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Mayor Tom Rowland stands in front of the shops of downtown Cleveland, Tenn.

CLEVELAND, Tenn. -- Cleveland has accepted payment terms offered by Bradley County Schools in regard to $1.42 million in disputed sales tax revenue.

On Monday, the Cleveland City Council voted 6-0 to accept a 30-month payment schedule starting in July 2013 at the beginning of the next fiscal year. Councilman Richard Banks was absent.

"It's an amicable way to settle the matter," Cleveland Mayor Tom Rowland said. "It's a great solution presented by the Bradley Board of Education."

"It's tough, but we do what we have to do," said Johnny McDaniel, director of Bradley County Schools, as he thanked members of the Cleveland City Council.

The city's acceptance of the offer is expected to end recent litigation between Cleveland and Bradley County over the allocation of sales tax revenues generated by tax increases implemented separately by city and county in 2009. That year the city enacted a local option rate of 2.75 percent, effective May 1; the county followed suit with a countywide increase equal to the city rate effective July 1.

The ensuing legal matter involved when long-standing sales tax revenue-sharing agreements between Cleveland and Bradley County would apply. Those agreements, dating back to 1967, were driven by city and county school attendance and whether sales taxes were generated within city limits.

A Tennessee Department of Revenue opinion and a Chancery Court ruling stated that the city was entitled to proceeds generated by the increase until June 30, 2009. A recent ruling issued by the Tennessee Court of Appeals expanded the timeframe to include the next fiscal year: July 1, 2009, through June 30, 2010.

"It's a shame that the county was misled by bad advice from the Tennessee Department of Revenue," said Bill Estes, a Cleveland councilman, citing the department's instructions to Bradley County on the matter three years ago. "It's so painful to see Bradley County Schools having to go through this when they are so strapped for money already."

Another key issue addressed by the chancery and appellate courts was the validity of the 45-year-old sales tax revenue-sharing agreements between Cleveland and Bradley County. Both upheld the original agreement and its later amendments.

"I am encouraged that the appeals court has once again upheld our position that the division of sales tax revenue as outlined in the 1967 agreement with the City of Cleveland is correct," Bradley County Mayor D. Gary Davis said in an Oct. 31 news release.

The window to appeal the appellate court ruling closes at the end of the year. According to the settlement between city and county, no appeals are expected to be filed.

Paul Leach is based in Cleveland. Email him at