Session October 4, 2018
by Permission from the Court of Appeals Chancery Court for
Coffee County No. 2014-CV-179 Vanessa A. Jackson, Judge
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 city. The Court of Appeals
reversed, concluding that the tax distribution statute
plainly required the city to distribute half of its
liquor-by-the-drink tax proceeds pro rata among all schools
in the county. The city appeals. We agree with the city and
hold that the distribution statute directed cities to expend
and distribute half of their liquor-by-the-drink tax proceeds
for the benefit of the city's own school system, if any.
In this case, because the city has its own school system, it
was permitted to use half of its liquor-by-the-drink tax
proceeds for its own school system, and it was not required
to share those proceeds with the county or the county
schools. Therefore, we reverse the Court of Appeals and
affirm the trial court's grant of summary judgment in
favor of the city.
R. App. P. 11 Appeal by Permission; Judgment of the Court of
Appeals Reversed; Judgment of the Trial Court
Kristin Ellis Berexa and Mark E. McGrady, Nashville,
Tennessee, for the Defendant/Appellant, City of Tullahoma.
J. Burch, Manchester, Tennessee, for the Plaintiff/Appellee,
Coffee County Board of Education.
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
(effectuated after these lawsuits were filed).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.
facts in the instant case are essentially undisputed. The
City of Tullahoma ("the City") is located in Coffee
County. The City has at all relevant times had its
own municipal school system separate from the Coffee County
1987, citizens of the City passed a referendum authorizing
LBD sales within City limits. Coffee County has never
approved LBD sales in the unincorporated areas of the county.
Commissioner has at all times distributed LBD tax proceeds
generated from sales in the City in accordance with the
distribution statute-50% to the State general fund for
education and 50% to the City as the "local political
subdivision" from which the taxes were
generated. See Tenn. Code Ann. §
the 50% of LBD tax proceeds distributed to the City, the City
has at all times retained half of the proceeds in its general
fund and distributed the other half to its own school system.
The City has never distributed any LBD tax proceeds to Coffee
County or to any other local school system in the County.
This longstanding practice is consistent with Tennessee
Attorney General opinions from the early 1980s interpreting
the distribution statute. See Tenn. Op. Att'y
Gen. 83-36 (Jan. 18, 1983); Tenn. Op. Att'y Gen. 82-21
(Jan. 20, 1982); Tenn. Op. Att'y Gen. 81-270 (Apr. 27,
1981); Tenn. Op. Att'y Gen. 80-457 (Sept. 19, 1980).
30, 2014, the Plaintiff/Appellee Coffee County Board of
Education (referred to collectively with Coffee County as
"the County") filed this lawsuit against the
for damages based on its failure to distribute LBD tax
proceeds to the County under the distribution statute over
the previous thirty years. The claim focused on the language in
the distribution statute requiring the local political
subdivision-here, the City-to distribute half of its LBD tax
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). According to the County, this
language meant that the City was required to distribute the
proceeds in the way the property tax for schools is
"expended and distributed" by the County, which is
pro rata with the County school system and all local
education agencies (LEAs) in the County in accordance with an
average daily attendance formula. See Tenn. Code
Ann. § 49-3-315(a) (2013).
City denied liability and challenged the County's
interpretation of the distribution statute. The City
maintained that the distribution statute required the City to
expend and distribute LBD tax proceeds in the same manner
that the county property taxes for schools are expended and
distributed within the City, that is, for the
benefit of the City school system. The City also argued that,
because the County has never approved LBD sales, the
distribution statute is inapplicable to the County, and the
County, therefore, is not entitled to a share of the
City's LBD tax proceeds.
City and the County filed cross-motions for summary judgment.
Both parties averred that the facts were undisputed. Each
claimed to be entitled to judgment as a matter of law, based
on their differing interpretations of the distribution
statute. They each filed a statement of
undisputed facts, and neither challenged the other's
factual averments for purposes of the summary judgment
April 2017, the trial court entered an order denying the
County's motion and granting the City's motion for
summary judgment. The trial court concluded that, based on
Tennessee Code Annotated section 57-4-103, the distribution
statute is "effective only in jurisdictions which have
approved [LBD sales] by referendum. Coffee County has not
approved [LBD sales] by referendum, thus the distribution
provisions . . . are not effective in Coffee County." As
alternative reasoning, the trial court found that the
language in the distribution statute is ambiguous.
Considering the purpose, legislative history, and entire
statutory scheme of the LBD Act, the trial court held that
the statute did not require the City to share its portion of
the LBD tax proceeds with the County or other schools in the
County. The County appealed.
the County's appeal was pending before the Tennessee
Court of Appeals for the Middle Section, on December 27,
2017, the Tennessee Court of Appeals for the Eastern Section
contemporaneously issued four opinions in separate cases
involving similar facts and the same legal issue. See
Blount Cnty. Bd. of Educ. v. City of Maryville, No.
E2017-00047-COA-R3-CV, 2017 WL 6606855 (Tenn. Ct. App. Dec.
27, 2017) ("Blount Cnty."); Bradley
Cnty. Sch. Sys. ex rel. Bradley Cnty. Bd. of Educ. v. City of
Cleveland, No. E2016-01030-COA-R3-CV, 2017 WL 6598557
(Tenn. Ct. App. Dec. 27, 2017) ("Bradley
Cnty."); Sullivan Cnty. v. City of
Bristol, No. E2016-02109-COA-R3-CV, 2017 WL 6598559
(Tenn. Ct. App. Dec. 27, 2017); Washington Cnty. Sch.
Sys. ex rel. Washington Cnty. Bd. of Educ. v. City of Johnson
City, No. E2016-02583-COA-R9-CV, 2017 WL 6603656 (Tenn.
Ct. App. Dec. 27, 2017) ("Washington
four Eastern Section cases, the intermediate appellate court
panel held in favor of the cities. It first determined that
the language in the distribution statute was ambiguous
regarding whether a city that operates its own school system
is required to remit a portion of its LBD tax proceeds to the
county. Blount Cnty., 2017 WL 6606855, at *9;
Bradley Cnty., 2017 WL 6598557, at *8; Sullivan
Cnty., 2017 WL 6598559, at *8; Washington
Cnty., 2017 WL 6603656, at *10. After considering the
statutory framework, legislative history, and other sources,
the Eastern Section panel held that the distribution statute
requires the cities to expend and distribute half of their
LBD tax proceeds in the manner in which the county property
taxes would be expended and distributed within the cities,
that is, for the benefit of the cities' own school
systems. See Blount Cnty., 2017 WL 6606855, at *21;
Bradley Cnty., 2017 WL 6598557, at *17; Sullivan
Cnty., 2017 WL 6598559, at *17; Washington
Cnty., 2017 WL 6603656, at *17.
month later, the Court of Appeals in the instant case issued
its decision, reaching the opposite result. Coffee Cnty.
Bd. of Educ. v. City of Tullahoma, No.
M2017-00935-COA-R3-CV, 2018 WL 522423, at *4 (Tenn. Ct. App.
Jan. 23, 2018) ("Coffee Cnty."). The
intermediate appellate court below acknowledged the four
decisions issued by the Eastern Section panel but disagreed
with the analysis in those decisions. Id. at *3-4
(noting that it did "not disagree with [its] learned
cohorts lightly"). Rather, the Middle Section panel
determined that the applicable language in the distribution
statute is unambiguous in favor of the County's
interpretation. On its face, the intermediate appellate court
held, the statute plainly requires the City to distribute the
tax proceeds in the same manner that the County distributes
county property taxes for schools, commenting, "[I]t is
simply not possible to reasonably read this language to also
mean a city that operates its own school system does not have
to remit any funds to the county." Id. at *4.
Having concluded that the language was unambiguous, the court
found it unnecessary to consider anything outside the
specific statutory provision itself, such as the statutory
framework, the legislative history, or the Tennessee Attorney
General opinions on the subject. Id. at *3. On this
basis, it rejected the analysis of the Eastern Section panel
in the other four cases.
granted permission to appeal in this case and also in the
four similar cases arising out of the Eastern Section of the
Court of Appeals to resolve the split of authority on the
proper interpretation of the distribution statute,
specifically Section 57-4-306(a)(2)(A), as it existed prior
to the July 2014 amendments. Because the five cases all
involve this common issue, they were consolidated for oral
review a trial court's ruling on a motion for summary
judgment de novo without a presumption of correctness in the
lower court's decision. Rye v. Women's Care Ctr.
of Memphis, MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015)
(citing Bain v. Wells, 936 S.W.2d 618, 622 (Tenn.
1997)). Summary judgment is appropriate when "the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a
matter of law." Tenn. R. Civ. P. 56.04; Rye,
477 S.W.3d at 250.
have indicated, the relevant facts in the instant appeal are
undisputed, and the issues involve only the interpretation of
statutes. Issues of statutory interpretation are questions of
law, which are also reviewed de novo without a presumption of
correctness. Beard v. Branson, 528 S.W.3d 487,
494-95 (Tenn. 2017) (quoting Kiser v. Wolfe, 353
S.W.3d 741, 745 (Tenn. 2011)); Circle C Constr., LLC v.
Nilsen, 484 S.W.3d 914, 917 (Tenn. 2016).
issue on appeal requires us to interpret the distribution
statute, specifically, Section 57-4-306(a)(2)(A). This Court
"The cardinal rule of statutory construction is to
effectuate legislative intent, with all rules of construction
being aides [sic] to that end." Browder[ v.
Morris], 975 S.W.2d [308, ] 311 [(Tenn. 1998)]; see
Beard, 528 S.W.3d at 496. We examine "the language
of the statute, its subject matter, the object and reach of
the statute, the wrong or evil which it seeks to remedy or
prevent, and the purpose sought to be accomplished in its
enactment." State v. Collins, 166 S.W.3d 721,
726 (Tenn. 2005) (citation omitted) (internal quotation marks
omitted). "'We must seek a reasonable construction
in light of the purposes, objectives, and spirit of the
statute based on good sound reasoning.'"
Beard, 528 S.W.3d at 496 (quoting Scott v.
Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 286 (Tenn.
Spires v. Simpson, 539 S.W.3d 134, 143 (Tenn. 2017).
text of the statute is of primary importance, and the words
must be given their natural and ordinary meaning in the
context in which they appear and in light of the
statute's general purpose." Mills v. Fulmarque,
Inc., 360 S.W.3d 362, 368 (Tenn. 2012). Therefore, we
look first to the text of the distribution statute. Because
the County argues it has been wrongfully denied LBD tax
proceeds "dat[ing] at least back to 1980," we
consider all versions of the statute relevant to that claim.
distribution statute is the only statute in the LBD Act that
specifies how LBD tax proceeds are to be distributed. The
original version, which remained unchanged from 1967 until
57-162. Distributions of collections.-All gross receipt taxes
collected under subsection (b) of § 57-157 herein [now
Section 57-4-301(c)] shall be distributed by the ...