Can the Town of Seven Devils, which straddles two counties, levy a 6% occupancy tax authorized only for 'cities in Avery County'?

Plain-English summary

An attorney asked whether the Town of Seven Devils could levy a total 6% occupancy tax in its Watauga County portion under legislation granting taxing authority to "cities in Avery County." Seven Devils lies in both counties. The AG addressed whether that wording covered the entire town and what a narrower reading would mean for tax uniformity.

The grant was ambiguous. The AG found no authority resolving whether a grant to a town described as being in one county extends to the town's territory in another county. Reading the grant to include all of Seven Devils was "particularly viable" because it would avoid a constitutional problem. But municipal taxing authority must be specifically granted and strictly construed. The AG could not advise that the legislation would withstand a court challenge arguing that the grant did not extend to the Watauga County portion.

Uniformity depended on the grant's scope. The opinion says a tax imposed throughout Seven Devils would be uniform within the taxing district. If a court instead found the grant limited to the Avery County portion, the tax would not be uniform throughout the town and would likely violate the constitutional uniformity provision. The AG applied that concern to both the initial 3% tax and the additional 3% levy.

The opinion compared Beech Mountain, another town spanning Avery and Watauga counties, for which the legislature had first granted authority by name and later created two taxing districts. It noted that the Seven Devils legislation did neither. A separate amendment named a "Seven Devils District W" even though no such municipality existed. The AG said clarifying legislation may be in order; it did not hold the tax invalid or say clarification was the only possible solution.

Currency note

This opinion was issued in 2003. Check the current local acts and any later amendments before applying its analysis to a present occupancy tax.

Common questions

Q: Did the AG decide that Seven Devils could not tax rooms in Watauga County?

A: No. The opinion recognized a viable reading that could cover the whole town, but said it could not advise that this reading would survive a court challenge. It did not resolve the grant's scope definitively.

Q: When would the uniformity problem arise?

A: If the grant covered only the Avery County portion, a town tax limited to that portion would not be uniform throughout Seven Devils. The AG said such a tax would likely violate the uniformity provision.

Q: Why did the AG mention Beech Mountain?

A: Its occupancy-tax legislation expressly named the town and later divided it into separate taxing districts. The AG could not find comparable specificity in the Seven Devils legislation.

Q: What did the AG suggest?

A: It said clarifying legislation may be in order, noting the ambiguous grant and the reference to a nonexistent "Seven Devils District W."

Background and statutory framework

Session Law 2001-439, § 16.2(a), authorized certain "cities in Avery County" to levy a 3% room occupancy tax. Session Law 2002-94, § 16.2(a1), authorized a further 3% levy for cities levying the first tax. The question was whether this grant included the Watauga County portion of Seven Devils.

The opinion cites N.C. Const. art. V, § 2(2), and Hajoca Corp. v. Clayton for uniformity throughout a taxing district. It cites Kenny Co. v. Brevard for strict construction of municipal taxing powers and N.C. Gen. Stat. § 160A-206 for the requirement of specific General Assembly authorization. The AG considered both a town-wide reading that would avoid a constitutional issue and a narrow reading that could create one.

Citations

• N.C. Const. art. V, § 2(2)
• N.C. Gen. Stat. § 160A-206
• N.C. Gen. Stat. § 160A-215
• Sess. Law 2001-439, § 16.2(a)
• Sess. Law 2002-94, § 16.2(a1), § 4(g)
• Sess. Law 1987-376
• Sess. Law 2001-434, § 10
• Hajoca Corp. v. Clayton, 277 N.C. 560 (1971)
• Kenny Co. v. Brevard, 217 N.C. 269 (1940)
• Redevelopment Comm. v. Guilford County, 274 N.C. 585 (1968)

Source

• Landing page: https://ncdoj.gov/opinions/occupancy-tax/

Original opinion text

Reply to: Revenue Section
Telephone: (919) 716-6550 Fax: (919) 715-3550

23 January 2003

Rebecca Eggers-Gryder
Eggers, Eggers, Eggers, and Eggers
Attorneys and Counselors at Law
Post Office Box 248
Boone, North Carolina 28807

Re: Advisory Opinion: Authority of Town of Seven Devils to Levy an Occupancy Tax; Sess. Law 2002-94

Dear Ms. Eggers-Gryder:

You have requested our opinion as to whether the Town of Seven Devils has authority to levy a total of 6% occupancy tax in Watauga county under Senate Bill 1195, entitled "An Act to Authorize the Towns in Avery County to Levy an Additional 3% Occupancy Tax." A copy of S.B. 1195 (Sess. Law 2002-94) is attached hereto as Exhibit A. For the reasons which follow, we agree with your conclusion that the bill may not, in fact, authorize the levying of the tax throughout the entire town of Seven Devils and may therefore run afoul of the uniformity provision of the North Carolina Constitution.

Section 16.2(a) of Chapter 439 of the 2001 Session Laws authorized certain cities to levy a 3% room occupancy tax. The scope of the grant of authority is as follows: "This section applies only to cities in Avery County that are not otherwise authorized to levy a room occupancy tax." Sess. Law 2001-439, § 16.2(a). We understand that the Town of Seven Devils is located within both Avery and Watauga counties. The Town of Seven Devils is not otherwise authorized to levy an occupancy tax. Sess. Law 2002-94 added a new subsection granting cities that levy the tax under § 16.2(a) authority to levy an additional 3% room occupancy tax. Sess. Law 2002-94, § 16.2(a1).

More specifically, you have inquired whether the legislative grant of authority to "cities in Avery County" is sufficient to include the portion of the town located in Watauga county, and, if not, whether such taxing scheme violates the uniformity provision of the North Carolina Constitution, which provides, in part, that "No class of property shall be taxed except by uniform rule, and every classification shall be made by general law uniformly applicable in every county, city and town, and other unit of local government." N.C. Const. Art. V, § 2(2).

Uniformity of taxation is required throughout the territorial limits of a taxing district. Hajoca Corp. v. Clayton, 277 N.C. 560, 569 (1971). Here, there is uniformity within the taxing district, the Town of Seven Devils, only if the tax is imposed throughout the town, including that part in Watauga county. If the legislative grant of authority to "cities in Avery County" does not encompass the portion of the town located in Watauga county, the tax would not be uniform throughout the taxing jurisdiction and would appear to run afoul of the uniformity provision.

The question of the extent of the grant of the authority is more difficult. We are aware of no authority supporting or defeating the proposition that a grant of taxing power to a town in a county, expressed in terms of territorial authority to tax, extends to that portion of the town without the county. Arguably, because a portion of the town is "in Avery County," the entire town as a taxing unit would be authorized to levy the tax. This interpretation appears particularly viable in view of the requirement that statutes must be construed in a way that will not offend the constitution.

On the other hand, because cities and counties do not possess inherent authority to levy taxes, see Hajoca, 277 N.C. at 569, any grant of taxing power from the General Assembly must be strictly construed. Kenny Co. v. Brevard, 217 N.C. 269, 272 (1940) ("the powers of municipalities relating to taxation are strictly construed"). At first blush, this principle weighs against a finding that the portion of the town not in Avery county is authorized to levy the tax. Further, a tax imposed without authority is an illegal tax. Redevelopment Comm. v. Guilford County, 274 N.C. 585, 589 (1968).

On balance, we cannot advise that the legislation, if challenged in court, could withstand an argument that the grant of authority to "cities in Avery County" does not extend to that portion of the town in Watauga county. If the grant were found to be limited to that portion of the town in Avery county, such a tax would likely be held to violate the uniformity provision of the Constitution. Our conclusion relates to both the initial 3% tax as well as the additional 3% levy.

As your letter points out, the Town of Beech Mountain is similarly situated to that of Seven Devils, in that it is located in both Avery and Watauga counties. Of particular note is the methods the legislature chose in granting the Town of Beech Mountain taxing authority. Originally, the General Assembly specifically authorized the Town of Beech Mountain to levy an occupancy tax. Sess. Law 1987-376. Later, the legislature divided the town into two taxing districts, the Town of Beech Mountain and Beech Mountain District W (that portion of Beech Mountain located in Watauga county). Sess. Law 2001-434, § 10. Interestingly, the legislature followed neither course of action in Sess. Laws 2001-439 and 2002-94. In light of this variation, we can discern no specific legislative intent to grant the Town of Seven Devils, as such, taxing authority. This conclusion is further reinforced by G.S. § 160A-206, which provides: "A city shall have power to impose taxes only as specifically authorized by act of the General Assembly." (emphasis added). Given the ambiguity of the operative language, we cannot advise that the legislature "specifically authorized" the Town of Seven Devils taxing authority throughout the territorial limits of the city.

We finally observe that the recent legislation amended G.S. § 160A-215 to include "Seven Devils District W" in the list of municipalities that the General Assembly has authorized to levy the tax. Sess. Law 2002-94, § 4(g). The fact that there is no such municipality further confuses the issue. Clarifying legislation may be in order.

We hope the foregoing proves helpful.

Sincerely,

Reginald L. Watkins
Senior Deputy Attorney General

Kay Linn Miller Hobart
Assistant Attorney General

KLMH/sg

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