If a Tennessee school board and a city or county fight over liquor-by-the-drink tax money, can one side force binding arbitration with the Comptroller without the other side's agreement?

Plain-English summary

In 2014, the General Assembly created a one-time settlement mechanism for old liquor-by-the-drink tax remittance disputes between local government entities (typically a school board demanding its share against a city or county that had retained the money). Tenn. Code Ann. § 49-2-203(d) authorized the parties to negotiate a binding agreement by September 1, 2014. If they could not, two alternative remedies became available: (i) equitable relief in the Davidson County Chancery Court, or (ii) binding arbitration with an arbitrator selected by the Comptroller. § 49-2-203(d)(3)(A). The window for invoking either remedy closed December 31, 2014, after which a party who had not pursued one of them was barred from any other relief regarding pre-July 1, 2014 tax remittances. § 49-2-203(d)(3)(D).

The Comptroller asked whether his office could undertake binding arbitration on the unilateral request of one party, without the other party's agreement. The AG said yes, provided two facts were true: (1) one party requested arbitration on or before December 31, 2014, and (2) no party filed an equitable-relief action in Davidson County Chancery Court on or before that date. Under those facts, arbitration is the only remaining remedy, and a party that refuses to participate is barred from any other relief.

If a party did file in Davidson County Chancery Court on or before December 31, 2014, however, that party can pursue its judicial remedy to conclusion. The two paths are alternative; the statute does not let one party drag a party that timely chose chancery into binding arbitration after the fact, absent that party's agreement.

The opinion notes that local governments are creatures of the state and possess only the authority conferred on them by the General Assembly, so they generally cannot waive their statutory rights without express statutory authority.

Currency note

This opinion was issued in 2015. 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.

Common questions

Q: Why was there a 2014 cleanup statute for liquor-by-the-drink taxes?
A: Because there had been long-running uncertainty about whether cities and counties had been correctly remitting the school portion of the tax to school boards. School boards generally cannot waive their statutory tax revenue rights (Tenn. Att'y Gen. Op. 14-22), so prior settlement attempts hit a wall. The 2014 statute gave the parties express authority to settle and then provided enforceable remedies (chancery suit or Comptroller arbitration) if they could not.

Q: What was the deadline for invoking the remedies?
A: December 31, 2014. After that, an unused remedy was lost, and the party could no longer seek any other relief regarding pre-July 1, 2014 tax remittances.

Q: Can the Comptroller force a party to arbitrate now, in 2015?
A: Only if the party that wanted arbitration timely requested it on or before December 31, 2014, and no party timely filed in chancery. Under those specific facts, arbitration is the only remaining remedy and is compulsory.

Q: What if a party filed in chancery in time, but a different party also asked for arbitration?
A: The opinion says the chancery filer is allowed to pursue that judicial remedy to its conclusion, and the statute does not force that party into arbitration without its agreement.

Q: Can a school board negotiate away its statutory rights?
A: The opinion's footnote cites Tenn. Att'y Gen. Op. 14-22 (Feb. 26, 2014) for the proposition that school boards generally cannot waive their statutory rights to receive these revenues. Section 49-2-203(d) provided the necessary statutory authority to settle disputes over pre-July 1, 2014 receipts; without that statutory authority, the boards could not have done so.

Background and statutory framework

The liquor-by-the-drink tax statute splits the revenue between local government and the local school system. Disputes had arisen about whether cities and counties had been correctly remitting the school share over many years, and the school boards had no clean settlement mechanism because they could not contract around their statutory entitlement. The 2014 legislation (codified at § 49-2-203(d)) gave the local entities authority to negotiate binding settlements for pre-July 1, 2014 receipts and built in two backstop remedies for unresolved disputes.

The opinion is essentially a procedural clarification: when a single party invokes one of the two backstops, what happens to the other party who would prefer the other path? The AG's answer follows the statute's logic. The "alternative remedies" language and the December 31, 2014 cutoff together create a forced-choice structure. Either path may be invoked, but once one path is properly invoked and the deadline passes, the parties are tied to that path (and parties who did nothing lose the right to object).

Citations and references

Statutes:

• Tenn. Code Ann. § 49-2-203(d)(1)(A) (authority to negotiate binding agreement)
• Tenn. Code Ann. § 49-2-203(d)(3)(A) (alternative remedies)
• Tenn. Code Ann. § 49-2-203(d)(3)(A)(i) (Davidson County Chancery Court equitable relief)
• Tenn. Code Ann. § 49-2-203(d)(3)(A)(ii) (binding arbitration before Comptroller-selected arbitrator)
• Tenn. Code Ann. § 49-2-203(d)(3)(D) (December 31, 2014 deadline; bar)

Case:

Earlier AG opinion:

• Tenn. Att'y Gen. Op. 14-22 (Feb. 26, 2014) (school boards' inability to waive statutory tax-revenue rights)

Subject

Opinion No. 15-11, Arbitration of Disputes Involving Remittance of Liquor-by-the-Drink Tax Revenue, February 4, 2015

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-11.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
February 4, 2015
Opinion No. 15-11
Arbitration of Disputes Involving Remittance of Liquor-by-the-Drink Tax Revenue

Question

In the event of a dispute between local governmental entities over the remittance of liquor-by-the-drink tax revenue, does Tenn. Code Ann. § 49-2-203(d)(3)(A)(ii) authorize the Comptroller of the Treasury to undertake binding arbitration to resolve the dispute upon the unilateral request of one party?

Opinion

Yes, provided one party requested arbitration on or before December 31, 2014, and the other party failed to pursue the statute's alternative remedy of seeking equitable relief in the Davidson County Chancery Court on or before that date, then the Comptroller is authorized to undertake binding arbitration to resolve the dispute upon the unilateral request of the first party, even absent the affirmative agreement of the second party.

ANALYSIS

Your request concerns the applicability of statutory arbitration provisions in the event of a dispute between local governmental entities over the remittance of liquor-by-the-drink taxes. In 2014, the General Assembly enacted statutory provisions that gave local governmental entities the ability to resolve disputes concerning the remittance of liquor-by-the-drink taxes received by a local governmental entity prior to July 1, 2014. The provisions authorized the local governmental entities, including the local board(s) of education and the city and county legislative bodies, to negotiate and enter into a binding agreement addressing the remittance of the taxes. Tenn. Code Ann. § 49-2-203(d)(1)(A).

In the event the local governmental entities were unable to enter into a binding agreement by September 1, 2014, however, the statute provided two alternative remedies to any party involved in such a dispute: (i) seeking equitable relief in the Davidson County Chancery Court or (ii) submitting the dispute to binding arbitration with an arbitrator selected by the Comptroller. Tenn. Code Ann. § 49-2-203(d)(3)(A). These are the only two remedies available to a party involved in the dispute, and if the party fails to pursue one of the remedies on or before December 31, 2014, then the party will be barred from any other relief relative to proceeds received by a local governmental entity prior to July 1, 2014. Tenn. Code Ann. § 49-2-203(d)(3)(D).

You have asked whether all parties must be in agreement to arbitration before the Comptroller can undertake binding arbitration to resolve the dispute under Tenn. Code Ann. § 49-2-203(d)(3)(A)(ii). The answer to this question depends upon whether any party pursued the alternative remedy of seeking equitable relief in the Davidson County Chancery Court on or before December 31, 2014. If a timely request for arbitration was made on or before December 31, 2014, and if none of the parties filed an action in Chancery Court on or before that date, then all of the parties must submit to binding arbitration because that is the only possible remedy remaining. A party failing to participate in arbitration under these circumstances will be barred from seeking any other relief.

If a party did file suit in Davidson County Chancery Court on or before December 31, 2014, however, that party should be allowed to pursue this judicial remedy to its conclusion. The two statutory remedies are alternative ones, and nothing in the statute would require a party that timely asserted its right to seek equitable relief in the Chancery Court pursuant to subsection (i) to submit to binding arbitration under subsection (ii), absent that party's agreement.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

MARY ELLEN KNACK
Senior Counsel

Requested by:
The Honorable Justin P. Wilson
Comptroller of the Treasury
State Capitol
Nashville, Tennessee 37243