What can an Arkansas city legally spend its general sales-tax money on, and what is off-limits?

Plain-English summary

Representative Vivian Flowers asked six questions about how a city of the first class may use general sales-tax revenue. The Attorney General explained that a city needs statutory authority to levy the tax, and its levying instruments must state the tax's purpose. Revenue raised for one purpose cannot be used for another. Because the request did not identify the authorizing statute or the local levying instruments, the AG said he could not answer most of the questions definitively.

The answers differ by proposed use:

1. Basketball tournament: Paying visiting teams' and players' travel and related expenses would likely violate the constitutional bar on gifts to private entities unless the city received adequate consideration. The AG could not say definitively on the facts given and treated the admission-charge question as moot.
2. Concert performer: A city could pay a performer if the expenditure is authorized by the tax statute, fits the stated purpose in the levying instruments, and provides adequate consideration. If the contract is permissible, the AG said Arkansas law does not prohibit charging admission.
3. Equipment for one area: A city may purchase equipment if the same authority, purpose, and consideration conditions are met. If the purchase is permissible, Arkansas law does not prohibit limiting its use to certain areas of the city.
4. Hotel donation: The AG answered no to buying a hotel and donating it to a non-governmental entity without consideration.
5. Assignment of revenue: A donation to a private entity is prohibited. Payment for goods or services requires the same statutory, local-purpose, and adequate-consideration analysis. The AG needed more facts to say more.
6. MOU or other arrangement: The AG found the question unclear. He said fiscal records generally must be disclosed on a valid FOIA request unless an exemption requires otherwise, and the way a city memorializes a use does not determine whether the use is authorized.

What this means for you

City officials reviewing a proposed use

Identify the state law authorizing the sales tax and the instruments that levied it. The AG said those documents determine whether revenue may fund a particular use. Where a payment benefits a private organization or individual, the opinion also asks whether the city receives adequate consideration.

Residents asking how revenue was spent

The opinion says fiscal records are public records under the FOIA and must be released after a valid request unless a specific exemption requires otherwise. It does not decide the lawfulness of any actual Pine Bluff expenditure.

Common questions

Did the AG say a city can never pay for a concert?
No. The answer depends on the tax statute, the instruments that levied the tax, and adequate consideration from the performer.

May a city charge admission to a city-funded event?
For the proposed concert, the AG said no Arkansas law prohibits charging admission if the underlying contract is permissible. He did not reach admission charges for the basketball tournament because he considered the proposed payments likely unlawful.

Can a city give a hotel to a private entity for nothing? No. The opinion says a city cannot donate public property in the manner described in Question 4.

Does putting the expenditure in an MOU authorize it?
No. The opinion says how the city memorializes a use is irrelevant to whether the use is authorized by the tax statute and levying instruments.

Background and statutory framework

The AG cites Hasha v. City of Fayetteville for the rule that cities have no inherent taxing power. Footnote 2 lists examples of Arkansas statutes authorizing particular local taxes. The opinion quotes Arkansas Constitution article 16, § 11 on stating the tax's object and using the resulting money for that object. It applies article 12, § 5 to the proposed donations to private entities and cites A.C.A. § 25-19-105 in its FOIA discussion.

Citations

• Ark. Const. art. 12, § 5
• Ark. Const. art. 16, § 11
• A.C.A. §§ 26-75-201 et seq.
• A.C.A. §§ 26-73-110 et seq.
• A.C.A. § 26-73-113
• A.C.A. § 26-73-114
• A.C.A. §§ 14-164-301 et seq.
• A.C.A. § 25-19-105
• Hasha v. City of Fayetteville, 311 Ark. 460, 845 S.W.2d 500 (1993)
• Arkansas Attorney General Opinions 2013-126 and 2023-032

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2023-025

June 5, 2023

The Honorable Vivian Flowers
State Representative
Post Office Box 3156
Pine Bluff, Arkansas 71611

Dear Representative Flowers:

You have asked for my opinion about the permissible uses of revenue generated from a general sales tax levied by a city of the first class. Below, I have reproduced your six questions followed by a brief answer and more detailed analysis. You have asked:

1. Can a city of the first class in Arkansas utilize the proceeds from general sales tax funds to
   pay for travel, lodging/hotel accommodations, food, and other related expenses for out-of-
   state teams and players to compete in a local basketball tournament; and then charge its
   citizens to attend the tournament games?
   Brief answer: No, based on the facts presented here, this payment would likely violate the
   Arkansas constitution’s proscription on cities giving money to private
   entities.

2. Can a city of the first class in Arkansas utilize the proceeds from a general sales tax to
   contract and pay for an out-of-state performer to appear and perform at a local concert; and
   then charge its citizens to attend the concert?
   Brief answer: The answer depends on whether using the tax revenue to fund the contract
   with the performer would be consistent with the laws authorizing and
   levying the tax.

3. Can a city of the first class in Arkansas assess a city-wide general sales tax and thereafter
   utilize the proceeds from the general sales tax to purchase equipment and then limit and
   restrict the usage of the equipment to a certain geographic area within the city?
   Brief answer: Yes, if this use of the sales-tax revenue were consistent with the laws
   authorizing and levying the tax.
   The Honorable Vivian Flowers
   State Representative
   Opinion No. 2023-025
   Page 2

     4. Can a city of the first class in Arkansas utilize the proceeds from a general sales tax to
        purchase a hotel and thereafter transfer/donate it, without receiving any consideration
        whatsoever, to a non-governmental entity?
        Brief answer: No, the state constitution prohibits cities from giving money or property to
                       private entities.
   
     5. Can the City Council of a city of the first class in Arkansas assign some or all of its collected
        proceeds/revenue from an annual general sales tax to a non-governmental entity, when
        other entities have been previously approved (by a unanimous vote) for similar requests?
        Brief answer: The answer depends on what you mean by “assign.”
   
     6. Can a city of the first class in Arkansas disguise general sales tax proceeds through any
        artifice or device (e.g., memorandum of understanding, verbal promise, non-written or non-
        disclosed agreement, moral authority, public-private partnership, etc.) to accomplish any
        of the objectives cited herein questions 1–5?
        Brief answer: Since this question is not entirely clear, I have tried to address its possible
                         meanings in my discussion of this question below.
   

DISCUSSION
Because the analysis for each of your questions overlaps, I will explain the general law governing a city’s taxing power and the use of sales-tax revenue before addressing your questions individually. Before a city can levy a tax, the tax itself must be authorized in two ways. First, because they lack any inherent power to tax, cities can levy a tax only if the General Assembly has authorized that type of tax. 1 The Code is replete with statutes authorizing city taxes of several kinds. 2 Second, the city must levy the tax, which usually requires an ordinance and a ballot title. The state constitution requires that the levying instruments “distinctly state the object of the” sales tax. 3 And once the object, or purpose, of the tax has been fixed, the Arkansas Constitution prohibits any money “arising from a tax levied for one purpose” from being “used for any other purpose.” 4 Since most of your questions ask about the use of sales-tax revenue for certain purposes, I would need to know what statute authorizes the tax you have in mind and how the levying instruments

1
Hasha v. City of Fayetteville, 311 Ark. 460, 462, 845 S.W.2d 500, 501 (1993).
2
See, e.g., A.C.A. §§ 26-75-201 et seq. (authorizing a sales and use tax for capital improvements); A.C.A. §§ 26-73-110 et seq. (special local sales and use tax); A.C.A. § 26-73-113 (alternative local sales and use tax); A.C.A. § 26-73-114 (dedication to school district); A.C.A. §§ 14-164-301 et seq. (local Government Bond Act of 1985); A.C.A. §§ 26-75-201 et seq. (capital improvement bonds). 3 Ark. Const., art. 16, § 11.
4
Id.
The Honorable Vivian Flowers
State Representative
Opinion No. 2023-025
Page 3

limit the use of the sales-tax revenue. But your correspondence does not provide this additional information. Therefore, I am unable to definitively address most of your questions.

Question 1: Can a city of the first class in Arkansas utilize the proceeds from general sales tax funds to pay for travel, lodging/hotel accommodations, food, and other related expenses for out- of-state teams and players to compete in a local basketball tournament; and then charge its citizens to attend the tournament games? Your question seems to have two parts: whether the sales-tax revenue may be used to pay for the teams and players; and if so, whether the city can charge people to attend the tournament. A city may use sales-tax revenue in any way that is consistent with the (1) state law and (2) the levying instruments. While it is not entirely clear from your question, the facts you have provided indicate that the city would be appropriating tax dollars to either private organizations or individuals. If so, then the scenario you describe is not a permissible use of sales-tax revenue because that use would likely violate Arkansas law. Article 12, § 5 of the Arkansas Constitution prohibits cities from donating or appropriating “money for…any corporation, association, institution, or individual.” Your question indicates that the city would use tax revenue to “pay for travel, lodging/hotel accommodations, food, and other related expenses for out-of-state teams and players.” Unless the city received adequate consideration for this payment, the payment would almost certainly violate article 12, § 5 of the state constitution. Because I do not have more factual background, I cannot say definitively whether this kind of payment would be unlawful. Because, based on the facts presented to me, the payment would likely be unlawful, the second part of your question is moot.

Question 2: Can a city of the first class in Arkansas utilize the proceeds from a general sales tax to contract and pay for an out-of-state performer to appear and perform at a local concert; and then charge its citizens to attend the concert? Your question seems to have two parts: whether the sales-tax revenue may be used to pay for a contract with the performer; and if so, whether the city can charge people to attend the performance. The use of sales-tax revenue to contract with the performer would be lawful if the use were (1) authorized by the state statute that authorized the tax; (2) consistent with the instruments that levied the tax and stated its purpose; and (3) in return for adequate consideration from the out-of- state performer. Since I do not have any information about the stated purpose of the tax, I cannot definitively say whether this use would be consistent with Arkansas law. Assuming the contract were permissible, no Arkansas law prohibits the city from charging people to attend the performance.

Question 3. Can a city of the first class in Arkansas assess a city-wide general sales tax and thereafter utilize the proceeds from the general sales tax to purchase equipment and then limit and restrict the usage of the equipment to a certain geographic area within the city? The Honorable Vivian Flowers State Representative Opinion No. 2023-025 Page 4

As noted above, the city may use the sales-tax proceeds to purchase equipment if that purchase is (1) authorized by the state statute that authorized the tax; (2) consistent with the instruments that levied the tax and stated its purpose; and (3) in return for adequate consideration. If the purchase of the equipment falls within the range of permissible uses noted in the levying instruments, then the city may use the tax revenue to purchase the equipment. But because I lack sufficient information about the levying instruments, I cannot definitively say whether this use of the sales- tax revenue is lawful. Assuming the purchase were permissible, no Arkansas law prohibits the city from restricting the equipment to certain areas within the city.

Question 4. Can a city of the first class in Arkansas utilize the proceeds from a general sales tax to purchase a hotel and thereafter transfer/donate it, without receiving any consideration whatsoever, to a non-governmental entity? No. Article 12, § 5 of the Arkansas Constitution prohibits cities from “obtain[ing] or appropriate[ing]” money to private organizations or individuals. 5 Therefore, cities cannot simply donate public property in the way your question contemplates. 6

Question 5. Can the City Council of a city of the first class in Arkansas assign some or all of its collected proceeds/revenue from an annual general sales tax to a non-governmental entity, when other entities have been previously approved (by a unanimous vote) for similar requests? The answer depends on what you mean by “assign.” If you mean “donate,” then the answer is “no” because, as explained in response to Question 4, the Arkansas Constitution prohibits cities from donating money or property to private entities. But if you mean “pay in consideration for goods or services,” then the answer turns on whether that payment is consistent with (1) the state statute that authorized the tax; (2) the instruments that levied the tax and stated its purpose; and (3) in return for adequate consideration from the non-governmental entity. Because it is not clear to me how you are using the term “assign,” and because this question does not contain any additional facts, I cannot definitively opine any further.

Question 6. Can a city of the first class in Arkansas disguise general sales tax proceeds through any artifice or device (e.g., memorandum of understanding, verbal promise, non-written or non- disclosed agreement, moral authority, public-private partnership, etc.) to accomplish any of the objectives cited herein questions 1–5? I am not entirely sure I understand your question. First, the question asks whether a city can disguise the proceeds of a sales tax. Since it is not clear how that would even be possible, I take your question to be whether a city could lawfully hide the fact or nature of an expenditure funded with tax dollars. Second, it is not clear to me what you mean by “disguise.” If you are asking whether a city may successfully resist a request under the Freedom of Information Act for records

5
Ark. Const. art. 12, § 11.
6
See, e.g., Ark. Att’y Gen. Op. 2013-126.
The Honorable Vivian Flowers
State Representative
Opinion No. 2023-025
Page 5

that reflect how tax proceeds were spent, then the answer is “no.” Fiscal records of government entities meet the definition of a “public record” under the FOIA. And unless a specific exemption under the FOIA requires otherwise, public records must be released upon receipt of a valid FOIA request. 7 But if you are asking whether the city can spend tax dollars to accomplish any of the objectives discussed in Questions 1–5, please see my response to those questions. The key legal question is whether the city has the authority—under statute and local law—to use sales-tax proceeds in a particular way. How the city memorializes that use—whether through an MOU, oral or written contract, etc.—is irrelevant to the questions about whether the specific use of the sales tax has been authorized by statute and the instruments that levied the tax.

Deputy Attorney General Ryan Owsley prepared this opinion, which I hereby approve.

Sincerely,

TIM GRIFFIN
Attorney General

7
See A.C.A. § 25-19-105; see, e.g., Ark. Att’y Gen. Op. 2023-032 (explaining the general rules governing records disclosures under the FOIA).