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Unappropriated funds from mixed drink tax will benefit schools

Posted on Monday, February 17, 2014 at 2:37 pm


brian justice


Amid tight financial times, Franklin County Schools could always use a helping hand and is getting one through appropriations it should have received in mixed-drink taxes.

Through a recent finding, across at least five Southeast Tennessee counties, local governments face an almost $2 million liquor-by-the-drink tax tab due to their respective county school districts, according to County Technical Assistance Service officials.

Many cities, particularly the ones that operate their own city school systems, have been balking at the tax bill, saying that language about how tax money should be distributed is confusing.

County governments also owe smaller shares, CTAS county government consultant Gary Hayes said.

In addition to Franklin, governments in Bradley, Coffee, Marion and McMinn counties owe a combined $1,967,612 to the local county school system. Dayton and Spring City in Rhea County also owe small amounts, CTAS county government consultant Gary Hayes said.

In Franklin County’s case, Winchester, Cowan and Decherd, plus the county, owe the school system a combined $189,158, which is not much over a 33-year time span dating back to 1980.

However, Andrea Smith, Franklin County finance director, said anything is better than nothing.

“These amounts are from 1980 through June 30, 2013,” she said this week. “So as you can see, it is a small impact but any new funding is good news.”

Winchester owes $130,126 while the county owes $51,148 with the bills to Cowan and Decherd respectively at $5,686 and $2,198.

Winchester City Adminsitrator Beth Rhoton was quoted by the Chattanooga Times-Free Press as saying the town doesn’t dispute the $130,126 tax bill that accumulated because city officials were unaware of the distribution law and simply didn’t realize the funds were supposed to be routed to county schools.

Rhoton said she hopes that a $1 million contribution to schools in the past and the fact that county schools use several of the city’s facilities will work as a bargaining chip when repayment is negotiated with county school officials.

“They won’t make us pay it all at one time,” Rhoton said. “As soon as we were aware that we had an issue we started sending that over. All you can do is go back and try to make it right.”

Smith told the Herald Chronicle in late October 2013 she had heard word about the oversight from the City of Winchester.

“Apparently the cities didn’t realize that they owed 50 percent of what they received from the state of mixed drink tax to the local department of education,” she said, adding later: “It’s something that just slipped by.”

Smith said the process was “funding by state statute” and “nobody knew it was a statute.” She said that is the reason why the money didn’t get to where it was supposed to go.

As far as when the money might be coming or how much, Smith had said it could be a lengthy, long, drawn-out process.

However, she said getting another source of income — no matter how big or small — is always welcome news.

“It’s great,” she said.

Most cities that owe county schools didn’t realize how the law on distribution of revenues from sales tax on mixed drinks worked. The tax works like the local option sales tax; one half goes to education, the other half goes to the point of collection, he said.

If a county has multiple school systems — as in Coffee County’s case — the tax money is split according to average daily attendance percentages, Hayes said. Average daily attendance refers to the percentage of a county’s total student population attending city and county systems.

As CTAS personnel reviewed counties’ finances, they found discrepancies everywhere, he said.

The Tennessee Municipal League is among the agencies reviewing the issue for its potential impact on cities and counties across the state.

TML executive director and former Athens, Tenn., Mayor Margaret Mahery told the Times-Free Press that officials are urging schools and governments to work together.

“We are advising our folks to work with their local school systems to work out an agreement that is amicable for everyone,” she said.

Agreements already have been worked out across the state.

“I think everyone needs to maintain a reasonable expectation,” Mahery said.

Municipal officials in Coffee County say they want to hear more from the Tennessee Comptroller’s Office about the more than $527,000 in back mixed-drink taxes said to be owed to county schools.

Hayes shocked Coffee County finance committee officials late last year by reporting that Tullahoma and Manchester owe the county Board of Education $527,595 in mixed-drink taxes dating back to 1980. Tullahoma’s part is $387,488 and Manchester’s share of the bill is $137,340, according to Hayes’ figures.

Tullahoma City Administrator Jody Baltz said he hopes a review by TML and the Comptroller’s office will give officials an idea of the potential impact on cities and counties across the state.

Manchester Mayor Lonnie Norman admits he doesn’t know much about the details, but hopes “we can work this out so that we don’t have to pay anything.”

Norman said the city didn’t pursue a lawsuit in a tax distribution dispute with the school system several years ago and since Manchester was owed money in that matter, maybe the school system will see any mixed-drink tax shortfall as a wash.

In Marion County, Monteagle faces a $124,054 chunk of the almost $158,000 owed to the school system there. South Pittsburg, Kimball, Jasper and the county also owe smaller amounts, according to CTAS.

Monteagle Mayor Marilyn Nixon said officials there believe the state should have made the law and its distribution requirements clearer to local governments when it was established and that the amount owed by Monteagle, if any, is far less than $124,000.

Monteagle has begun directing the mixed-drink tax money to Marion County schools, though Nixon contends that it might not be owed. She said officials there felt the state was responsible for distribution and that the city was getting what it was supposed to keep.

“We will do what right, once we know what’s right,” she said in the Times-Free Press story, noting the city wasn’t notified of the law until September 2013.