Knox County to potential sue Farragut over liquor by drink tax revenues

Knox County in the coming days will send the Town of Farragut an “intent to sue” letter tied to unpaid liquor taxes, although officials hope they don’t actually have to file a lawsuit.

State law says that 50 percent of the mixed drink tax has to go to education. However, Farragut, which passed an ordinance in 1988 to allow establishments to serve mixed drinks, only recently starting paying the tax.

The matter has caused confusion across the state and many officials for years didn’t even realize the law existed or that school districts were owed money. The issue was brought to the attention of county and city officials several months ago after Knox County received an email from the Tennessee Governmental Finance Officers Association.

Since then, Farragut has started paying the tax.

But, Knox County Law Director Richard “Bud” Armstrong said the county has until June 1 to submit a note to sue in order to have a chance at collecting any back taxes prior to 1999.

If he doesn’t, then the county can seek only some $1.1 million owed since the late 1990s.

“The suit preserves our right to go back to mid-1980,” said Armstrong, adding that the money owed between 1988 and 1999 is about $240,000.

The law director, however, stressed that his office and Farragut officials are negotiating a plan to pay back the money, and that an actual lawsuit is his last option.

“This is to preserve the money that is on the table – the total pot and not just part of it,” he said.

A number of similar lawsuits by other local governments across the state have been filed in recent months.