City of Jackson owes Madison County $1 million

JACKSON, Tenn. — The city of Jackson owes more than a million dollars to Madison County in overdue tax money.

“I don’t know how it happened. I got informed from some CTAS folks that said it happened all across the state,” Madison County Finance Director Mike Nichols said. “In some cases it amounted to a lot of money.”

The city of Jackson has to pay Madison County more than a million dollars in mixed drink taxes collected since the early 1990s.

The payments were originally designated for Jackson City Schools.

“Up until the time, it was going back into the school system at consolidation,” Nichols said. “Before consolidation it was divided up and prorated by the average daily attendance of everyone in the county.”

When the school system consolidated, the way the taxes were handed out never changed.

“When the schools were consolidated, Jackson-Madison County, like about 40 other communities, didn’t change the way the tax were directed,” Lewis Cobb, attorney for the City of Jackson, said.

Officials say when the error was realized, the taxes added up to about $3 million.

“So once it was discovered, the question was how do you deal with that? How do you fix it all at once?” Cobb said. “Because it’s a 20-year problem, and it needs to be addressed, but it needed to be addressed in a way that the state approved of.”

The city and county reached an agreement in 2014 to pay back the money, paying part of the money up front.

“They paid back approximately a million dollars, so that left a balance of about $2 million,” Nichols said.

The city paid about half a million dollars in three years.

“With the sales tax agreement that was hammered out last July, the city was going to get approximately $6 million extra in sales tax money, but they said by the end of this fiscal year, they said they were going to pay off this balance of this liquor-by-the-drink tax,” Nichols said.

The city now says they plan to pay back the remaining $1.4 million all at once.

“Then as part of the settlement of the lawsuit concerning how much of the city’s share of the sales tax they had to continue to give to the county, was settled,” Cobb said. “Part of it was we would accelerate the payment of the balance due on liquor-by-the-drink tax.”

Leaders say cities across the state have been in similar situations.

“I’m not sure everybody made the mistake, but there was a large number and the state didn’t correct it, the auditors didn’t correct it, Madison County didn’t understand it was supposed to be distributed a different way,” Cobb said. “It happens.”

The city has agreed to pay back the money by the first of May.