Could a Kentucky tourism commission use hotel or restaurant tax receipts to support a private hotel?

Plain-English summary

Bell County's tourism commission asked whether tax revenue could help repay Pineville bonds issued for a privately owned hotel. The Kentucky Attorney General distinguished two revenue streams in 2012. KRS 91A.390(3) expressly barred using transient room tax proceeds to subsidize a hotel, motel, or restaurant. The restaurant tax under KRS 91A.400 had no matching prohibition. The AG said a tourism commission could use restaurant tax receipts for the bonds, or for street and sewer improvements, if the spending promoted tourism and served the public interest.

The opinion also rejected Pineville's attempt to add a hotel-subsidy ban to its restaurant tax ordinance. State law sent that revenue to the tourism commission and did not give the city authority to dictate how the commission spent it. The AG called the conflicting ordinance provision void and advised keeping careful track of the two taxes' receipts and uses.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Historical summary

Tourism commissions

The 2012 opinion read promotion of convention and tourist activity broadly but still required a public purpose. The commission had discretion to spend restaurant tax revenue on a hotel-related bond obligation or connected street and sewer work when those conditions were satisfied. Room tax proceeds remained subject to the specific subsidy ban.

City officials and hotel projects

Pineville's ordinance repeated the room-tax prohibition for its separate restaurant tax. The AG said the city could enact or repeal the restaurant tax, but could not impose its own spending restriction after the statute directed all receipts to the tourism commission.

Common questions

Could room-tax money subsidize the hotel?

No. The opinion said KRS 91A.390(3) barred transient room tax proceeds from subsidizing a hotel, motel, or restaurant in any form.

Could restaurant-tax money help repay Pineville's hotel bonds?

Yes, if the commission found that the expenditure promoted tourism and served the public interest. The AG said the restaurant-tax statute did not carry the room-tax subsidy prohibition.

Could the restaurant-tax money pay for streets or sewers?

The AG said it could support street and sewer improvements connected with promoting tourism, subject to the same public-purpose limit.

Could Pineville's ordinance forbid restaurant-tax hotel spending?

The AG said the portion of that ordinance imposing a hotel-subsidy ban was void. KRS 91A.400 directed restaurant tax receipts to the tourism commission without authorizing the city to control its spending choices.

Background and statutory framework

KRS 91A.350(2) established tourism commissions' promotion and development purpose. KRS 91A.390(3) allowed certain room-tax spending while expressly forbidding subsidies to hotels, motels, and restaurants. KRS 91A.400 sent restaurant-tax receipts to the commission without that ban. The AG also considered the constitutional public-purpose rule and KRS 91A.390(2)'s separate-account requirement when explaining why the commission should distinguish the two revenue streams.

Citations and references

• KRS 91A.350(2): tourism commission purpose.
• KRS 91A.390(3): room-tax spending and subsidy prohibition.
• KRS 91A.400: restaurant-tax revenue paid to the commission.
• KRS 91A.390(2): separate-account rule discussed for receipts from both taxes.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_eb231d80-fc24-4792-8c0e-191b941d95d9/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_eb231d80-fc24-4792-8c0e-191b941d95d9

Original opinion text

OAG 12-012
August 10, 2012
Subject:

Whether a tourism commission may expend transient
room tax and restaurant tax revenues for a hotel,
motel, or civic improvements

Requested by:

Tom Shattuck
Chairman, Bell County Tourism Commission

Written by:

Matt James
Assistant Attorney General

Syllabus:

Revenues from the transient room tax may not be
applied to a hotel or motel, but restaurant tax revenues may be applied to any project that promotes tourism and is in the public interest

Statutes construed:

KRS 91A.350, KRS 91A.390(3), KRS 91A.400

Opinion of the Attorney General
Tom Shattuck, Chairman of the Bell County Tourism Commission
(“Commission”), has requested an opinion of this office on whether revenues collected by the Tourism Board may be used by the Commission to assist in the repayment of bonds issued by the City of Pineville for the construction and operation of a privately owned hotel. Representative Kim King has requested an opinion on collection of revenue under KRS 91A.390 and 91A.400, and specifically the interpretation of “may be used to finance… facilities useful in the attraction and promotion of tourist and convention business” in KRS 91A.390(3). These requests have been combined in this opinion due to the common underlying is-

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sue of what constitutes the promotion of tourist and convention business, and thus how a tourism commission may spend revenue from hotel and restaurant taxes. We advise that the promotion of tourist and convention business should be construed broadly in accordance with the public purpose requirement. KRS 91A.390(3) specifically forbids spending transient room tax revenue to subsidize a hotel, motel, or restaurant, but the restaurant tax in KRS 91A.400 is not so restricted, and is limited only by the requirement that funds be spent for the purpose of promoting convention and tourist activity in KRS 91A.350(2). KRS 91A.350(2) allows local governing bodies of cities of the second through sixth class, or counties containing them, to create tourism commissions “for the purpose of promoting and developing convention and tourist activities and facilities.” KRS 91A.390(1) provides that the commission shall be funded through a transient room tax. KRS 91A.390(3) provides in relevant part: (3)A portion of the money collected from the imposition of this tax… may be used to finance the cost of acquisition, construction, operation, and maintenance of facilities useful in the attraction and promotion of tourist and convention business... The balance of the money collected from the imposition of this tax shall be used for the purposes set forth in KRS 91A.350. Proceeds of the tax shall not be used as a subsidy in any form to any hotel, motel, or restaurant… KRS 91A.400 allows cities of the fourth or fifth class to levy an additional restaurant tax, and provides that “all moneys collected from the tax authorized by this section shall be turned over to the tourist and convention commission established in that city as provided by KRS 91A.350 to 91A.390.” At issue in this opinion is how the tourism commission may validly spend these revenues. KRS 91A.390(3) explicitly provides that the proceeds of the transient room tax shall not be used as a subsidy to a hotel, motel, or restaurant in any form, and thus prevents a tourism commission from providing any money from the proceeds of the transient room tax to a

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hotel, motel, or restaurant. However, KRS 91A.400 makes no such restriction, and only provides that the revenues from it shall be turned over to the tourism commission in that city. It may be argued that since KRS 91A.390 was originally the only source of funding available to a tourism commission until the later enactment of the restaurant tax, the legislature intended that a tourism commission could not spend any money to subsidize a hotel, motel, or restaurant. This argument may be strengthened by the claim that KRS 91A.390(2) provides that all of the revenue collected under both KRS 91A.390(3) and 91A.400 must be kept in an account separate and unique from all other revenue. However, “in determining legislative intent, we must refer to the language of the statute and are not at liberty to add or subtract from the legislative enactment or interpret it at variance from the language used.” Johnson v. Branch Banking and Trust Co., 313 S.W.3d 557, 559 (Ky. 2010). KRS 91A.390(3) begins by referring to “this tax,” and later refers to “proceeds of the tax,” both singular terms, indicating that only the transient room tax created in that section was intended. KRS 91A.400 only specifies that the revenue from the restaurant tax must be turned over to the tourism commission in that city, and places no further restrictions on it. If the legislature had intended to forbid the use of restaurant tax revenue to subsidize a hotel, motel, or restaurant, it would have so specified. As the statutes are currently written, while revenue from the transient room tax in KRS 91A.390(3) cannot be used for a hotel, motel, or restaurant, money from the restaurant tax in KRS 91A.400 is restricted only by a tourism commission’s general charter in KRS 91A.350(2) that the commission act “for the purpose of promoting and developing convention and tourist activities and facilities.” Additionally, in passing an ordinance establishing a restaurant tax under KRS 91A.400, the City of Pineville explicitly borrowed the language of KRS 91A.390(3) and required that the revenue from the restaurant tax “shall not be used to provide a subsidy in any form to any hotel, motel, or restaurant.” “A municipal ordinance is invalid if it conflicts with a state statute.” Boyle v. Campbell, 450 S.W.2d 265, 268 (Ky. 1970). KRS 91A.400 provides that “all moneys collected from the tax authorized by this section shall be turned over to the tourist and convention commission.” It does not authorize the city enacting the

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restaurant tax to place restrictions on how that money is spent, and
mandates that the money simply be “turned over” to the tourist commission. The city may choose whether or not to enact or repeal the restaurant tax, but it may not dictate how the tourism commission spends it, as that power is given to the commission by statute. As such, the portion of the City of Pineville’s ordinance that restricts the use of restaurant tax revenue in providing a subsidy to a hotel, motel, or restaurant is void. Regarding what constitutes “promoting and developing convention and tourist activities and facilities,” in Second St. Properties, Inc. v. Fiscal Court of Jefferson County, 445 S.W.2d 709, 712-13 (Ky. 1969), the former Court of Appeals indicated that it should be construed broadly. “The modern tendency is to be more liberal in permitting grants of discretion to administrative agencies… the promotion of convention and tourist activity… is sufficiently definite to circumscribe the permitted proper functions of the administrative agency.” Id. at 713. Since “the promotion of convention and tourist activity” is to be construed broadly, we interpret it similarly to the general public purpose requirements for taxation. Ky. Const. § 171 provides that “taxes shall be levied and collected for public purposes only.” “The determination of what constitutes a public purpose is primarily a matter for legislative discretion.” Industrial Development Authority v. Eastern Kentucky Regional Planning Commission, 332 S.W.2d 274, 276 (Ky. 1960). “A private agency may be utilized as the pipe-line through which a public expenditure is made, the test being not who receives the money, but the character of the use for which it is expended.” Kentucky Bldg. Com'n v. Effron, 220 S.W.2d 836, 837 (Ky. 1949).1 This test is “in the end, not the means.” 1

Ky. Const. § 3 provides that “no grant of exclusive, separate public emoluments or

privileges shall be made to any man or set of men, except in consideration of public services.” Ky. Const. §§ 3 and 171 are closely intertwined. “If the purposes served by an action constitute public purposes for which tax revenues may be levied and expended under Section 171, the manner of the use and expenditure is also proper under Section 3, and is not a private use as distinct from a public use.” Hayes v. State Property and Buildings Com’n, 731 S.W.2d 797, 801 (Ky. 1987).

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Industrial Development, 332 S.W. 2d at 276. “Courts will not interfere
with the action of a state or municipal legislative body except for a
clear abuse of power or unless the absence of public interest is clear
and palpable.” 64A C.J.S. Municipal Corporations § 2233. Tourism commissions are given wide discretion in promoting tourism and convention business, and their judgments will not be questioned unless there is a clear abuse of power, or the absence of public interest or promotion of tourism is clear and palpable. The Tourism Commission may thus apply revenues from the restaurant tax to pay off bonds issued by the City of Pineville to fund a hotel or motel, provided it is in the public interest and promotes tourism. The Tourism Commission may also use the restaurant tax revenues for street and sewer improvements that are connected with the promotion of tourism. In sum, the revenues from the transient room tax may not be applied to a hotel or motel, but the restaurant tax revenues may be applied to any project that promotes tourism and is in the public interest, which may include such things as paying off municipal bonds for a hotel or motel, or street and sewer improvements. Since KRS 91A.390(2) requires keeping the revenue from both taxes in a separate and unique account, we advise that a tourism commission should keep careful track of the revenues taken in from each tax and how they are spent.

JACK CONWAY
ATTORNEY GENERAL

Matt James
Assistant Attorney General