City of Knoxville v. Knox County, Tennessee - Concurring
Docket: M2006-00916-COA-R3-CV
Court: Court of Appeals of Tennessee; February 19, 2008; Tennessee; State Appellate Court
Original Court Document: View Document
The Court of Appeals of Tennessee addressed the distribution of local option sales tax in the case of City of Knoxville v. Knox County. The central issue was determining which statutory distribution system should apply: the one in effect at the time of the annexation's effective date or the one in effect when the annexation ordinance was passed. The court concluded that the distribution statute in effect at the time the annexation became effective should govern the distribution of sales tax proceeds. Prior to the effective annexation, the City of Knoxville was not entitled to collect property taxes or local option sales taxes from the annexed area, as established in Piper v. City of Memphis. During the ongoing quo warranto action disputing the annexation, the city could not claim any local option sales tax revenues, which were instead allocated to the county, as the city had no legal claim until the annexation took effect. Upon the annexation's effectiveness, the Tennessee Department of Revenue was responsible for distributing the sales tax proceeds according to the law at that time. The relevant statute, Tennessee Code Annotated § 6-51-115(a)(2)(b)(12), specifies that the effective date of the annexation serves as the critical date for tax administration purposes. The court noted that if the distribution were based on the statute in effect during the annexation ordinance’s passage, it would unfairly allow the city to claim taxes collected while it had no entitlement, as those revenues had already been allocated to the county, which provided services during the dispute. Furthermore, the court highlighted a legislative change in 1998 that ensured affected counties received a minimum level of sales tax revenue for fifteen years following an annexation. Since the City of Knoxville had no vested interest in the prior distribution system, the ruling underscored the legislative authority to alter tax structures at any time.