Reference Number: 
CTAS-601

When a city annexes property that generates wholesale beer taxes or local option sales taxes, the amount of revenue produced at the time of the annexation continues to go to the county for a period of 15 years.  Any increases over this amount are distributed to the annexing municipality.  Note that this does not affect the distribution of the first half of the local option sales tax, which continues to go to education funding.

Formula for Distribution.  If the business operated for a full twelve (12) months before annexation, the county receives the monthly average for that period.  If the business operated for at least one (1) full month but fewer than twelve (12) months before annexation, the county receives the average amount of each full month of operation. If the business operated for less than a month before annexation, or if it began operation within three (3) months of annexation, then the revenue for the first three (3) months is averaged and the county receives that amount.

Exceptions.  There are several exceptions to the distribution formula. If the wholesale beer tax or the local option sales tax is repealed, revenue amounts from the repealed tax will end; similarly, if the distribution to municipalities is reduced by the General Assembly, revenue amounts will be decreased proportionally. Finally, if a business closes or relocates, thereby reducing tax revenues, the city may petition the Department of Revenue no more than once annually for a reduction in amounts. A county may voluntarily waive rights to the revenue.

County Responsibility.  Upon annexation, each county is responsible for identifying tax-producing properties and providing a list of them to the Department of Revenue.  Counties should also monitor the impact of annexations on all revenue-generating properties within the affected area.  Some of the taxes received from such areas are not administered by the Department of Revenue.  For example, certain of the taxes are collected and remitted by beer wholesalers. If the county does not monitor such transactions and inform the appropriate parties, it may lose out on tax revenue to which it is entitled.

T.C.A. § 6-51-115.