State Supreme Court Rules That Disputed Municipal Taxes Must Be Paid Under Protest Before Seeking Refund

Tuesday, February 6, 2018

In a unanimous opinion, the Tennessee Supreme Court ruled that a taxpayer must pay disputed municipal taxes under protest before suing for a refund.

The city of Morristown, based on a state statute, adopted an ordinance imposing an inspection fee on licensed alcoholic beverage retailers. The city set the fee at 8 percent of the wholesale price based on the county’s population. By 2011, the county’s population increased, and under the ordinance, the inspection fee should have decreased to a maximum fee of 5 percent of the wholesale price. However, from 2011–2014, the city of Morristown continued to charge alcoholic beverage retailers 8 percent inspection fees instead of the authorized 5 percent fees.

A group of retailers, Chuck’s Package Store; The Cellar, Inc.; T & T Package Store, LLC; Morristown Beverage Associates, Inc., d/b/a Cork & Keg Package Store; The Package Store; and C & C Package, Inc., after learning of the overcharges, asked the city for refunds. The city denied the requests. The retailers sued the city of Morristown in the Hamblen County Chancery Court to collect the overchargedfees. The city asked the chancery court to dismiss the case because the retailers had not paid the taxes under protest, as required by state statute. Payment under protest is a form of payment by which a taxpayer pays taxes and notifies the governmental entity that the taxpayer disputes all or part of the taxes that are owed. The chancery court ruled that the retailers were not required to pay the taxes under protest and awarded the retailers a tax refund of $452,120.51 plus interest. The Court of Appeals affirmed the decision.

The Tennessee Supreme Court granted the city of Morristown’s request for review. After a thorough analysis and examination of the relevant statutes, the Supreme Court concluded that on or after January 1, 1986, the process for taxpayer recovery of state taxes is different than the process for recovery of municipal taxes. Before January 1, 1986, a taxpayer was required to pay under protest both state and municipal taxes before commencing refund proceedings. Because of a change in state law, as of January 1, 1986, a taxpayer is not required to pay under protest disputed state taxes collected or administered by the commissioner of revenue before seeking a refund. However, the change in state law did not affect taxpayer lawsuits to recover disputed municipal taxes. After January 1, 1986, a taxpayeris still required to pay under protest disputed municipal taxes before suing for a refund.

In an opinion authored by Justice Sharon G. Lee, the Supreme Court reversed the decisions of the chancery court and the Court of Appeals and ruled that based on state law, a taxpayer must first pay under protest municipal taxes before seeking a refund. Here, because the retailers did not pay the taxes under protest, they were not entitled to a refund.

To read the unanimous opinion in Chuck’s Package Store et al. v. City of Morristown, authored by Justice Sharon G. Lee, visit the Opinions section of

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