TN cities, counties owe millions to schools from mixed drink tax?

The town of Farragut and Knox County have unwittingly run up a more than $1 million tab in tax revenue with the school system, officials with all three agencies learned last week, reports the News Sentinel.

Farragut could owe the school system at least $1.1 million dating back to 1998, according to Knox County Finance Director Chris Caldwell. That figure could be double that, however, as officials are only now investigating just how long the revenue has been unpaid.

Knox County estimates it may owe as much as $350,000.

…The revenue at issue comes from the state’s mixed drinks tax. Restaurants and bars collect the tax and send it to the state Department of Revenue, which then sends half of it back to the municipality in which the businesses are located.

The municipalities keep half and are supposed to earmark the remaining 50 percent for the school system, according to the Department of Revenue.

Although the reasons are not yet clear, Farragut has not been paying its share to the Knox County school system since at least 1998, Smoak said he learned last week.

…Knox County and Farragut are not alone. Municipalities across the state have recently learned they were in violation of the law, and their respective school systems all were unaware, according to the Tennessee Municipal League. (Note: Chattanooga apparently owes $11 million. TFP story HERE.)

“We’re all trying to work with the comptroller’s office to resolve something that’s very complicated,” TML spokeswoman Margaret Mahery said. “It all depends on how you interpret the law. It’s very confusing, and there are very different interpretations out there.”

The state Comptroller’s Office is currently investigating the situation, spokesman Blake Fortenay said.