Did the Millington School Board get half of the city's local-option sales tax for school spending, the same way it would have if Shelby County had levied that tax?

Plain-English summary

Tennessee Code Ann. § 67-6-712 says that when a county levies a local-option sales tax, half of the proceeds must be spent and distributed "in the same manner as the county property tax for school purposes." The other half goes to the county or to the city or town where the sale was made.

In 2012, the City of Millington adopted its own additional local-option sales tax of 0.5%, on top of the 2.25% local-option sales tax that Shelby County levied. State Representative Ron Lollar asked whether the Millington school board was entitled to half of the city's add-on, the same way it would have been if the county had increased its rate.

The AG said no. By its plain terms, § 67-6-712 applies only to "[t]he tax levied by a county under this part." There is no parallel statutory mandate for the distribution of city-levied local-option sales taxes. Cities have authority under § 67-6-703(a)(1) to levy an add-on bringing the combined rate up to the statutory maximum (2.75%), but the school-set-aside rule does not follow.

The opinion resolved only whether § 67-6-712 required Millington to pay half of its city-levied proceeds to the city school board. It did not decide how the city could otherwise spend those proceeds.

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 does the statute treat county and city local-option sales taxes differently?
A: The AG did not give a policy reason. It read Tenn. Code Ann. § 67-6-712(a)'s phrase "[t]he tax levied by a county" as limiting that distribution rule to county taxes, and found no similar provision for municipal taxes.

Q: Did the opinion decide whether Millington could choose to give the school board some of its city tax proceeds?
A: No. The question presented and the AG's answer addressed only whether § 67-6-712 required a half-share for the school board.

Q: Did the county's 2.25% generate the schools earmark?
A: Tenn. Code Ann. § 67-6-712(a) required half of the proceeds of a county-levied tax to be spent and distributed for school purposes in the same manner as county property tax. The opinion did not calculate a payment from Shelby County's 2.25% levy to the Millington school board.

Background and statutory framework

Tennessee allows two levels of local-option sales tax. Tenn. Code Ann. § 67-6-702(a)(1) authorizes counties and incorporated cities or towns to levy a local-option sales tax up to 2.75%. Tenn. Code Ann. § 67-6-703(a)(1) provides that a county levy preempts city levies, but lets a city "levy the tax at a rate equal to the difference between the county tax and the maximum rate." That is the structural basis for an add-on like Millington's 0.5%.

Tenn. Code Ann. § 67-6-712(a) sets out the distribution rule for county-levied taxes, including a provision allowing a county and city or town to contract over distribution of the half not allocated to school purposes. The AG concluded that § 67-6-712 did not apply to Millington's separate city levy.

Citations and references

Statutes:

• Tenn. Code Ann. § 67-6-702 (authority to levy local-option sales tax)
• Tenn. Code Ann. § 67-6-703 (county preemption with city add-on right)
• Tenn. Code Ann. § 67-6-712 (distribution rule for county-levied tax, 50% schools)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-76.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
November 20, 2015

Opinion No. 15-76

Distribution of Proceeds from Local-Option Sales Tax Adopted by City

Question

Under Tenn. Code Ann. § 67-6-712, is the City of Millington School Board entitled to a payment from the City of Millington of one-half of the proceeds from a local-option sales tax adopted by the City?

Opinion

No. Tennessee Code Annotated § 67-6-712 applies only to local-option sales taxes adopted by counties and requires one-half of the proceeds from such a tax to be expended and distributed for school purposes. Because the local-option sales tax at issue is levied by the City of Millington, rather than by Shelby County, the City is not required to distribute one-half of the proceeds from the tax to the City school board.

ANALYSIS

In 2012, the City of Millington adopted a local-option sales tax of 0.5% in addition to the local-option sales tax of 2.25% levied by Shelby County. See Local-Option Sales Tax Rates, Tenn. Dept. of Revenue, available at www.tn.gov/assets/entities/revenue/attachments/taxlist.pdf. The requestor asks whether Tenn. Code Ann. § 67-6-712 requires the City to distribute one-half of the proceeds from the additional local-option sales tax to the City school board.

Tennessee Code Annotated § 67-6-702 authorizes counties and incorporated cities and towns to levy a local-option sales tax of up to 2.75%. Tenn. Code Ann. § 67-6-702(a)(1). Tennessee Code Annotated § 67-6-703 provides that the levy of a local-option sales tax by a county precludes any city or town within the county from levying such a tax, with the exception that a city or town within such a county "shall at any time have the right to levy the tax at a rate equal to the difference between the county tax and the maximum rate authorized in this chapter." Tenn. Code Ann. § 67-6-703(a)(1). This provision thus authorized the City of Millington to levy a local-option sales tax of 0.5% in addition to the local-option sales tax of 2.25% levied by Shelby County.

Tennessee Code Annotated § 67-6-712 provides in pertinent part as follows:

> (a) The tax levied by a county under this part shall be distributed as follows:
>
> (1) One-half (½) of the proceeds shall be expended and distributed in the same manner as the county property tax for school purposes is expended and distributed; and
>
> (2) The other one-half (½) as follows:
>
> (A) Collections for privileges exercised in unincorporated areas, to such fund or funds of the county as the governing body of the county shall direct;
>
> (B) Collections for privileges exercised in incorporated cities and towns, to the city or town in which the privilege is exercised;
>
> (C) However, a county and city or town may by contract provide for other distribution of the one-half (½) not allocated to school purposes.

Tenn. Code Ann. § 67-6-712(a) (emphasis added).

By its plain terms, Tenn. Code Ann. § 67-6-712(a) applies only to "[t]he tax levied by a county under this part." Id. There is no similar provision for local-option sales taxes levied by municipalities. Accordingly, the requirement that one-half of the proceeds "shall be expended and distributed in the same manner as the county property tax for school purposes is expended and distributed" applies only to the proceeds from a local-option sales tax levied by a county. The local-option sales tax of 0.5% at issue in your request is levied by the City of Millington, not by Shelby County. Therefore, Tenn. Code Ann. § 67-6-712 does not apply, and the City is not required to distribute one-half of the proceeds from the tax to the City school board.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

R. MITCHELL PORCELLO
Senior Counsel

Requested by:
The Honorable Ron Lollar
State Representative
214 War Memorial Building
Nashville, Tennessee 37243