SANDPOINT — The Independent Highway District has agreed to turn over tax revenue it collected in Sandpoint while the district fends off a lawsuit filed by the city, court records show.

The district and the city agreed Wednesday to abide by the terms of a disputed 2003 joint powers agreement which requires the district to turn over all the tax revenue it collected within city limits.

First District Judge John T. Mitchell approved the stipulated agreement, according to court documents.

The city sued the district earlier this year, contending the district was in breach of the joint powers agreement by withhold the tax revenue. The district contends the agreement is unconstitutional and therefore unenforceable.

The district moved to dismiss the city’s suit, but Mitchell rejected the motion on Dec. 9 and noted that the district could have hewed to the terms of the agreement while still challenging its legality.

More than a week later, the two sides agreed to do just that without conceding ground in their respective legal arguments.

“Each party reserves its rights to, and defenses to, any claim made in this matter,” Mitchell said in his Dec. 18 order.

City Treasurer Shannon Syth said on Thursday that highway district has not remitted any tax revenue since April, which conservatively amounts to approximately $200,000.

The withheld revenue threatened to impact snow-removal operations on city streets this winter.

A five-day jury trial in the city’s suit is scheduled to start on March 25 in 1st District Court.