May 4, 2010
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May 4, 2010
Dear City Manager:
You have the following question: Is the City legally entitled to levy a hotel-motel tax?
The answer is yes. I thought the answer was no until recently when it became obvious to
me that exceptions to the limitations on the hotel-motel tax contained in Tennessee Code
Annotated, 67-4-1425(c) included cities in your County, and that those exceptions allow your city
to levy the hotel-motel tax.
The limitations on the hotel-motel tax
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:
“(1) A city shall levy such tax on occupancy of a hotel located within its municipal
boundaries;
(2) A city shall not be authorized to levy such tax on occupancy of hotels 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.”
The City has never enacted a hotel-motel tax. Your County was authorized to levy a
hotel-motel tax of up to 3% by Public Acts 1978, Chapter 896. Section 13 of that Act provided
that the tax was to expire on December 31, 1982. Public Act 1979, Chapter 433, deleted Section
13 of Public Acts 1978, Chapter 13. Public Acts 1980, Chapter 510, deleted Public Acts 1978,
Chapter 896, from the Hotel-Motel Tax Statute, its third “WHEREAS” declaring that “this
inclusion was an error as Chapter 896 was a general bill of local application applying to only one
county under the 1970 census and, in addition, requiring the approval of the county legislative
body...”
Section 16-521 et seq. of the current Knoxville Municipal Code also reflects a hotel-motel
tax of 3%, which was levied by Ordinance O-159-00 (and that the tax is to go into the convention
center debt service fund, and expire at the time that debt has been retired).
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The exceptions–generally
The exceptions to that statute are found in Tennessee Code Annotated, § 67-4-1425(c)
through (h). Those subsections contain exceptions for various counties, some based on population
brackets, but subsection (c) contains some based on the descriptive characteristics 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 hotel-motel 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. 67-4-1425,
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.]
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 subsection (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.
Admiralty Suites 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 2003 amendment to subsection (c), are significant for the City, if
it fits within any of the exceptions contained in that subsection. The court said that:
Tenn. Code Ann. § 67-4-1425(a) sets forth a general proscription
against double taxation on hotels and motels. Specifically, it
prohibits counties and a municipality therein from both levying
occupancy taxes upon hotels or motels within their borders.
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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
city-county 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%.
Your County Exceptions
When Admiralty Suites 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 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
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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).
Your County does not have a metropolitan form of government, notwithstanding the fact
that some city and county entities are denominated as metropolitan entities, such as the
“metropolitan planning commission,” and the “metropolitan airport authority.”
I have not determined all of the airports in Tennessee that might “contain” an airport
designated as a regular commercial service airport in the ICAO regional air navigation plan,
(Presumably, Memphis International Airport is encompassed within (c)(1)-(2), it having been
covered by subsection (c) when Admiralty Suites was decided), but I have determined that your
Airport is designated by the ICAO as having “regular Public Transport Services (synonymous
with scheduled services),” and has a letter designation in the ICAO system.
Your County may also contain 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,” and apparently owned by City “B”. Even if that is not so, your County, “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....” City “B”’s
airport is located in “B” County, and the “metropolitan airport authority” which governs the
airport is located in City “B”.
Admiralty Suites, above, held that the earlier Tennessee Code Annotated, § 67-4-1425(c)
was constitutional Tennessee Attorney General’s Opinion 03-134 opines that the present
Tennessee Code Annotated, § 67-4-1425(c) is constitutional.
Limit on the amount of hotel-motel tax your city can impose
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
hotel-motel 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%)....”
How your city would impose a hotel-motel tax
Generally, cities, even general law ones, impose the hotel-motel tax by private act.
However, Tennessee Code Annotated, § 67-4-1425(c)(3) provides that:
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.... if a municipality located in such county [under subsection (c)] is
incorporated under the general law, then such municipality is
authorized to levy a privilege tax by ordinance adopted by a
two-thirds vote of its governing body upon the privilege of
occupancy in any hotel of each transient in an amount not to
exceed five percent (5%) .... Such ordinance shall set forth the
manner of collection and administration of such privilege tax.
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
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/