The Department of Revenue is aware of some recent disputes between cities, counties and school districts regarding liquor by the drink tax revenues.
State law (Tenn. Code Ann. Section 57-4-306) requires the Department to distribute half of liquor by the drink tax receipts to Tennessee's general fund for education purposes. The law further requires the Department to send the other half of the liquor by the drink money to the localities where the taxes were collected.
With respect to the liquor by the drink revenues that are distributed to the municipalities where the taxes were collected, state law requires those recipients to make further distributions of those funds in certain circumstances. According to state law, cities that do not operate their own school systems separate from the county are required to pay half of the liquor by the drink funds from the state to the county school fund.
The Department does not oversee the distribution of liquor by the drink taxes after it disburses the funds to local governments. The Department generally has no oversight responsibility with respect to local government finances. The Department believes it has appropriately distributed the liquor by the drink taxes as required by law.