Can a South Dakota city like Spearfish use its lodging-tax revenue to help fund a private nonprofit heritage museum? Does SDCL 10-52-8, which lets cities use that tax for 'civic center' and 'promotion of the city,' cover supporting a 501(c)(3) historical organization?
Plain-English summary
The High Plains Heritage Society, a 501(c)(3) nonprofit in Spearfish, South Dakota, wanted to build a Heritage Center and develop programming around the history of the high plains region. The Society asked whether the City of Spearfish could direct some of its lodging-tax revenue (collected under SDCL 10-52-8) to help with construction, operations, and programming. The statute listed permissible uses including "civic center, auditorium or athletic facility buildings, including the maintenance, staffing and operations of such facilities and the promotion and advertising of the city, and facilities, attractions and activities."
AG Mark Meierhenry's answer was yes. SDCL 10-52-8 didn't define "civic center," so the AG turned to the ordinary meaning of "civic" (relating to a city or civil affairs of the city). A heritage museum was a "civil affair" of the community and contributed to "improved citizenship of the residents." The Legislature, the AG reasoned, had not meant to limit the statute to large music halls or athletic arenas; the broader purposes of the statute included tourism promotion and community attractions.
The AG's framing emphasized local control. The City of Spearfish was the "final arbitrator" of which projects qualified. If the council, through its elected representatives, determined that supporting the Heritage Center promoted the city or related to civic affairs, the lodging-tax revenue could fund the project. The AG mentioned a parallel example: a Black Hills community wanting to fund an art museum to attract tourists and build cultural awareness. The same logic applied.
The opinion left several practical questions open (the appropriate level of funding, whether the city should structure the support as a grant or a contract for services, what accountability mechanisms should attach), but the threshold legal question of statutory authority was clearly yes.
Currency note
This opinion was issued in 1986. 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. SDCL chapter 10-52 has been amended multiple times since 1986, and the permissible uses of municipal non-ad-valorem taxes have evolved. The interpretation given to "civic center" and "promotion of the city" in current law should be verified against the present statute.
What the opinion meant at the time
For nonprofit heritage and cultural organizations across South Dakota, the opinion opened a door. Cities with lodging tax authority could become significant funding partners for museums, historical societies, and cultural attractions. The 501(c)(3) status of the recipient did not disqualify it; the question was whether the project served city purposes under the statute.
For city councils, the opinion confirmed broad discretion. The AG explicitly cast the council as the "final arbitrator" of qualifying projects. That meant local political judgment, not state-level pre-clearance, controlled spending decisions. Councils still had to apply the statute (some link to civic center, promotion of city, or related categories), but the link could be quite indirect (tourism, community culture, civic affairs).
For tourism promoters and chamber of commerce officials, the opinion strengthened the case for cooperative funding between municipal government and nonprofit attractions. A heritage museum or art gallery that drew visitors fit the "promotion of the city" language. Lodging tax revenue was a natural funding source because tourists (the source of the tax) directly benefited from the attractions.
For city attorneys advising on the legality of specific funding requests, the opinion provided a checklist: does the project relate to civic affairs of the city? does it promote the city or its attractions? if yes, the lodging tax could fund it.
Common questions
Q: Did the City have to follow any particular procedure?
A: SDCL 10-52-8 didn't impose specific procedural requirements beyond council action. Best practice would have been a formal council resolution specifying the project, the amount, and the public benefit. Some cities would also have structured the support as a service contract or grant agreement with the recipient nonprofit.
Q: Could the city fund a non-501(c)(3) entity?
A: The opinion didn't say the 501(c)(3) status was required, but it was certainly helpful. A for-profit operator would have raised more searching questions about whether the funding served public purposes or just subsidized a private business. The Heritage Society's nonprofit status made the public-benefit case easier.
Q: Could the city fund a museum located outside city limits?
A: The opinion's logic depended on a connection to the city's civic affairs or promotion. A museum located outside city limits but serving city residents and attracting visitors to the city could potentially qualify, but the connection would have to be documented.
Q: How much funding could the city provide?
A: The opinion didn't impose a ceiling. The constraint was the available lodging tax revenue and the council's judgment about how to allocate among competing priorities (other civic facilities, advertising, athletic facilities, etc.).
Q: Could the funding cover building construction, or only operations?
A: SDCL 10-52-8's text covered "land acquisition, architectural fees, construction cost, payment for civic center, auditorium or athletic facility buildings, including the maintenance, staffing and operations of such facilities." So both construction and operations were within the authorized uses, provided the facility itself qualified as a civic center or analogous facility.
Q: Did the opinion bind other cities?
A: AG opinions are persuasive authority in South Dakota but not binding. Other cities considering similar funding would have looked to this opinion as guidance, but they remained free to make their own determination subject to the statute and any local charter limits.
Background and statutory framework
SDCL chapter 10-52 authorized municipalities in South Dakota to levy certain non-ad-valorem taxes, including the lodging tax (sometimes called a hotel-motel tax or transient occupancy tax). The tax was paid by guests at hotels, motels, and similar lodging establishments and was a common funding mechanism for tourism-related expenditures across the country.
SDCL 10-52-8 specified the permissible uses: land acquisition, design fees, construction, payment for civic center, auditorium, athletic facility buildings, maintenance, staffing, operations, and promotion and advertising of the city, facilities, attractions, and activities. The drafting was deliberately broad to give cities flexibility. The "civic center, auditorium or athletic facility" language was illustrative, not exclusive, especially given the trailing "and the promotion and advertising of the city, and facilities, attractions and activities."
Spearfish is in the northern Black Hills, a tourism corridor that includes Deadwood, Lead, Rapid City, and Mount Rushmore. Heritage and cultural attractions were a major part of the regional tourism economy. The High Plains Heritage Society's Heritage Center fit naturally into that ecosystem, and the lodging-tax funding model made the city a partner in the museum's development.
The AG's emphasis on local discretion reflected a deeper principle in South Dakota's home rule tradition: the legislature was reluctant to micromanage local fiscal decisions when the underlying statutory authority was clear. Spearfish's voters and council were better positioned to judge what attractions promoted Spearfish than the AG's office in Pierre.
Citations and references
Statutes:
- SDCL 10-52-8 (lodging tax purposes)
- SDCL ch. 10-52 (municipal non-ad-valorem taxes)
Federal:
- 26 U.S.C. § 501(c)(3) (federal tax-exempt status)
Source
Original opinion text
Use of sales tax on lodging for private, non-profit corporation purposes
Dear Mr. Delaney:
You have asked for an official opinion from this office based on the following facts:
FACTS:
The High Plains Heritage Society is located in Spearfish, South Dakota. The Heritage Society has been organized as a historical and educational society pursuant to its articles of incorporation and qualifies as a tax exempt non-profit corporation under Section 501(c)(3) of the Internal Revenue Code. The Society was organized for the following purposes, among others: (1) the construction of High Plains Heritage Center, (2) to obtain operational costs of the High Plains Heritage Center and (3) to develop programs for the maintenance of the heritage of the high plains.
Based upon the above facts, you have asked the following question:
QUESTION:
May the taxes obtained pursuant to SDCL 10-52-8 be used upon approval by the City of Spearfish for the items addressed in the request?
The answer to your question is yes. SDCL 10-52-8 states as follows:
The tax shall be levied for the purpose of land acquisition, architectural fees, construction cost, payment for civic center, auditorium or athletic facility buildings, including the maintenance, staffing and operations of such facilities and the promotion and advertising of the city, and facilities, attractions and activities.
No definition is found within our statutes of 'civic center.' No definition of 'promotion' is found within Chapter 10-52 of the South Dakota Code. However, the normal definition of the word 'civic' is defined as relating to a city or civil affairs of the city. In my opinion, the construction and operation of the Heritage Society is a civil affair and relates to improved citizenship of the residents of any community. The legislature obviously did not wish to limit SDCL 10-52-8 to facilities only for athletic events or civic centers which would only be used for large music concerts, athletic and other spectator events.
The City of Spearfish is the final arbitrator of the projects for which taxes may be levied. If the City of Spearfish, through its elected representatives, determines that the operation of a Heritage Museum would promote the city or is related to the civic affairs of the community, then the taxes raised pursuant to SDCL 10-52-8 may be used for those purposes.
Obviously, the legislature wished to delegate broad discretion to the local communities of our state to determine the needs of their communities. If, for example, a community of the Black Hills wished to promote local art, it would appear that the legislature has approved the use of locally levied taxes for the building of an art museum which would attract tourists and also develop the cultural awareness of the members of the community.
Therefore, I see no prohibition by laws of the State of South Dakota for the City of Spearfish, pursuant to SDCL 10-52-8, to fund a part or all of the High Plains Heritage Society's operations to be located in that community.
I believe that the city councils throughout our state can make the proper determination for the use of funds raised within their communities and to determine whether or not those operations promote the city or its attractions and activities.
Respectfully submitted,
Mark V. Meierhenry
Attorney General