Tax decision overturned
NASHVILLE — An appeals court here last week overturned a previous court judgment that would have awarded significant sales tax revenues to the Town of Huntsville.
Instead, that revenue will continue to go to Scott County through 2017 before being diverted to the municipal government.
In question is sales tax revenue from businesses along a portion of U.S. Hwy. 27 that was annexed by the Town of Huntsville in 1997, and whether that revenue fell under a relatively new state law that was adopted within the same time frame as Huntsville was completing its annexation of the Helenwood area.
The State Dept. of Revenue had sided with Scott County at the time of the annexation; the Town of Huntsville challenged that decision in a 2006 lawsuit filed against Scott County and the Dept. of Revenue, and had won summary judgment in a Nashville chancery court.
Scott County appealed the lower court’s decision, and the two sides presented arguments before a state appellate court last October. The court issued its decision as a result of those arguments on Thursday.
On Dec. 29, 1997, and Feb. 16, 1998, the Town of Huntsville annexed all of U.S. Hwy. 27 from just south of Main Street in Helenwood to just south of Fill-N-Foods south of Scott High Drive. Several retail businesses along the U.S. Hwy. 27 corridor were annexed into the town as a result.
At that time, 100% of the sales tax revenue from businesses annexed by a municipality were redirected to the municipal government upon the finalization of the annexation.
In May 1998, however, the Tennessee General Assembly adopted a revision in state law aimed at halting rapidly expanding municipal annexation of unincorporated business districts. The new law provided for a majority of the sales tax revenue to be directed to the county in which the respective businesses were located for a period of 15 years after any municipal annexation.
Meanwhile, the Town of Huntsville’s annexation of the U.S. Hwy. 27 corridor had been challenged in court. That challenge was ultimately dismissed, and appeal options were exhausted when the Tennessee Supreme Court refused to take up arguments in the case in early 2002.
The Dept. of Revenue had ruled that the Town of Huntsville’s annexation did not take effect until after the challenge was exhausted in court — January 7, 2002. Attorneys for Scott County, which included Knoxville attorney David L. Buuck in addition to County Attorney John Beaty, argued the same before the appellate court last October.
In the court’s opinion, filed Thursday, a similar appeal in City of Knoxville v. Knox County — in which the court had ruled in favor of Knox County just eight days prior to issuing its opinion in Town of Huntsville v. Scott County — was cited.
Delivering the court’s opinion, Frank G. Clement, Jr. stated, “When a quo warranto action is timely filed to challenge an annexation, the effective date of the challenged annexation ordinance is ‘held in abeyance’ pending the litigation.”
While the lawsuit challenging Huntsville’s annexation was dismissed because then-Mayor Charles “Buster” Sexton was not properly served notice of the lawsuit, the appellate court determined that the lawsuit was nonetheless valid, and thus the annexation did not become final until after it was dismissed from court.
“Although the trial court dismissed the quo warranto actions for insufficient service of process, and this court affirmed the trial court, the successful defense did not render the filing of the quo warranto actions a nullity. To the contrary, the quo warranto actions were pending until January 7, 2002,” Clement wrote.
Patricia J. Cottrell and J. Steven Stafford joined Clement in the opinion.
Due to the court’s decision, Scott County will continue to receive sales taxes from the businesses within the U.S. Hwy. 27 annexation area equal to taxes it received in the 12 months prior to Jan. 7, 2002. The county will continue to receive those taxes through Jan. 7, 2017, and will not be forced to reimburse the Town of Huntsville for the sales taxes it had received since January 2002, as had been ruled by the lower court.
The Town of Huntsville has 60 days to request an appeal before the Tennessee Supreme Court; however, there is no guarantee that the court would agree to hear the case.