SULLIVAN COUNTY, TENNESSEE, ET AL.
THE CITY OF BRISTOL, TENNESSEE, ET AL.
Session Heard at Nashville October 4, 2018
by Permission from the Court of Appeals Chancery Court for
Sullivan County No. B0024737, K0039409 John C. Rambo,
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 for the
defendant cities. 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. Discerning no error, we affirm.
R. App. P. 11 Appeal by Permission; Judgment of the Court of
P. Street, Blountville, Tennessee, for the appellants,
Sullivan County Board of Education and Sullivan County,
Erickson Herrin, Johnson City, Tennessee, for the appellees,
Cities of Bristol and Kingsport, Tennessee.
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.
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 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).
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.
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.
Code Annotated section 57-4-301(c) levies a 15% tax on all
LBD sales. 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
case involves the application of the distribution statute as
it existed prior to the enactment of a July 2014
amendment. 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).
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.
underlying facts in this case are essentially undisputed. The
Cities of Bristol and Kingsport (collectively, "the
Cities") are located in Sullivan County. The Cities have
at all relevant times had their own municipal school systems
separate from the Sullivan County school system.
1984, citizens of both Cities passed referendums authorizing
LBD sales within their city limits. The County has never
passed a referendum regarding LBD sales. However, since at
least 1980, private clubs have legally sold LBD in the Cities
and in unincorporated areas of the County.
30, 2014, the Sullivan County Board of Education and Sullivan
County filed separate complaints against the Cities. Both
sought declaratory judgment as to the rights and obligations
of the parties concerning LBD tax proceeds. The cases were
ultimately consolidated. Hereinafter we refer to the Sullivan