What can an Arkansas city legally spend its general sales-tax money on, and what is off-limits?
Plain-English summary
Representative Vivian Flowers (Pine Bluff) asked the AG six questions about how cities of the first class can spend revenue from a general sales tax. The questions appear to relate to local controversy over how Pine Bluff was using sales-tax dollars. Some of the questions are fact-specific and the AG answered with conditional analysis. The constitutional limits, though, come through clearly.
The two-part rule for sales tax in Arkansas. Cities have no inherent power to tax. They can levy a tax only if (1) the General Assembly authorized that type of tax by statute, and (2) the city itself levied the tax through ordinance and ballot. Once levied, Article 16, § 11 of the Arkansas Constitution requires that the levying instrument "distinctly state the object" of the tax, and money "arising from a tax levied for one purpose" cannot be "used for any other purpose." So if the city's ordinance and ballot say the sales tax is for public safety, the city cannot redirect that money to economic development.
The constitutional ban on private donations. Article 12, § 5 of the Arkansas Constitution prohibits any city, county, town, or municipality from donating or appropriating money or property to a corporation, association, institution, or individual. Adequate consideration must flow back to the city. "Public advantage" can sometimes count as consideration (the AG referenced this doctrine without citing the specific cases here), but a straight donation is barred.
Question 1 (paying for out-of-state basketball teams). Likely unconstitutional. Without adequate consideration flowing back to the city, paying out-of-state private teams' travel and lodging is a donation to private entities barred by Article 12, § 5.
Question 2 (paying an out-of-state performer). Maybe lawful. A contract with adequate consideration is different from a donation. The performer provides a service; the city pays the contract. The legal question is whether the contract is consistent with the statute that authorized the tax and the levying instruments that stated its object.
Question 3 (buying equipment, restricting use to one geographic area). Likely lawful, if the purchase fits within the levying instrument's stated purpose. Geographic restriction within the city is not separately prohibited by Arkansas law.
Question 4 (buying a hotel, donating to a non-governmental entity). Unconstitutional. Donations to private entities are flatly prohibited by Article 12, § 5.
Question 5 (city council "assigning" tax revenue to a non-governmental entity). Depends on what "assign" means. Donation = no. Payment for goods or services with adequate consideration = maybe yes, subject to the levying-instrument test.
Question 6 (disguising the spending through an MOU, public-private partnership, etc.). No. The label on the spending mechanism does not change the underlying legal analysis. If the spending would be unlawful as a direct donation, it is unlawful when papered as an MOU. Tax-spending records are public records under Arkansas FOIA, so attempts to hide the spending pattern face FOIA exposure as well.
The deeper takeaway: Arkansas city sales-tax revenue is not a flexible general-purpose fund. The statute authorizing the tax and the local ordinance and ballot that levied it together set the legal envelope. Inside that envelope, the city must avoid bare donations to private entities. Outside that envelope, the spending is unlawful regardless of how it is structured.
What this means for you
City council members and mayors
Before approving any expenditure of sales-tax revenue, ask three questions:
1. What state statute authorized this tax (capital-improvements, special local sales tax, etc.)?
2. What does our local ordinance and ballot say the tax is for?
3. Does this expenditure fit within both?
If a council member proposes spending on something that benefits a private entity (a sports tournament, a concert, an economic development incentive), insist on documenting the consideration flowing back to the city. "Public advantage" can be a basis, but it should be specific and articulated, not assumed.
The Article 12, § 5 ban is constitutional. A council vote, even unanimous, cannot waive it. Disguising the donation through an MOU, a public-private partnership, or a moral commitment is not a workaround.
City attorneys
Run the two-part check on every appropriation: statutory authority for the tax, and the levying instrument's stated purpose. If either is unclear or strained, advise the council to pause. The AG is signaling that even seemingly minor uses (sports promotion, concerts) require the analysis.
If a contract is the proposed structure, document the consideration. A signed contract with a vendor for clearly priced services is the cleanest record.
City finance officers and budget staff
Watch for line items that pass-through tax dollars to outside entities. If you see a contract with a private entity funded from a dedicated sales-tax revenue, confirm two things: the levying-instrument purpose covers it, and there is a service or product flowing back. If either is missing, flag it to the city attorney.
Taxpayer advocates and watchdogs
If you believe a city is misusing sales-tax revenue, your legal levers are:
- Article 16, § 11 (tax revenue used for the levying-instrument purpose only).
- Article 12, § 5 (no donations to private entities).
- Arkansas FOIA (public records of how tax was spent).
Standing in Arkansas allows taxpayer challenges to certain unlawful expenditures. Talk to a lawyer about whether the specific spending pattern and your standing support a claim.
Economic development directors and tourism boards
Funding from city sales-tax revenue is allowed, but the structure matters. A grant to a private 501(c)(3) is risky under Article 12, § 5 if the consideration is thin. A contract for services (the entity provides specific marketing or event services in exchange for payment) is more defensible. A public sponsorship under a clearly-defined sponsorship agreement can also work.
Document the public benefit as concretely as possible: events held, attendance, economic impact studies, sponsorship deliverables.
Citizens watching local controversies
If your city is paying for out-of-state teams, performers, or private entities from sales-tax revenue, the legal questions to ask in public comment or in writing to the city council are:
- What state statute authorized this tax?
- What did the ballot say it was for?
- What service or value does the city receive in return for this payment?
Public records are available under FOIA. The contract or MOU and the underlying statute and levying instruments should answer the questions.
Common questions
Can a city use sales-tax revenue to host a sports tournament?
It depends on (a) whether the levying instrument's stated purpose covers economic development, tourism, or recreation, and (b) whether the spending involves direct payments to private teams or just facility costs and operations. Direct payments to private entities without adequate consideration likely violate Article 12, § 5.
Can the city sell tickets to a city-funded event?
Yes. Selling tickets is not separately prohibited. The legal question is the underlying spending, not the revenue collection.
My city sponsors a Christmas parade. Is that legal?
Sponsorship of a public event is generally permissible. The legal posture is much stronger when the city itself organizes the event, the event is open to the public, and the sponsorship contracts (if any) are at arm's length. Parades, festivals, and similar events have a long history of city sponsorship.
Can the city spend tax dollars in a specific neighborhood only?
Yes, generally. As long as the levying instrument's stated purpose covers the type of spending, geographic targeting within the city is not separately barred.
Can a city give a tax abatement to a private business?
A tax abatement is different from spending tax revenue. Arkansas has specific statutes authorizing economic development incentives, including PILOT (payment in lieu of taxes) agreements and Act 9 industrial bonds. Those statutes set their own rules.
My city did this and nobody challenged it. Is it really illegal?
Article 12, § 5 violations are unlawful even if uncontested. Lack of challenge is not legal blessing. A future taxpayer suit could still raise the issue.
What happens if a court finds a city violated Article 12, § 5?
Possible remedies include: invalidation of the contract or expenditure; restitution to the city general fund; injunctive relief. Damages depend on the specific facts. Officers acting in their representative capacities are generally protected from personal liability if they acted in good faith.
Background and statutory framework
Arkansas city sales taxes operate within a tightly-constrained legal framework:
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Statutory authorization. The General Assembly enacts statutes that authorize specific types of city sales taxes. Examples cited in the opinion include the capital improvements sales tax (A.C.A. §§ 26-75-201 et seq.), the special local sales and use tax (§§ 26-73-110 et seq.), the alternative local sales tax (§ 26-73-113), and the Local Government Bond Act of 1985 (§§ 14-164-301 et seq.).
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Levying instruments. The city adopts an ordinance and a ballot to levy the tax. The ordinance and ballot must "distinctly state the object" of the tax (Article 16, § 11).
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Use limitation. Tax revenue must be used for the stated object. Diversion to other purposes violates Article 16, § 11.
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Private-donation ban. Article 12, § 5 bars cities from donating or appropriating money or property to private entities. Spending must be supported by adequate consideration.
The "public advantage" doctrine (developed in cases like City of Blytheville v. Parks and Little Rock Chamber of Commerce v. Pulaski County, though not cited in this opinion specifically) allows non-monetary public benefits to constitute adequate consideration in some circumstances. But the doctrine is fact-intensive and does not give cities a free hand.
Arkansas FOIA (A.C.A. § 25-19-105) makes the city's tax-spending records public. Any attempt to hide the structure or amount of an expenditure faces FOIA exposure.
Citations
- Ark. Const. art. 12, § 5 (no donations to private entities)
- Ark. Const. art. 16, § 11 (tax for one purpose may not be used for another)
- A.C.A. §§ 26-75-201 et seq. (capital improvements sales tax)
- 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 (school district dedication)
- A.C.A. §§ 14-164-301 et seq. (Local Government Bond Act of 1985)
- A.C.A. § 25-19-105 (Arkansas FOIA)
- Hasha v. City of Fayetteville, 311 Ark. 460, 845 S.W.2d 500 (1993)
Source
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:
- 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.
- 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.
- 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.
- 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.
- 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."
- 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. The Code is replete with statutes authorizing city taxes of several kinds. 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. 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."
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 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?
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. Therefore, cities cannot simply donate public property in the way your question contemplates.
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 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. 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