by John H Snowden, III
Publisher
The North Carolina Supreme Court is set to review a significant case concerning Currituck County’s use of occupancy tax revenue, a dispute that has broad implications for how local governments across the state manage these specialized funds. The case, Costanzo v. Currituck County, originated in 2019 when a group of individuals and the Corolla Civic Association filed a lawsuit alleging that the county was misspending occupancy tax proceeds.
Background of the Dispute:
North Carolina law permits counties to levy an occupancy tax on lodging rentals, with the primary intent that these funds be used for “tourism-related expenditures.” The core of the Currituck County dispute lies in the interpretation of this phrase, particularly in light of legislative changes over time.
Initially, a 1987 state law allowed Currituck County to use at least 75% of its occupancy tax for “tourist related purposes,” explicitly including public services like police protection, emergency services, and garbage collection. However, a crucial 2004 amendment altered this language, removing the specific examples of public services and instead directing that funds be used for “tourism-related expenditures, including beach nourishment.” The plaintiffs argue that this amendment was intended to narrow the scope of permissible spending, restricting it primarily to tourism promotion and related infrastructure.
Currituck County, on the other hand, has maintained that its commissioners have the discretion to determine what constitutes a “tourism-related expenditure” and that public safety services (such as law enforcement, EMS, and fire protection) are essential for attracting and accommodating tourists, thus falling within the permissible uses. The county has historically transferred a significant portion of these funds to its general fund, using them for various public services, including those provided in the heavily touristed areas like Corolla. Plaintiffs contend that this practice amounts to using dedicated tourism funds for general county services, thereby shifting the financial burden of tourist-related public safety from visitors to local taxpayers.
Lower Court Rulings:
The case initially went to a trial court in 2021, which sided with Currituck County, granting summary judgment in its favor. The trial court essentially agreed with the county’s interpretation that its commissioners had the discretion to determine what expenditures were tourism-related.
However, in March 2024, the North Carolina Court of Appeals unanimously reversed the trial court’s decision. The appellate court found that Currituck County had indeed misspent occupancy tax funds, particularly on public safety services. The Appeals Court emphasized the 2004 amendment, reasoning that the removal of specific public safety examples from the permissible uses indicated a legislative intent to narrow the scope of how the county could spend these funds. The court concluded that public safety costs, in this context, were not “designed to increase the use of lodging facilities… by attracting tourists or business travelers to the county.” This ruling meant that Currituck County could not use occupancy tax proceeds for these general public safety expenses and also revived the plaintiffs’ claims regarding other challenged expenditures.
Appeal to the Supreme Court:
Following the Court of Appeals’ ruling, Currituck County decided to appeal to the North Carolina Supreme Court. The county argues that it needs the highest court to clarify the discretion local governments have in determining tourism-related expenditures, especially concerning public safety services that are undeniably impacted by an influx of tourists. The county’s position is that these services are directly linked to maintaining a safe and attractive environment for visitors, thereby supporting tourism.
The Supreme Court’s decision will be crucial as it could establish a precedent for how occupancy tax revenues are interpreted and spent by other counties and municipalities across North Carolina. Many local governments collect similar taxes, and a broad ruling could force a re-evaluation of their current spending practices. The case highlights the ongoing tension between a local government’s need to fund essential services and the specific, often restrictive, intent of specialized tax revenues like occupancy taxes. The ultimate outcome will define the boundaries of “tourism-related expenditures” and the level of discretion local officials have in allocating these significant funds.
