In 1988, 66 of Tennessee's rural school districts brought suit against the state government claiming that the school funding system of a local option sales tax discriminates against rural areas. This study examines the effects of increased reliance on local sales tax revenue on Tennessee's school expenditures. Not every county can support a major trade center, hence some are net revenue losers. Differences are not solely the result of tax rate variations. Counties with higher average incomes collect more revenue per dollar. Two possibilities which have been proposed to explain the disparities are that persons in rural areas spend a smaller portion of their total income and spend more on nontaxable items. Both possibilities are unlikely, as low income persons spend a higher proportion of their income, and both food and clothing are taxed. In fact, the disparities are most likely due to exportation of sales tax revenue. An increase in tax rates for rural nonmetro areas will not reduce inequities. These areas do not have the capacity of metro and semi-urban nonmetro areas, and revenues may be reduced because of increased prices. Interjurisdictional inequities will become more pronounced if local sales tax is increasingly relied on to finance education, further necessitating equalization efforts by the state. (13 references) (EJS)