July 14, 2007
Dear City Recorder:
You have the following question: Is the city obligated to pay back to holders of beer permits the difference between the amount the city charged them for the annual privilege tax and the $100 privilege tax authorized by Tennessee Code Annotated, ' 57-5-104. Under that statute, cities are authorized to levy an annual privilege tax for the sale of beer in the amount of $100.
For some period, the city has charged beer permit holders more than $100 annual privilege tax.
For the reasons reflected below, your question reflects a somewhat muddled area of the law, but I am confident that the answer is governed by Tennessee Code Annotated, ' 67-1-1801 et seq. Under that statutory scheme, taxes are not required to be paid under protest before making a claim for a refund. Refunds for taxes erroneously paid are authorized by all governments to be refunded, and a person has three years from December 31 of the year he erroneously paid the tax to apply for a refund.
I find no provision in that statutory scheme for the payment of interest on erroneously paid taxes, unless the payer sues to recover such taxes. If he files such a suit, which he is entitled to do if the claim for the refund is denied, or if it the refund is not made within six months of the claim, the court can award interest on the amount. [See Tennessee Code Annotated, ' 67-8-
1801.] However, the amount of interest on the refund of the erroneously paid taxes involved in your question are so small, that if the payer requests interest and the city wishes to pay it, I doubt there would be any problem with the city doing so.
Two competing statutes and cases
Two competing statutes and several competing cases govern your question: Tennessee
Code Annotated, ' 67-1-911, and Tennessee Code Annotated, ' 67-1-1801 et seq.
Tennessee Code Annotated, ' 67-1-911 , carries this heading: Provisions applicable to municipal taxes [partially obsolete. See the Code Commission Notes.] That statute provides that:
(a) The provision of '' 67-1-901 B 67-1-905 and 67-1-908 B 67-1-
910 apply to the recovery of all taxes collected by any of the municipalities of this state.
( b) In order to carry out the legislate intent that all of such sections, which now apply to the recovery of state taxes erroneously paid, be conformed to apply to the recovery of taxes

July 14, 2007
Page 2 erroneously paid to municipalities, the following provisions are added:
(1) The municipal officer collecting any municipal taxes paid under protest shall pay such revenue into the municipal treasury and, at the time of the payment, shall give notice to the mayor and board of commissioners or other governing body of such municipality that the taxes were paid under protest;
(2) If it be finally determined by any court having jurisdiction of any suit brought within thirty (30) days after such payment under protest against the municipality to recover such taxes that the taxes were wrongly collected as not being due from the party to the municipality, the municipality shall refund such taxes with such interest as the court may determine to be proper, not exceeding the legal rate, and shall pay the costs of the cause; and
(3) the city attorney or other legal officer of such municipality shall conduct the defense of such suit.
The Code Commission Notes which follow that statute, say:
The provisions of this part apparently have continuing validity in certain situations. The old payment of tax under protest statutes contained in this part are still valid as regards local and municipal taxes that are not covered under some other method of appeal, such as boards of equalization. The designation of these sections as
A Obsolete @ does not affect their validity in situations to which they a re applicable, but was only an editorial judgment.
Applying that statute, the Tennessee Court of Appeals, Western Section, in Lebanon
Liquors, Inc. v. City of Lebanon, 885 S.W.2d 63 (1994), held that the plaintiff was not entitled to a refund of a privilege tax and excess inspection fees it subsequently decided it had erroneously paid to the city. The reason, said the Court, was that the plaintiff had not paid the taxes involuntarily and under protest. The Court pointed out that Tennessee Code Annotated, ' 67-12-
901, said that Tennessee Code Annotated, ' 67-9-911 “appl[ied] to the recovery of all taxes collected by any of the municipalities of this state.” The latter statute provided that, “ it is the intent of the general assembly that it shall not be a condition precedent to any claim or suit for the recovery of taxes collected or administered by the commission [of revenue] when such taxes were paid after January 1, 1986, that the same were paid under protest, involuntarily, or under duress .” [The court’s emphasis.] [At 66] That provision did not apply to taxes collected by a municipality, declared the Court, and for that reason, the requirement that taxes be paid involuntarily under protest was still a condition for the recovery of erroneously paid liquor

July 14, 2007
Page 3 license privilege taxes and excessive inspection fees.
A bankruptcy trustee asked for the refund of excess property taxes paid by the debtor in
Penking Trust v. Sullivan County, 196 B.R. 389 (1996). Citing Lebanon Liquors, the Court denied the trustee’s request, declaring that:
The law is clear in Tennessee, that, at a minimum, payment under protest is a condition precedent to the recovery of real property taxes paid to a county or a municipality. See Hoover, Inc. v.
Rutherford County, 885 S.W.2d 67 (Ten. App. 1994); Lebanon
Liquors, Inc. v. City of Lebanon, 88 S.W.2d 63 (Tenn. App.
1994), perm to appeal denied, (Tenn. 1994).
- Tennessee Code Annotated, 67-1-1801 et seq ., speaks exclusively abut the taxpayer remedies for disputed taxes collected by the commissioner of revenue. However, Tennessee
Code Annotated, ' 67-1-1807 , which is the last section in that statutory scheme, provides that:
(a) All taxes paid on or after January 1, 1986, shall be governed by the laws regarding refunds and suits for the recovery of taxes as set out in this part.
(b)(1) It shall not be a condition precedent for suit for recovery of taxes paid on or after January 1, 1986, that the taxes be paid under protest, involuntarily, or under duress...
(c) To the extent that the provisions of this Section conflict with any other prevision of the law, the provisions of this Section shall control and supercede all such laws.
In the 2002 unreported case of Decatur County v. Vulcan Materials Company, 2002 WL
31786985 (Tenn. Ct. App.), one of the questions was whether the plaintiff could challenge the constitutionality of a mineral tax increase imposed by Decatur County without paying the tax under protest. The Court held that under Tennessee Code Annotated, ' 18-1-1807:
Thus, in a suit to recover taxes paid after January 1, 1986, payment
of the tax under protest is not a condition precedent to a claim against the governmental entity imposing the tax. The language of
Section 67-1-1807 is quite broad, and could encompass claims regarding taxes paid to a municipality such as Decatur County, as well as taxes paid to the state. Further, the statute clearly states that the provisions of section 67-1-1801 will control in the event of a conflict of law. Under these circumstances, we must conclude

July 14, 2007
Page 4 that the mineral companies were not required to pay the disputed tax under protest as a condition precedent to asserting a claim against the county regarding the illegality of the tax. [At 5]
In Footnote 4 of that case, the Court pointed to the contrary holdings in Lebanon Liquors and to Hoover, Inc., above, but declared that:
In neither case, however, was Section 67-1-1807 of Tennessee
Code Annotated, raised as an issue on appeal. Consequently, these decisions are inapplicable and we conclude that section 67-1-1807 governs, removing the requirement of payment of disputed taxes as a condition precedent to a suit for the recovery of taxes from a municipality as well as the state.
Unreported cases carry little precedential weight. However, in Admiralty Suites and Inns,
LLC v. Shelby County, 138 S.W.3d 233 (2003), one of the questions was whether Tennessee
Code Annotated, ' 67-1-911 required the plaintiffs to pay the hotel-motel tax under protest as a condition of challenging the tax. No, held the Court. Declaring that:
We recently visited this issue in Decatur County v. Vulcan
Materials Co.
, No W2001-00858-COA-Re-CV, 2002 WL
31786985, at 1 (Tenn. Ct. App. (2003) and found that “payment under protest” is no longer the exclusive procedure to challenge a tax. Id . At 5. In that case, we recognized that Tenn. Cod Ann. '
67-1-1807 (2003 relieves the obligation to pay “under protest” before pursuing a claim against the governmental entity imposing the tax. Id.
The wording of the statute, we found, is sufficiently broad to encompass claims involving taxes paid to local entities such as counties and municipalities. Id.
Accordingly, we find that the Plaintiffs in the present action had no precedent obligation to pay the disputed taxes A under protest: before bringing their claims....[At 238].
Which statute and cases prevail?
Which of Tennessee Code Annotated, ' 67-1-1911 and Tennessee Code Annotated, ' 67-
8-1807, and their supporting cases/case win? It appears that the best answer is Tennessee Code
Annotated, ' 67-8-1801. Vulcan Materials is an unreported case, but its citation in Admiralty
Inns gives it weight, and Admiralty Inns probably reflects the most current statement of the law.

July 14, 2007
Page 5
The statute of limitation
Tennessee Code Annotated, ' 67-1-1801(a), provides that, A All taxes paid on or after
July 1, 1986, shall be governed by the laws regarding refunds and suits for the recovery of taxes as set out in this part. “[T]his part,” is undoubtedly Part 18 of Tennessee Code Annotated,
Chapter 67, Chapter 1. Part 1, includes '' 1801 through 1807. Section 1802 provides for refunds for various reasons, including those “paid in error.” The same section provides for a three year limitation of applications for refunds, calculated from December 31 of the year in which the tax payment in question was made. Although ' 1802 is difficult to apply to erroneous payments of privilege taxes to municipalities, and creative reading of that statute is required to permit that result, that is what Tennessee Code Annotated, ' 67-1-1801(a) appears to require.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/