MEMORANDUM
FROM:
Sid Hemsley, Law Consultant
DATE:
August 22, 2006
RE:
Hotel-Motel Tax
You have the following questions:
1. What are the limits on the hotel-motel tax in your city with respect to the city’s
intention to build a new convention center? Specifically, can the city levy a 5 percent to 6
percent tax and a $2 per person room tax?
2. Can the city levy a car rental tax and an airport departure tax with which to
help pay for a new convention center?
Generally
The touchstone of municipal tax questions is that the power to tax resides in the
state, and that nor municipality nor county in Tennessee, metropolitan or otherwise, can
impose a tax of any kind without statutory authority from the Tennessee General Assembly.
[See Edmonson v. Walker, 195 S.W. 168 (1917); State v. Aycock, 245 S.W. 182 (1951);
1
O’Conner v. City of Memphis, 74 Tenn. (6 Lea) 730 (1881); Chattanooga v. Raulston, 97
S.W. 456 (1906); Memphis Union Station Co. v. Memphis, 30 S.W.2d 240 (1930).]
The answer to question 1 is set out below:
Statutory Authority for Hotel-Motel Tax
Your city derives its authority to impose a hotel-motel tax (tourist accommodation
tax) from Tennessee Code Annotated, title 7, chapter 4, part 1, which is part of the
metropolitan government statutory scheme. The limit on that tax is prescribed as follows:
- Not more than 3 percent. [Tennessee Code Annotated, ' 7-4-102(a)(1)]
- Not more than 1 percent in metropolitan counties having a population of more
than 100,000 (which obviously includes your city). [Tennessee Code Annotated, ' 7-4102(a)(2)]
- Additional 1 percent is limited to your city “when the metropolitan government
enters into a binding contract with a general contractor for the construction of a convention
center....” This amount must be used exclusively for the construction of the convention
center. [Tennessee Code Annotated, ' 7-4-102(b)]
The proceeds from the hotel-motel tax must be distributed as prescribed by
Tennessee Code Annotated, ' 7-4-110, except for the 1 percent where the metropolitan
2
government has entered a contract for the construction of a convention center.
Authority for Other Cities to Levy Hotel-Motel Tax
Most private act and some general law cities have levied hotel-motel taxes by
private act. The same is true of counties.
Tennessee Code Annotated, ' 67-4-1401 et seq., also authorizes one narrow class
of municipalities to levy hotel-motel taxes. The definition of “municipality” for the purposes
of that statutory scheme “means an incorporated city which has adopted home rule in
accordance with the Constitution of Tennessee, article XI, ' 9.”
Annotated, ' 67-4-1401(3).]
[Tennessee Code
There are only 13 home rule municipalities in Tennessee;
your city is not one of them. One section of Tennessee Code Annotated, ' 67-4-1401 et
seq. also contains limitations and exemptions on the levy of hotel-motel taxes by private
act: ' 67-4-1425.
' 67-4-1425
Subsections (a) of ' 67-4-1425 prohibited private acts after 1988 that would
authorize the double imposition of the hotel- motel tax by cities and counties, and
subsection (b) of that statute preserves such private acts in existence on that date. When
Tennessee Code Annotated, ' 67-4-1425 was enacted Shelby County had in effect a
countywide 5 percent hotel-motel tax authorized by private act. Memphis had a lesser
hotel-motel tax levied under the authority of Tennessee Code Annotated, ' 67-4-1402
(which applies only to home rule municipalities). Subsections (c), (d) and (f) of that
statute exempt Shelby, Williamson and Rutherford counties, and several municipalities in
Shelby County. All of those counties and cities had, after 1988, obtained private acts that
authorized them to levy the hotel-motel tax limited by subsection (a) Notwithstanding the
introduction to subsection (c), which read, “The provisions of this section do not apply in
3
any county, excluding any county with a metropolitan government....,” nothing in subsection
(a), (b), (c), (d) or (f) authorizes or affects your county’s hotel-motel tax, which is levied
under Tennessee Code Annotated, ' 7-4-102.
[See Admiralty Suites and Inns, LLC v.
Shelby County, 138 S.W.3d 233 (Tenn.Ct. App. 2003)]
That leaves subsection (e) of Tennessee Code Annotated, ' 67-4-1425, which
provides that:
The provisions of this section do not apply to any county which
has constructed a qualifying project or projects under the
Convention Center and Tourism Development Financing Act of
1998, compiled in title 7, chapter 88. Further ' 67-4-503
shall not be applicable to such cities as it relates to the
authority to levy an occupancy tax.
Although this provision appears in the Metropolitan Government section of the
recent MTAS publication on Hotel-Motel Taxes, it has nothing to do with metropolitan
government. The Nashville Convention Center was built long before that Act was passed.
My information indicates that Act was designed for the more recently-constructed Knoxville
Convention Center. Whatever the case there, that Act contains no authority for any kind of
municipality constructing a convention center to impose a hotel-motel tax of any amount.
The Act may or may not be an appropriate statute under which your City could build a
convention center. But it if did use that Act, it would be entitled to the same 1 percent
increment of the hotel-motel tax (tourist accommodation tax) it would be entitled to under
Tennessee Code Annotated, ' 7-4-102(b) when the city entered into a binding contract
with a general contractor to build the convention center.
The answer to question 2 is that the city is limited by any statutes governing the
taxation of motor vehicle rentals and airport departures.
4
Car Rental Tax
As far as I can determine a local rental car tax is authorized by Tennessee Code
Annotated, ' 67-4-1907. That tax is severely restricted to the payment of bonds for a
particular kind of sports facility.
Airport Departure Tax
The Metropolitan Airport Authority Act, under which I assume the your Airport
Authority is organized (the Charter and Code are not specific on that question) specifically
provides that such an authority has all powers necessary to accomplish its purposes,
“(excluding the power to levy and collect taxes and special assessments) .....”
[Tennessee Code Annotated, '42-4-107] The same statute give such authorities the
power to “[h]ave control of its airport with the right and duty to establish and charge fees,
rental, rates and other charges....” [ Tennessee Code Annotated, ' 42-4-107(10)]
The distinction between taxes and fees and charges has been laid out by the courts
many times. In Johnson v. State, 85 Tenn. 324 (1886), the Court held that a person
could not be jailed, and required to work off, a litigation tax. The reason, said the Court
was that, “This Court has frequently held that this tax upon litigation was not costs, but
was a specific tax upon litigation, both civil and criminal, imposed solely for revenue
purposes.” [At 327] [Emphasis is mine.] [Also see State v. Davidson County, 96 Tenn.
178 (1896); and Memphis Retail Liquor Dealers’ Association v. City of Memphis, 547
S.W.2d 244 (1977)]
S & P Enterprises, Inc. v. City of Memphis, 672 S.W.2d 212 (Tenn. Ct. App.
1983), upheld an amusement device regulation fee that the plaintiff argued was a tax.
The city by affidavits argued that the fee would produce revenue of around $225,000 and
the implementation program would cost $227,000. The Court observed that:
5
An occupational or a privilege tax embodies as its primary
purpose the creation and collection of revenue while a true
license fee as distinguished from such a tax should be fixed to
cover the expense of issuing it, the service of officers and
other expenses directly or indirectly incident to the supervision
of the particular business or vocation. [Citing Macmillan v. City
of Knoxville, 139 Tenn. 310, 202 S.W, 65 (1917). [At 215]
More recently, in City of Tullahoma v. Bedford County, 938 S.W.2d 408 (Tenn.
1997), it is said that:
Whether the charge for depositing waste in a landfill is a tax
or a fee, even though denominated a tax, is determined by its
purpose. A tax is a revenue raising measure levied for the
purpose of paying the governments general debts and
liabilities. Memphis Retail Liquor Dealers’ Ass’n v. City of
Memphis, 547 S.W.2d 244, 245-46 (Tenn. 1977). See City
of Knoxville v. Lee, 159 Tenn. 619, 623, 21 S.W.2d 628,
629-30 (1929). 16 Eugene McQuillin, The Law of Municipal
Corporations, ' 44.02 (rev.3d ed.. 1994). A fee is imposed
for the purpose of regulating a specific activity or defraying the
cost of providing a service or benefit to the party paying the
fee. [At 412] [Citations omitted.]
Taxes generally raise municipal revenues and go into the general fund or are
earmarked to pay certain municipal debts and obligations, while fees and charges must be
used to support the programs for which the fees and charges are raised.
6
Unless I have missed some statute or provision in your Charter that authorizes that
government to impose the kinds of taxes proposed above, the government will need to ask
the Tennessee General Assembly to give it the statutory authority to levy such taxes.
7