What commission can a Tennessee county trustee take on local option sales tax money the state sends them?

Subject

Opinion No. 11-46, County Trustee's Commission for Handling Local Option Sales Tax Funds, May 19, 2011

Plain-English summary

Tennessee county trustees collect a commission for handling public money. Two subsections of Tenn. Code Ann. § 8-11-110 set rates that differ a lot in size:

• Subsection (a) sets a sliding-scale commission "for receiving and paying over to the rightful authorities all moneys received": 6% on the first $10,000, 4% on the next $10,000, and 2% on everything above $20,000.
• Subsection (e) sets a flat 1% rate on "all moneys collected from county officers on fees and on the school fund received from the state or on money turned over to the trustee by clerks of the courts and other collecting officers."

For a high-volume revenue stream like local option sales tax, the difference between 2% and 1% is real money. Representative McCormick asked which subsection applies.

The AG read subsection (e) to control. Local option sales taxes are collected by the Tennessee Department of Revenue under Tenn. Code Ann. § 67-6-710(b)(1), which then remits them to the levying county, city, or town, typically through the trustee, after deducting a 1.125% administrative charge (Tenn. Code Ann. § 67-6-710(b)(2)). That means the trustee is receiving funds from "other collecting officers" within the meaning of § 8-11-110(e). So the trustee takes 1%, not the sliding-scale 2% to 6%.

There is one local exception. Under Tenn. Code Ann. § 67-6-712(b), a county with a population of 700,000 or more (per the 1980 census or any later one) may, by two-thirds vote of its legislative body, eliminate the trustee's compensation on local option sales tax altogether. At the time of the opinion, only Shelby County met the population threshold.

Currency note

This opinion was issued in 2011. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The 700,000-population threshold in § 67-6-712(b) was tied to the 1980 census or "any subsequent census" at the time. The trustee-compensation cap statute itself may have been amended; verify before relying on any specific rate or population threshold.

Background and statutory framework

The two commission rates. Tenn. Code Ann. § 8-11-110 provides:

(a) The compensation of the county trustee for receiving and paying over to the rightful authorities all moneys received shall be six percent (6%) on all sums up to ten thousand dollars ($10,000), and four percent (4%) on all sums above ten thousand dollars ($10,000) and up to twenty thousand dollars ($20,000), and a commission of two percent (2%) on all sums above twenty thousand dollars.
. . .
(e) The trustee shall receive one percent (1%) on all moneys collected from county officers on fees and on the school fund received from the state or on money turned over to the trustee by clerks of the courts and other collecting officers.

The local option sales tax mechanism. Tenn. Code Ann. §§ 67-6-701 et seq. govern the local option sales tax. Cities and counties may, by referendum, levy a tax on the same privileges as the state sales tax (Tenn. Code Ann. §§ 67-6-702, 67-6-706). The Commissioner of Revenue collects and administers the local tax with the same powers as the state sales tax (Tenn. Code Ann. § 67-6-710(a)(1), (b)(1)).

Under Tenn. Code Ann. § 67-6-710(b)(2), the Department remits the proceeds to the levying jurisdiction "less a reasonable amount of percentage as determined by the department," set at 1.125% to cover state administrative costs. That remittance typically flows through the county trustee.

The Shelby County exception. Tenn. Code Ann. § 67-6-712(b)(1)-(2) allows the county legislative body of any county with 700,000+ population (1980 census or any subsequent census) to eliminate the trustee's compensation on local option sales tax by two-thirds vote. The AG noted that as of 2011, only Shelby County met the threshold.

Common questions

Why does the AG read § 8-11-110(e) rather than § 8-11-110(a)?

Because subsection (e) more specifically describes the situation. When the Department of Revenue collects a tax and remits it to the trustee, the trustee is receiving "money turned over . . . by . . . other collecting officers." The Commissioner of Revenue is the collecting officer. The sliding-scale (a) commission is residual; (e) applies whenever its specific predicate is met.

Does the 1% come out of the gross or the net (after the state's 1.125% administrative deduction)?

The AG did not address this question directly. The opinion describes the state remitting the proceeds after deducting the 1.125%, and then the trustee receiving 1% of what the trustee receives. Read literally, the commission applies to what the trustee actually receives (i.e., the net), not to the gross collected by the state.

Can a regular (non-Shelby) county reduce or eliminate the trustee's 1%?

Not under the statutes cited in this opinion. The 700,000-population trigger in § 67-6-712(b) is the only mechanism the AG identified for reducing the trustee's compensation on local option sales tax. Smaller counties get the statutory 1%.

Does this apply equally to city local option sales tax and county local option sales tax?

Yes. The opinion treats both "city and county local option sales tax revenues" as flowing through the trustee and as covered by § 8-11-110(e).

What if a county does not have a trustee handling sales tax distribution?

The AG's analysis assumes the trustee is the conduit, which it describes as the usual arrangement. If a particular county handled distribution differently, the analysis would have to be revisited; the opinion does not address alternative arrangements.

Citations

• Tenn. Code Ann. § 8-11-110(a), (e)
• Tenn. Code Ann. §§ 67-6-701 et seq.; § 67-6-702; § 67-6-706
• Tenn. Code Ann. § 67-6-710(a)(1), (b)(1), (b)(2)
• Tenn. Code Ann. § 67-6-712(b)(1), (2)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2011/op11-046.pdf

Original opinion text

County Trustee's Commission for Handling Local Option Sales Tax Funds

QUESTION

Under Tenn. Code Ann. § 8-11-110(a), a county trustee is entitled to a commission "for receiving and paying over to the rightful authorities all moneys received[.]" This commission is a percentage ranging from two to six percent, depending upon the dollar amount involved. Under Tenn. Code Ann. § 8-11-110(e), the trustee is entitled to a commission of one percent on "all moneys collected from county officers on fees and on the school fund received from the state or on money turned over to the trustee by clerks of the courts and other collecting officers." Which of these subsections governs the trustee's commission on county and city local option sales tax funds the trustee receives from the State?

OPINION

The Tennessee Department of Revenue collects local option sales taxes and, after deducting an administrative fee, remits them to the levying county, city, or town, usually through the county trustee. For this reason, local option sales taxes are "money turned over to the trustee by . . . other collecting officers" within the meaning of Tenn. Code Ann. § 8-11-110(e). Under this statute, in most counties, the county trustee would be entitled to a commission of one percent on the amount of local option sales tax funds the trustee receives from the State.

ANALYSIS

This opinion concerns the county trustee's commission for handling city and county local option sales tax revenues. Tenn. Code Ann. § 8-11-110 provides in relevant part:

(a) The compensation of the county trustee for receiving and paying over to the rightful authorities all moneys received shall be six percent (6%) on all sums up to ten thousand dollars ($10,000), and four percent (4%) on all sums above ten thousand dollars ($10,000) and up to twenty thousand dollars ($20,000), and a commission of two percent (2%) on all sums above twenty thousand dollars.

(e) The trustee shall receive one percent (1%) on all moneys collected from county officers on fees and on the school fund received from the state or on money turned over to the trustee by clerks of the courts and other collecting officers.

(Emphasis added). The question is whether subsection (a) or (e) governs the commission the county trustee may receive for handling county and city local option sales tax revenues that the trustee receives from the State.

Local option sales taxes are collected and distributed under Tenn. Code Ann. §§ 67-6-701, et seq. Under Tenn. Code Ann. § 67-6-702, cities and counties are authorized to levy a tax on the same privileges subject to the state sales tax. The tax must be approved by a referendum in the city or county levying it. Tenn. Code Ann. § 67-6-706. Tenn. Code Ann. § 67-6-710(a)(1) provides:

In collecting and administering the tax levied under the authority of this part, the commissioner of revenue shall have the same powers as the commissioner has in collecting and administering the state sales tax.

Thus, the Tennessee Commissioner of Revenue collects the local option sales tax. Tenn. Code Ann. § 67-6-710(b)(1). Subsection (b)(2) of the statute provides:

The department shall remit the proceeds of the tax to the county, city or town levying the tax, less a reasonable amount of percentage as determined by the department to cover the expenses of administration and collection. This percentage shall be one and one hundred twenty-five thousandths percent (1.125%). The percentage shall not be less than necessary to defray the state's expenses in administering, collecting, and remitting the local sales tax, as determined annually by the department and certified by the comptroller of the treasury.

Thus, the Tennessee Department of Revenue collects local option sales taxes and remits them to the levying county, city, or town, usually through the county trustee, after deducting an administrative charge. For this reason, local option sales taxes are "money turned over to the trustee by . . . other collecting officers" within the meaning of Tenn. Code Ann. § 8-11-110(e). Under this statute, the county trustee in most counties is entitled to a commission of one percent on county and city local option sales taxes the trustee receives from the State. However, it should be noted that, under the provisions of Tenn. Code Ann. § 67-6-712(b), if locally approved by a two-thirds vote of the county legislative body, the county trustee in any county with a population of 700,000 or more according to the 1980 federal census or any subsequent census would not be entitled to any compensation for receiving and distributing such taxes. See Tenn. Code Ann. § 67-6-712(b)(1) and (2). At this time, only Shelby County falls within this population classification.

ROBERT E. COOPER, JR.
Attorney General and Reporter

GORDON W. SMITH
Associate Solicitor General

ANN LOUISE VIX
Senior Counsel

Requested by:
The Honorable Gerald McCormick
State Representative, Majority Leader
18A Legislative Plaza
Nashville, Tennessee 37243-0126