Bradley County, Tennessee v. The City of Cleveland, Tennessee

The plaintiff in this action is Bradley County (“the County”). The sole defendant is the City of Cleveland (“the City”). The County’s complaint seeks a determination that the proceeds of a 2009 local option county sales tax increase, enacted shortly after an identical increase by the City, is to be distributed between the parties according to a contract (“the Contract”) the parties signed in 1967 as opposed to a statutory provision for distribution based on the site of collection of the tax. The City filed a counterclaim which, as amended, seeks a determination that the Contract is void; that the Contract does not control distribution of the proceeds of a 1982 tax increase; that the Contract does not control distribution of the proceeds of the 2009 tax increase; and that, by statute, the City is entitled to all of the proceeds of the 2009 tax increase on sales made inside the city limits through the City’s 2010 fiscal year. The trial court upheld the validity of the Contract and further held that the Contract, as amended twice, i.e., in 1972 and in 1980, controls distribution between the parties of the proceeds of the County’s 1982 tax increase. The court held that the applicable statute, rather than the Contract, controls distribution of the proceeds of the 2009 tax increase; this latter holding is not at issue in this appeal. The court further held that the City’s statutory right to the proceeds of the 2009 tax increase on sales in the City ended June 30, 2009, which equates with the City’s 2009 fiscal year. The City appeals. We affirm that part of the judgment upholding the validity of the Contract and that part applying the Contract to the distribution of the 1982 tax increase. We reverse that part of the judgment that held the City’s statutory right to proceeds from the 2009 tax increase ended June 30, 2009. We hold that the City is entitled to the 2009 tax increase on sales in the city through the City’s 2010 fiscal year.