April 21, 2009
Dear City Manager:
You have the following question: Is there a cap on the hotel-motel tax? Under the facts
you related, Your County is attempting to get a private act passed that would raise the county’s
hotel-motel tax to 5% from 4%, which increase would apply to hotels and motels inside the city.
The city has a 1% hotel-motel tax (under a private act that allows the city to impose a 2-1/2%
hotel-motel tax). The consequence is that if the county’s private act increasing the hotel-motel
tax from 4% to 5%, and that increase applies in the city as well as the county, the city hotel-motel
tax of 1% will push the combined county-city hotel-motel tax to 6% (7-1/2% if the city levied the
2-1/2% hotel-motel tax). .
The limitations and exceptions contained in Tennessee’s Hotel-Motel Tax statute, at least
with respect to non-home rule cities, are found in Tennessee Code Annotated, ' 67-4-1425.
The limitations
Tennessee Code Annotated, ' 67-4-1425(a), provides that after May 12, 1988, any
private act that authorizes a county or a city to levy a hotel-motel tax is limited as follows:
A(1) A city shall levy such tax on occupancy of hotel located within its municipal
boundaries;
(2) A city shall not be authorized to levy such tax on occupancy of hotel if the county in
which such city is located has levied such tax prior to the adoption of the tax by the city; and
(3) A county shall only levy such tax on occupancy of hotel located within its boundaries
but outside the boundaries of any city that has levied a tax on such occupancy prior to the
adoption of such tax by the county.
That statute raised this question in my mind: When did Your County levy its hotel-motel
tax with respect to the trigger date of May 12, 1988? I traced the history of the Your County
hotel-motel tax private acts, and learned that Private Acts 1983, Chapter 23 increased the Your
County hotel-motel tax from 3% to 5%., and provided that the tax expired in 1988, presumably
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March 31 of that year. Private Acts 1988, Chapter 169 provided for an expiration lf the hotelmotel tax in 1993, but there is no indication that Act was locally approved. However, Private
Acts 1988, Chapter 181did the same thing as Private Acts 1988, Chapter 169, and it was locally
approved on May 9, 1988.
But under Tennessee Code Annotated, ' 67-14-1425(b), the May 12, 1988 deadline
operates only prospectively, “and all private acts levying taxes on the privilege of occupancy of
hotel enacted prior to May 12, 1988, shall remain in full force and effect.” In addition, under the
same statute, “enacted” means the approval of the private act in accordance with Article XI, ' 9
of the Tennessee Constitution [local approval]. In short, Blunt County got under the May 12,
1988 deadline by three days with respect to the question of whether the limitations of Tennessee
Code Annotated, ' 667-14-1425(a) apply to Your County. But the City’s hotel-motel tax was
authorized by Private Acts 2003, Chapter 56, which authorized a hotel-motel tax of 2-1/2%, only
1% of which the city currently levies. For that reason, it does come within the limitations
prescribed by Tennessee Code Annotated, ' 67-4-1425(a).
The exceptionsBgenerally
If the City cannot avoid those limitations, it must turn to the exceptions, which are found
in Tennessee Code Annotated, ' 67-4-1425(c) through (h). Those subsections contain exceptions
for various counties, some based on population brackets, none of which apply to Your County,
but subsection (c) contains some based on the descriptive characteristic of certain counties. Until
relatively recently, subsection (c) applied only to Shelby County. In fact, Admiralty Suites and
Inns, LLC v. Shelby County, 138 SW.3d (Tenn. Ct. App. 2003) (application for appeal to
Tennessee Supreme Court denied May 10, 2004.), speaks about both the limitations on the hotelmotel tax under Tennessee Code Annotated, ' 67-4-1425(a), and the exceptions to those
limitations under Tennessee Code Annotated, ' 67-4-1425(c):
In 1988, the Tennessee General Assembly enacted T.C.A. 67-41425, which governs simultaneous county and city taxation of
hotel occupancy by private act. Section 67-4-1425(a) prohibits
adoption of a private act that results in the simultaneous taxation of
hotel occupancy by a county and the cities located within that
county. Section 67-4-1425(c) exempts Shelby County from the
provisions of ' 67-4-1425(a).
At the time of the enactment of ' 67-4-1425(c), Shelby County had
in existence a county-wide hotel tax, which remains in effect ... [At
325] [Emphasis is mine.]
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The Court goes on to explain that the General Assembly had passed several private acts
authorizing hotel-motel taxes in Germantown, Collierville, Bartlett and Millington, the first three
of which had locally approved those private acts (Millington had not), and adopted ordinances
authorizing a 5% hotel-motel tax. It also pointed out that the General Assembly had added
additional exemptions to Tennessee Code Annotated, ' 67-4-1425, codified in subsections (d),
for Williamson and Rutherford Counties. The suit in this case was to have subsections (c) and
(d), as well as the private acts they reflected, declared unconstitutional.
Here the Court amplified what it had said about the limitations and exceptions contained
in Tennessee Code Annotated, ' 67-4-1425(c) and (d). As we shall see below, that
amplification, coupled with the facts behind it, are significant for the City, if it fits within any of
the exceptions contained in subsection (c):
Tenn. Code Ann. ' 67-4-1425(a) sets forth a general proscription
against double taxation on hotels and motels. Specifically, it
prohibits a counties and a municipality therein from both levying
occupancy taxes upon hotels or motels within their borders.
Instead, only the entity that first levies an occupancy tax may
maintain that tax. Subsections (c) and (d) [now (c) through (h)] of
Tenn. Code Ann. ' 67-4-1425 then created exceptions to this
general proscription, allowing double taxation of hotels and motels
in Shelby, Williamson, and Rutherford Counties. These exceptions
were archived through the use of population bracketing.... [At 236]
It is extremely important here to understand the facts of the hotel-motel taxes that were at
issue in Shelby County in Admiralty Suites. (I have not looked closely at the hotel-motel taxes
that were at issue in Williamson and Rutherford Counties in that case, but they were obviously
combined county-city taxes). As the Court itself said above, “At the time of the enactment of '
67-4-1425(c), Shelby County had in existence a county-wide 5% hotel tax, which remains in
effect ....” As the Court also noted, the tax authorized by the private acts and the ordinances
adopted by the Cities of Germantown, Collierville and Bartlett, was 5%. That put the total citycounty hotel-motel tax at 10%! The court upheld the population brackets at issue in that case,
the obvious effect of which was to uphold the combined 10% county-city hotel-motel tax in
Shelby County, and whatever the combined county-city hotel-motel tax was in Williamson and
Rutherford Counties. Presumably, the combined county-city hotel-motel taxes in the latter two
counties at issue was probably over 5%.
As the Court said, when Admiralty Suites and Inns, LLC, was resolved, Tennessee Code
Annotated. '67-4-1425(c) covered Shelby County by population brackets, and exempted it from
the limitations in Tennessee Code Annotated, ' 67-4-1425(a). However, subsection (c) was
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extensively amended by Public Acts 2003, Chapter 370, to provide that:
(c) The provisions of this section do not apply in any county,
excluding any county with a metropolitan form of government,
that:
(1) Contains or borders a county that contains an airport designated
as a regular commercial service airport in the international civil
aviation organization (ICAO) regional air navigation plan; and
(2) Contains a government-owned convention center of at least
fifty thousand square feet (50,000 sq. ft.) with an attached,
adjoining, or adjacent hotel or motel facility; or
(3) Contains an airport with regularly scheduled commercial
passenger service, and the creating municipality of the
metropolitan airport authority for the airport is not located within
such county. The tax levied on occupancy of hotels by cities
located within such county may only be used for tourism as defined
by ' 7-4-101(8).
Tennessee Attorney General’s Opinion 03-134 undertakes the question of whether the
present Tennessee Code Annotated, ' 67-4-1425(c) is constitutional. That is certainly an
appropriate question to ask. Admiralty Suites, above held the earlier subsection (c) constitutional.
OAG 03-134 also opines that the present subsection (c) is constitutional.
The County Exception
That opinion does not consider which counties are covered by Tennessee Code
Annotated, ' 67-4-1425(c). Subsection (c) appears to cover at least two kinds of airports.
Subsection (c)(1)-(2) appear to apply to an airport that (1) contains or borders on a county that
contains an airport designated as a regular commercial service airport in the international civil
aviation organization (ICAO) regional air navigation plan, and (2) contains a government-owned
convention center of at least 50,000 square feet, with an attached, adjoining, or adjacent hotel or
motel facility. I have spent hours on Google attempting to determine which airports in
Tennessee: (1): “contains an airport designated as regular commercial service airport in the ICAO
regional air navigation plan.” I have not successfully determined that answer, but I have
determined that McGee Tyson Airport is probably designated by the ICAO as having “regular
Public Transport Services (synonymous with scheduled services),” and has the letter designation
KTYS in the ICAO system. However, the lack of the convention center that meets the definition
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contained in (2) excludes Your County as qualifying under subsection (c)(1)B(2). Presumably,
Memphis International Airport is encompassed within (c)(1)-(2), it having been covered by
subsection (c) when Admiralty Suites was decided..
But subsection (c)(3) speaks of another kind of airport, that: “(3)contains or borders a
county that contains an airport with regularly scheduled commercial passenger service, and the
creating municipality of the metropolitan airport authority for the airport is not located within
such county.” Even if it were that McGee Tyson does not meet the ICAO requirements in
subsection (c)(1), it appears dead on with respect to subsection (c)(3). Knoxville’s McGee Tyson
Airport is operated by the Knoxville Airport Authority, both of which are located in Knox
County, while the airport itself is in Your County, and provides regularly scheduled passenger
service. It may be that other airports in Tennessee fall within subsection (c)(1)-(3).
Conclusions as to a “cap” on the hotel-motel tax
Tennessee Code Annotated, ' 67-4-1425(c) [as well as (d) through (h)], as interpreted by
Admiralty Suites, clearly stand for the proposition that there is no technical “cap” on the hotelmotel tax, outside of the caps found in that statute. Indeed, there is a cap in that statute:
Subsection (c)(3) provides that a “municipality located in any county to which the subsection (c)
applies [is limited to a hotel-motel tax] of five percent (5%)....” The City is charging only 1%
with the authority in Private Acts 2003, Chapter 56, to go up to 2-1/2%. For that reason, the
amount of hotel-motel tax charged by Your County has no bearing on the right of the City to
charge up to 2-12%. In addition, assuming that it can obtain the passage of a private act
authorizing it to do so, the city can levy a greater amount, up to 5%. No “race to the General
Assembly” is necessary for the city to do either.
Let me point out again that the hotel-motel tax upheld in Admiralty Suites, reflected a
combined total county-city tax of 10% in Shelby County (5% county, 5% city), and presumably,
amounts over 5% in Williamson and Rutherford Counties.
The argument has been made that Tennessee Code Annotated, ' 67-4-503 prohibits the
dual levy of privilege taxes by cities and counties:
(a) Notwithstanding any provision of the law to the contrary,
except where specifically authorized by general law, when any
county has pursuant to private act levied a tax on a privilege, no
municipality within that county shall later levy a tax on the same
privilege, and when any municipality has previously levied a tax on
a privilege pursuant to general law or private act, the court in
which such municipality is located shall not levy a tax on the same
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privilege....
However, the hotel-motel tax being levied by cities under Tennessee Code Annotated, '
67-4-1425, even where a county has levied such a tax, is a case of “Except where specifically
authorized by general law.”
Let me know if you have any further questions on this or any other matter.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/