City gives up on 1 cent
The city won’t be trying to retrieve its 1 cent of local option sales tax given to the county for schools. Instead, McMinnville officials received a million-dollar lesson in future contract wording.
In June, officials began discussing how to get back the 1 cent in local option sales tax. This is not the first time officials have talked about making the move. The motivating factor is the more than $2 million the county receives annually from the 1 cent.
In fiscal year 2006-07, the amount of the local option sales tax that was collected in the city of McMinnville was $7.98 million. Under state law, 50 percent of this amount, $3.91 million, goes to the county for schools.
Without the prior agreement, the city would have also received $3.91 million. However, due to the long-standing agreement, the city received $1.77 million and the county received an additional $2.13 million.
With that in mind, McMinnville aldermen asked city administrator David Rutherford to look into the situation and determine the city’s chances of winning in court.
Rutherford recently presented officials with the information they requested ‘ even though it wasn’t what they wanted to hear.
Despite the fact other governments have backed out of similar agreements, the agreement between the city of McMinnville and Warren County is binding. Trying to retrieve the 1 cent tax would be an exercise in futility, according to Rutherford.
This is because the city ‘ at no time ‘ placed an ending date on the county’s collection of the tax.
How the situation
came about
In 1969, the city agreed that all of the local sales tax collected in the city and county would be turned over to the county. The local option sales tax at that time was 1 percent.
In 1976, the tax was raised 1/2 percent. Because that increase was handed over to the county, the city filed suit in 1983 to retrieve its share of the 1976 increase.
Subsequently, 1/2 of the additional tax was given to the county for schools. The remaining half would be divided between the city and county due to Tennessee Code.
The agreement was ratified in 1985. At that time, the ratified agreement stated that beginning July 1, 1985 the city would receive its statutory share of the local option sales tax as enacted in 1976. Officials further agreed the city would not seek retroactive collection from the county of its share of said tax increase that had accrued since its enactment.
The agreement also said the city recognized its obligation to assist in the support of the Warren County School System. In the event a referendum for an increase in the local option sales tax by an additional 1/2 cent is called by the Warren County Legislative Body prior to July 1, 1985, the same is approved by the voters of Warren County, that the statutory share of the city money shall go to the county for schools.
However, the agreement does not apply to any amount over and above 1/2 cent, nor shall it apply to any local sales tax increase that may be enacted in the future.
On July 1, 1985, the local option sales tax was raised in both the city and county 1/2 cent. Under the prior agreement, all of this went to the county. The total option sales tax as this time was 2 percent and of this 1-1/2 went to the county and the remaining 1/2 percent was split between the city and county per state statute.
In 2004, a referendum was held that raised the local sales tax inside the city .75 percent. The city received that entire increase. A few months later, the county raised the rate in the county an additional .75 percent. This passed and starting in August 2004, the county started receiving 50 percent of this increase for schools.
Of the 2.75 percent local tax that is collected within McMinnville city limits, the city receives 22.7272 percent of that. This is a portion of the 1/2 cent from 1976 and a portion of the .75 percent increase from 2004. Everything else due the city has been given to the county under the prior agreement.