Publisher's Note: This post appears here courtesy of the Carolina Journal. The author of this post is CJ Staff.
Opponents of the way Currituck County uses occupancy tax proceeds offered their final written arguments Monday to the N.C. Court of Appeals. The court will hear oral arguments in the case next week.
In Costanzo v. Currituck County, 23 individuals and the Corolla Civic Association contend that county officials are violating a 2004 state law. Plaintiffs say the county is using occupancy tax money to fund items beyond permitted "tourism-related"
"The parties' contrasting briefs present the Court with two incompatible options. Either, as Plaintiffs say, the 2004 statutory amendment provides a workable standard to review the County's expenditure of funds derived from its occupancy tax or, as the County says, the County's power to spend those funds is virtually limitless,"
wrote the plaintiffs' attorneys.
"The County has created tests for those expenditures that it cannot fail unless it wants to,"
plaintiffs argued. "In its brief, the County acknowledges that some expenditures, 'absent other facts,' would not be tourism-related. Specifically, the County states that using those funds for school textbooks or for social workers' salaries would not be permissible 'tourism-related' expenditures. However, ... the tests that the county uses (or purports to use) can readily justify those impermissible expenditures."
"The tests that the County applies when determining what expenditures are 'tourism-related,' however, do not reflect what the General Assembly intended in 2004, nor are these adaptable tests consistent with what the 2004 amendment says,"
according to the plaintiffs' brief.
"Whenever local governments have stepped beyond their delegated powers, our courts have not hesitated to intervene,"
plaintiffs argued. "Were it otherwise, counties could nullify State law, even though the counties themselves are merely creations of the State. Nothing supports that outcome."
The Costanzo case has attracted attention from groups that promote the state's hospitality industry. The N.C. Travel and Tourism Coalition, N.C. Restaurant and Lodging Association, N.C. Hospitality Alliance, and N.C. Vacation Rental Managers Association filed a friend-of-the-court brief on Oct. 31. Those groups supported efforts to force Currituck County to comply with the 2004 law.
"Occupancy tax statutes are special taxes levied for a particular purpose - the support and development of tourism in a specific city or county,"
according to the hospitality groups' brief. "The decision of the Superior Court granting summary judgment contains no explanation for its decision, even though it appears there was evidence before the trial court that Currituck County is spending at least some portion of its occupancy tax revenues for general services, which is not consistent with that county's occupancy tax legislation."
Plaintiffs filed suit against the county in 2019. A trial judge ruled in December 2021 in favor of the county government. The friend-of-the-court brief argued that the Currituck case could affect other communities across the state.
"To the extent Currituck County seeks to argue that a tourism development authority can disregard the statutory limitations and conditions on its spending authority and transfer occupancy tax revenues into their general fund, that contention clearly is not correct under the law,"
according to the brief. "Any decision in this appeal should be careful not to upset the hundreds of occupancy tax statutes that apply to other jurisdictions, where no one has ever argued that occupancy tax revenues may simply be transferred to a general fund for spending on general public services."
The Travel and Tourism Coalition has been pushing since 1991 to have local occupancy taxes devoted to "growing the tourism economy,"
the brief argued. "The occupancy tax is the only tax specifically targeting an industry where that industry is not opposed to the additional tax, as long as the proceeds of the tax are reinvested in tourism promotion or for tourism related expenditures."
Currituck County's 2004 occupancy tax law differs from statewide guidelines adopted in the 1990s, according to the tourism groups. Yet revenue from the county's 6% occupancy tax still must be split between promotion of travel and tourism and "tourism-related expenditures."
Yet at least some occupancy tax proceeds end up in the county's general fund, according to the tourism groups. "[T]o the extent the County merely deposits occupancy tax revenue into its general fund for subsequent spending, doing so cannot either meet the legislative intent of Currituck's legislation, or that statute's specific language."
The 2004 law marked a change, the tourism groups argued. Currituck's original 1987 occupancy tax law allowed the county to count building construction, solid waste collection, and police and emergency services as "tourist-related"
Currituck's critics argue that the county continues to use occupancy tax money for more general local government purposes.
"The fact that the 2004 Currituck Statute is titled 'TO ... CHANGE THE PURPOSES FOR WHICH THE TAX MAY BE USED' should not be controversial or hard to interpret. The prior statute was being superseded and made to be in closer conformity to the Guidelines,"
the tourism groups argued.
"The Guidelines do not contemplate the use of occupancy tax revenue for such general services as 'police protection and emergency services' that had been permitted uses under the prior Currituck statute, and certainly do not contemplate occupancy tax revenues raised for 'tourism-related expenditures' being transferred to Currituck's general fund for subsequent spending."
"The general services provided by local government are no doubt a key component of local government - but they are not tourism-related expenditures,"
according to the brief.
Oral arguments in Costanzo v. Currituck County are scheduled Feb. 8 before Appeals Court Judges Hunter Murphy, Tobias Hampson, and Michael Stading.