Currituck defends occupancy tax spending in NC Supreme Court brief

Currituck County officials defend their decisions about how to spend occupancy tax proceeds in a new court filing at North Carolina’s highest court. A lower court ruled against the county last year in a lawsuit filed by local taxpayers.

The North Carolina Court of Appeals ruled in March 2024 that Currituck commissioners had exceeded their authority when they used occupancy tax money to cover items other than tourism-related expenses. That decision reversed a trial judge who had ruled in favor of county officials in 2021.

Currituck County filed a petition in April 2024 for the state Supreme Court to take the case. More than a year later, the high court agreed in June to consider Currituck’s arguments.

“The North Carolina Court of Appeals should have applied the traditional standard for evaluating decisions of public officials and held that the Currituck County Commissioners have not abused their discretion in how they spend occupancy-tax revenue under a statute that authorizes them to use their ‘judgment,’” lawyer Christopher Geis wrote in a brief filed Friday for the county.

“The Currituck County Commissioners could reasonably judge that spending occupancy-tax revenue on public safety services, such as law enforcement, is necessary to attract tourists to their county,” Geis added.

“This case is about a local statute that allows the Currituck County Board of Commissioners to levy occupancy taxes on visitors and use the revenue for ‘tourism-related expenditures.’ The statute defines ‘tourism-related expenditures’ as those that, in the ‘judgment’ of the Board of Commissioners, will bring more visitors to the county,” the brief explained. “

“When it was enacted in 1987, the statute defined such expenditures as including public safety services, and when it was amended in 2004 it gave the Board of Commissioners the authority to exercise its judgment about what such expenditures are,” Geis wrote. “The plaintiffs assert that public safety services, with the exception of beach lifeguards, are not tourism-related, but the commissioners believe that such services help provide a safe environment to which tourists want to come and return.”

“If paying for a beach lifeguard who rescues a tourist from rough surf is tourism-related, as the plaintiffs concede, then emergency medical technicians who take that tourist to the hospital after he or she has been rescued, or the law enforcement officers who prevent other tourists from getting into the surf, are also tourism-related, or at least the commissioners could reasonably believe so,” the brief continued.

“This [Supreme] Court must determine whether the commissioners abused their discretion in making their determination about what is tourism-related – that is, whether they acted capriciously, in bad faith, or in disregard of the law,” Geis wrote. “If they have not acted this way, this Court must reverse the Court of Appeals and reinstate summary judgment in favor of the defendants.”

The county’s April 2024 petition cited two “significant” issues for the state Supreme Court to address.

“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,” Geis wrote.

“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,” he added.

The Corolla Civic Association and 23 individual plaintiffs originally filed suit against the county in 2019.

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.’”

“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.”

Currituck 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 county commissioners’ critics responded with a court filing in May 2024.

“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.

The Appeals Court’s 2024 decision cited a 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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