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Blount County Board of Education v. City of Maryville

Supreme Court of Tennessee, Knoxville

May 8, 2019

BLOUNT COUNTY BOARD OF EDUCATION, ET AL.
v.
CITY OF MARYVILLE, TENNESSEE, ET AL.

          Session Heard at Nashville October 4, 2018

          Appeal by Permission from the Court of Appeals Chancery Court for Blount County No. 2014-053 Telford E. Forgety, Jr., 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 against the county and in favor of the two defendant cities. The county also raised an alternative claim for reimbursement of past liquor-by-the-drink tax proceeds that it had received from private club sales and shared with the cities; the county argued that, if cities were not required to share their tax proceeds, then counties should not be required to do so. The trial court rejected this claim as well and held that the statute required counties to distribute their liquor-by-the-drink tax proceeds pro rata among all schools in the county, even though it did not require the same of cities. The Court of Appeals affirmed. Discerning no error, we affirm.

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

          Robert N. Goddard, Maryville, Tennessee, for the appellant, Blount County Board of Education; and Craig L Garrett, Maryville, Tennessee, for the appellant, Blount County, Tennessee.

          Shelley L. Wilson, Stephanie D. Coleman, and Sarah D. Jarrard, Knoxville, Tennessee, for the appellees, City of Maryville and City of Alcoa; and Melanie E. Davis, Maryville, Tennessee, for the appellee, City of Maryville.

          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.

         Blount County

         The underlying facts in this case are essentially undisputed. The Cities of Alcoa and Maryville (collectively, "the Cities") are located in Blount County. The Cities have at all relevant times had their own municipal school systems separate from the Blount County school system.

         In 1996, citizens of Maryville passed a referendum authorizing LBD sales within its city limits. In 2004, citizens of Alcoa did the same. Blount County has never approved LBD sales.

         Prior to the referendums, both of the Cities had received LBD tax proceeds from lawful LBD sales at private clubs within their respective city limits. After the Cities approved LBD sales by referendum, the Cities received LBD tax proceeds from both private club sales and sales at other establishments within their corporate limits. The Cities have never distributed any of their LBD tax proceeds to the County school system or to any other school system in the County.

         Because it never approved LBD sales, the County has received LBD tax proceeds only from lawful LBD sales in private clubs located in unincorporated areas of the County. Unlike the Cities, the County distributed half of its tax proceeds among all of the school systems in the County-just as it distributes County property taxes for schools-pro rata to all local education agencies in the County in ...


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