When a NC town sits in two counties, and the legislature gives 'cities in Avery County' authority to charge a 6% hotel occupancy tax, does that town get to charge it across both counties or only in the Avery County portion?

Plain-English summary

The Town of Seven Devils sits in two NC counties (Avery and Watauga). The General Assembly passed Session Law 2002-94 giving "cities in Avery County that are not otherwise authorized to levy a room occupancy tax" the authority to charge an additional 3% occupancy tax, on top of an earlier 3% grant. That meant 6% total.

The town's lawyer, Rebecca Eggers-Gryder, asked: can Seven Devils charge the 6% tax across the whole town (including the Watauga County portion), or just the Avery County portion?

The AG's answer was layered and ultimately cautious:

Step 1: Reading the statute literally. The grant ran to "cities in Avery County." Seven Devils is in Avery County (as well as Watauga), so a broad reading would let the town tax across its territorial limits. But NC's settled rule (citing Hajoca Corp. v. Clayton and Kenny Co. v. Brevard) is that grants of municipal taxing power must be strictly construed. A strict reading would limit the tax to the Avery County portion of the town.

Step 2: The constitutional uniformity problem. Article V, § 2(2) of the NC Constitution requires uniform taxation within a taxing district. The Town of Seven Devils is one taxing district. If the legislature only authorized the tax in the Avery County portion, the tax would be non-uniform across the town, which likely violates the uniformity clause. NC courts have held that taxes imposed without authority are illegal taxes (Redevelopment Comm. v. Guilford County).

Step 3: The legislative history reading. The General Assembly handled a similar situation differently for the Town of Beech Mountain (also straddling Avery and Watauga). It first named Beech Mountain directly, then divided it into two taxing districts (the town proper and "Beech Mountain District W" for the Watauga portion). The Seven Devils legislation did neither. The AG read the legislature's silence as suggesting it did not specifically authorize tax authority for the whole Town of Seven Devils.

Step 4: § 160A-206. "A city shall have power to impose taxes only as specifically authorized by act of the General Assembly." The AG concluded that the operative language ("cities in Avery County") is too ambiguous to satisfy the "specifically authorized" requirement for the whole town.

Bottom line: the tax cannot be confidently defended in court if challenged. The AG recommended clarifying legislation. The legislature also amended § 160A-215 to include "Seven Devils District W" in the list of authorized municipalities, but no such municipality exists, which the AG noted "further confuses the issue."

The opinion is signed by Reginald L. Watkins (Senior Deputy AG) and Kay Linn Miller Hobart (Assistant AG).

Currency note

This opinion was issued in 2003. 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.

The General Assembly likely addressed this drafting ambiguity in subsequent session laws. Anyone applying the analysis to a current taxation question in a cross-county NC municipality should consult the present statutory text and any controlling court decisions.

Common questions

Q: Why does NC require strict construction of municipal taxing power?
A: NC follows the "Dillon's Rule" tradition: cities and counties have no inherent taxing power. All taxing authority must come from a specific delegation by the General Assembly. This protects taxpayers from local government expanding tax authority through interpretation.

Q: What is the uniformity clause?
A: Art. V, § 2(2) of the NC Constitution requires uniform property taxation. "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."

Q: Could the legislature fix this with one bill?
A: Yes. The AG suggested clarifying amendments. The legislature could either (1) explicitly authorize the entire Town of Seven Devils to charge the occupancy tax, or (2) divide the town into two taxing districts (like Beech Mountain) and authorize each separately.

Q: What is "Seven Devils District W"?
A: A phantom entity. The legislature added "Seven Devils District W" to the list of authorized municipalities in § 160A-215, but never actually created such a district. The AG flagged this drafting error.

Q: Could a hotel challenge the tax in court?
A: Yes. The AG's caution is essentially a litigation risk warning. A hotel that objected to the tax could file a declaratory judgment action arguing the tax is unauthorized or unconstitutional.

Background and statutory framework

Occupancy taxes (sometimes called hotel taxes or transient room taxes) are a common funding tool for tourism promotion and infrastructure in NC mountain and coastal towns. The General Assembly grants taxing authority on a town-by-town or county-by-county basis through individual session laws.

Cross-county municipalities create drafting headaches. NC has several such towns, particularly in the western mountains where county lines pre-date some town incorporations. The legislature has to decide whether to grant taxing authority to the whole town or just the portion in a particular county, and whether to divide the town into separate taxing districts.

The Town of Beech Mountain offers the working model: explicit legislative authorization for the town, then a later split into two taxing districts. Session Laws 2001-439 and 2002-94 muddled the same problem for Seven Devils by using only the "cities in Avery County" formula.

This opinion is one of many NC AG opinions on municipal taxing power. The strict-construction tradition gives the AG and the courts a clean framework: read the grant narrowly, point out the constitutional problems, and recommend cleaner drafting.

Citations

• N.C.G.S. § 160A-206 (cities only tax as specifically authorized)
• N.C.G.S. § 160A-215 (occupancy tax statute)
• Session Law 2001-439, § 16.2(a) (Avery County cities, occupancy tax)
• Session Law 2002-94, § 16.2(a1) (additional 3% occupancy tax)
• Session Law 1987-376 (Beech Mountain initial occupancy tax)
• Session Law 2001-434, § 10 (Beech Mountain split into taxing districts)
• N.C. Const. art. V, § 2(2) (uniform taxation)
• 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/legal-services/archived-opinions/

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