 79-215 (May 3, 1979). After prohibition ended, Tennessee enacted a "local option" law authorizing counties to hold county-wide local option elections on whether to allow off-premises (package) sales of alcoholic beverages within their borders. City of Chattanooga, 525 S.W.2d at 472; Chadrick v. State, 137 S.W.2d 284, 285 (Tenn. 1940); see also Templeton v. Metro. Gov't of Nashville & Davidson Cnty., 650 S.W.2d 743, 754 (Tenn. Ct. App. 1983). "The 'bone dry law' continued in effect in counties not electing to come under the provisions of the local option law." City of Chattanooga, 525 S.W.2d at 472; see also Renfro v. State, 144 S.W.2d 793, 794 (Tenn. 1940).

         In 1967, the Legislature passed comprehensive legislation related to liquor sales for on-premises consumption, i.e., liquor by the drink (hereinafter "LBD"). We refer to this as "the LBD Act." The LBD Act "authorize[s] the sale of intoxicating liquors by the drink for consumption on the premises, impose[s] taxes upon such sales[, ] and provide[s] for the collection thereof." Aetna Cas. & Sur. Co. v. Woods, 565 S.W.2d 861, 865 (Tenn. 1978). Initially, the LBD Act allowed only the largest counties to hold local option elections. See Tenn. Code Ann. § 57-164 (1968). Gradually, in increments, the Act was amended to allow all counties-as well as all municipalities-to approve LBD sales by local option election. See 1987 Tenn. Pub. Acts, ch. 456 § 2; 1992 Tenn. Pub. Acts, ch. 711 § 1.

         In any jurisdiction that approves LBD sales, such sales can lawfully be made by the establishments enumerated in the statutes, including restaurants, hotels, and sports facilities. See Tenn. Code Ann. § 57-4-101 (2013). Private clubs are among the enumerated establishments, but they are also permitted to sell LBD even in counties or municipalities that have not adopted LBD.[2]

         Tennessee Code Annotated section 57-4-301(c) levies a 15% tax on all LBD sales.[3] Tenn. Code Ann. § 57-4-301(c) (2013). We refer to this as "the LBD tax." Retailers collect the LBD tax from consumers and then forward the tax proceeds to the Commissioner of the Tennessee Department of Revenue ("Commissioner"). See Tenn. Code Ann. § 57-4-302 (2013 & 2018). The Commissioner then distributes the LBD tax proceeds in accordance with the statute at issue in this case, Tennessee Code Annotated section 57-4-306. We refer to this as "the distribution statute."

         This case involves the application of the distribution statute as it existed prior to the enactment of a July 2014 amendment.[4] The relevant versions of the distribution statute required the Commissioner to distribute 50% of all LBD tax proceeds to Tennessee's "general fund to be earmarked for education purposes." Tenn. Code Ann. § 57-4-306(a)(1). The Commissioner was directed to distribute the remaining 50% of the tax proceeds back "to the local political subdivision" that generated the proceeds. Id. § 57-4-306(a)(2).

         Important to this appeal, the remaining provisions of the distribution statute described what was to be done with the tax proceeds sent back to the originating local political subdivision. The distribution statute said that half of those proceeds would go to the general fund of the county, city, or town in which the taxes were generated. Id. § 57-4-306(a)(2)(B). The other half, the distribution statute stated, "shall be expended and distributed in the same manner as the county property tax for schools is expended and distributed." Id. § 57-4-306(a)(2)(A). Interpretation of this provision is the issue presented to us in this case.

         Bradley County

         The underlying facts in this case are essentially undisputed. The City of Cleveland ("the City") is located in Bradley County. The City has at all relevant times had its own municipal school ...


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