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Critics urge state’s highest court to reject Currituck occupancy tax appeal


Carolina Journal


Plaintiffs challenging Currituck County’s occupancy tax spending are asking the state Supreme Court to reject the county’s recent appeal. The state’s second-highest court ruled against the county in March.


The state Court of Appeals decided that Currituck could not use occupancy tax proceeds to fund public safety services. Appellate judges also revived local critics’ case against other challenged uses of occupancy tax funding.


Curtituck filed a petition in April asking the state’s highest court to reverse the Appeals Court’s decision. The county’s critics responded with a court filing Monday.


“The Court of Appeals resolved a straightforward statutory interpretation issue involving a local act passed by the General Assembly that applies to a single county. That decision neither involves a matter of significant public interest nor implicates legal principles of major significance to the jurisprudence of the entire state. The petition should be denied,” wrote lawyers led by former state Supreme Court Justice Robert Edmunds.


“The General Assembly has passed numerous local acts that allow municipalities to charge occupancy taxes in addition to preexisting sales taxes,” the plaintiffs’ document continued. “Each local act is worded differently to reflect the unique character of the county to which it applies.”


“In the original version of the local act at issue here, the General Assembly directed Currituck County to spend at least 75% of its occupancy tax on ‘tourist related purposes,’ while permitting up to 25% of the tax to be spent on general county services,” Edmunds explained.


“When the County spent the entirety of the occupancy tax on general county services, the General Assembly responded by removing any language that would permit the County to spend occupancy tax revenues on general services. The local act’s language was reworded to require that the entirety of that revenue be spent to increase ‘tourism-related expenditures, including beach nourishment.’”


“Yet even after the amendment, the County continued to spend the bulk of that money on general services,” the court filing continued. “Plaintiffs, who are part of the County’s tourism industry, sued to require the County to comply with the plain text of the amended act and spend the money to promote tourism. In its decision below, the Court of Appeals agreed with Plaintiffs that the County’s spending had not complied with the act’s plain text.”


“[I]f Defendants want unfettered spending authority, they can again ask the General Assembly to amend the act,” the county’s critics argued.


Currituck County’s petition asked the state Supreme Court to take up the case because of two “significant” issues.


“First, it is of significant public interest whether local government officials have the discretion to determine that spending on public safety services, such as law enforcement, is essential to attracting tourists to their jurisdictions,” wrote Christopher Geis, the Winston-Salem-based lawyer representing the coastal county.


“Second, it is significant to the jurisprudence of this State whether courts must apply the well-established standard for determining whether public officials have abused their discretion in spending tax revenues under a statute that gives them broad authority to do so,” Geis added.

Critics filed suit against the county in 2019. A trial judge ruled in favor of the county in 2021. March’s Appeals Court decision reversed the trial court.


The General Assembly first granted Currituck County the right to assess an occupancy tax in 1987. The Appeals Court based much of its ruling on a 2004 amendment to the original local occupancy tax law.


“The Court of Appeals held that the Currituck County Board of Commissioners’ discretion in spending occupancy-tax revenue was limited and that it could spend ‘such funds . . only as permitted by strict construction of the term “tourism-related” expenditures,’ which is contained in a 2004 amendment to the local statute at issue,” Geis explained. “The Court found that ‘the County did not act in accordance with’ the 2004 Amendment to the statute because it spent ‘occupancy tax proceeds for public safety services and equipment.’”

“The Court concluded, ‘This is not to say that the County has acted in bad faith,’ only that it had exceeded the authorization provided in the 2004 Amendment to the statute,” Geis added.


A concurring opinion suggested spending on public safety “’might well be’ proper under the statute, but said there was no evidence in the record that ‘the County – through its Board of Commissioners – exercised its judgement, or discretion, in doing so.’”


“Plaintiff-Appellants, who collect and remit the taxes but do not pay them, claim that Currituck County spends occupancy-tax revenue in violation of the statute and that many expenditures, especially those for law enforcement, emergency medical services, and fire protection, should not be paid for with this revenue because they are not related to tourism,” Geis wrote. “The county commissioners, who have used the discretion given them by the statute, disagree. They have unanimously judged that certain expenditures, including those on public-safety services required in response to the influx of visitors to the county during tourist season, are related to tourism.”


Currtituck County justified the public safety spending by pointing to Corolla, the Outer Banks community that draws the bulk of the county’s tourists and generates the most occupancy tax revenue.


“The need for lifeguards and ocean rescue teams is seasonal, but the other public-safety costs are year-round because the county cannot hire employees to work in such jobs for only part of the year and so it must hire them for full-time work and move them to Corolla during tourist season,” Geis wrote. “The commissioners have judged these public-safety expenditures as tourism-related because they are caused by the influx of tourists.”


Currituck County defended its elected commissioners’ decisions about occupancy tax use. “The commissioners believe that their spending occupancy-tax revenues has been logically related to tourism and is within the discretion the statute provides them,” Geis wrote. “Their testimony provides a rational, reasonable basis for their decisions and shows they have used their best judgment in exercising their statutory authority.”


The Appeals Court decision cited the 2004 amendment to state law “narrowing the scope of how the County may use occupancy tax proceeds.”


“An application of guiding legal principles and precedent leads us to conclude that significant alterations to the original language contained in the Session Law and additions included in the Amendment convey an intent by the Legislature to narrow the scope of expenditures funded by the net proceeds of levied occupancy tax,” wrote Judge Michael Stading.


“The Amendment limits the discretion of the Board of Commissioners and requires that such funds shall be spent only as permitted by strict construction of the term ‘tourism-related expenditures,’” Stading added. “Considering the evidence contained in the record, in a light most favorable to the County, we hold that the County did not act in accordance with the Amendment when spending occupancy tax proceeds for public safety services and equipment.”


“This is not to say that the County has acted in bad faith, rather our determination is based on expenditures contained in the record which were no longer authorized after the Amendment was enacted,” Stading explained.


Judge Hunter Murphy joined Stading’s opinion.


Judge Toby Hampson agreed with his colleagues to reverse the trial judge’s ruling for the county. Hampson wrote separately to indicate his concerns about county commissioners’ budget process.


“[T]he County’s use of occupancy tax funds to fund law enforcement, emergency medical services, and fire protection might well be expenditures that, ‘in the judgment of the … Board of Commissioners, are designed to increase the use of lodging facilities, meeting facilities, recreational facilities, and convention facilities in a county by attracting tourists or business travelers to the county.’ Here, however, the Record does not disclose that in appropriating the proceeds of the occupancy tax, the County — through its Board of Commissioners — exercised its judgment, or discretion, in so doing,” Hampson wrote.

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