The City of Tullahoma does not owe nearly $400,000 to the Coffee County Board of Education in its ongoing liquor-by-the-drink (LBD) lawsuit, according to the Tennessee Supreme Court.

Justice Holly Kirby, who authored the opinion for the court, affirmed the city’s position that it was not required by law to distribute tax revenues to the county school system, reversing the Middle Tennessee Court of Appeals decision in the case.


Dispute history

The matter has been ongoing since May 2014, when the Coffee County Board of Education sued the city for $387,488 of LBD tax proceeds.

The county claimed the city had been misinterpreting a state law for the last 30 years and thus owed the county school system that money.

The county argued the city’s portion of LBD tax revenues should have been distributed in part to the county school system and had been denied those funds for decades.

The city disagreed, saying it was entitled to keep the proceeds for the school system within the city limits, meaning the county was not entitled to the proceeds at all.

Additionally, the city argued since the county had never approved LBD sales in any other unincorporated portions of the county, the distribution statute did not apply to the county at all. Because only the city had approved LBD sales in 1987, only the city was entitled to those proceeds.


Court proceedings

The case went to the Chancery Court of Coffee County in April 2017 before Judge Vanessa Jackson for summary judgement, according to City Attorney Steve Worsham. Jackson affirmed the city’s position that it was not required to share its LBD tax proceeds with the county school system.

The county board of education then appealed the decision to the appellate court of Middle Tennessee, which found in favor of the county, reversing the Chancery Court opinion.

The city then appealed the case to the Tennessee Supreme Court.

Four other similar lawsuits were filed in East Tennessee counties at the same time, according to Worsham.

The school systems of Blount, Bradley, Sullivan and Washington counties all sued a municipality within their counties over LBD tax proceeds.

Judges in those cases ruled the same as Jackson did, saying the cities were not required to distribute LBD tax proceeds to those county school systems. Those cases were appealed to the Court of Appeals in East Tennessee, which found in favor of the municipalities.

Because there was a discrepancy in appellate court rulings, the Tennessee Supreme Court combined the cases.

Oral arguments were heard in October 2018.



According to Kirby’s written opinion, the court agreed that any LBD tax proceeds are to be distributed “for the benefit of the city’s own school system, if any.”

“In this case, because the city has its own school system, it was permitted to use half of its liquor-by-the-drink tax proceeds for its own school system, and it was not required to share those proceeds with the county or the county schools,” Kirby wrote. “Therefore, we reverse the Court of Appeals and affirm the trial court’s grant of summary judgment in favor of the city.”

According to Worsham, this means the city will not have to take any money out of its reserve funds in order to cover the costs of the lawsuit or the damages sought by the county.

The city will also not be required to distribute any of its LBD tax proceeds to the county in the future.

According to Worsham, the county school board will not be required to pay any legal fees on behalf of the city. All the county is responsible for is court costs, Worsham said.


Other cases

According to Worsham, this ruling also affects another lawsuit to which the city is a party.

Worsham said Manchester City Schools, through the City of Manchester, has also sued Tullahoma in regards to LBD Tax proceeds.

Manchester sued for $76,755.13, according to Worsham.

That case, however, went into arbitration, Worsham told The News, and was put on hold pending the Supreme Court case ruling.

Worsham said he felt confident the city would prevail in the Manchester City case as well, given the Supreme Court ruling in Tullahoma’s favor.

Erin McCullough may be reached at