The Montana Innkeepers Association (appellant) filed a declaratory judgment action against the City of Billings (respondent) to contest the legality of Ordinance No. 83-4461. This appeal arises from the District Court of the Thirteenth Judicial District, presided over by Judge Charles Luedke. The case involves amicus curiae briefs from the Montana Legal Defense Fund, Inc., and the City of West Yellowstone, which has a similar ordinance.
The legal framework is rooted in the 1972 Montana Constitution, which expanded local government powers beyond those expressly granted by the state. Under Article XI, Section 4, local governments retain powers expressly provided or implied by law, while Section 6 allows self-governing units to exercise any power not explicitly prohibited by constitutional or statutory law. The self-governing powers are further detailed in sections 7-1-103 and 7-1-106 of the Montana Code Annotated (MCA), emphasizing that local governments with self-governing charters can provide services without limitations except those in their charter or applicable state law.
The City of Billings has adopted a self-governing charter, allowing it broad authority to enact ordinances like the one being challenged. Nineteen local governments in Montana, including Billings, have opted for self-governing status.
On August 23, 1982, the City of Billings enacted Ordinance No. 82-4461, imposing a daily $1.00 fee on adult transient occupants in lodging establishments for stays ranging from one to fourteen consecutive days. Following voter approval in November 1982, the ordinance took effect on January 1. Lodging operators are required to collect this fee, remit it monthly to the City (minus a 2% administrative fee), and are subject to penalties for non-compliance, as well as audits and inspections. The ordinance aims to generate revenue for street construction and maintenance, and to fund police, fire, and administrative expenses, while allowing up to 20% of the revenue to promote tourism.
The District Court determined the ordinance's primary purpose was revenue generation, classifying the fee as a tax rather than a fee, a conclusion that was not contested on appeal. The sole issue on appeal concerns whether this tax violates section 7-1-112(1), MCA, which prohibits local governments from imposing taxes on income or the sale of goods/services unless explicitly authorized. The District Court concluded that while the renting of rooms constitutes a sale of services, the tax is levied on the occupant rather than the transaction itself, thereby circumventing the prohibition on taxing sales. However, this reasoning was criticized as flawed, asserting that the tax cannot be separated from the rental transaction, thus qualifying it as a sales tax prohibited by the statute. The District Court's decision relied on precedent from the case Teachers Retirement System of Georgia v. City of Atlanta.
A public entity cannot claim tax-exempt status for properties acquired through foreclosure, as this would lead to considerable revenue losses for taxing authorities; such properties are subject to existing taxes. The Georgia court's ruling clarified the responsibility for tax payment without addressing the constitutionality of the taxes involved. Additionally, the distinction between the Teachers Retirement System case and the current case is emphasized, particularly noting that the former relied solely on a tax-exempt status argument without questioning the nature of the tax itself. The classification of the tax—whether imposed on the vendor or the occupant—is relevant for tax collection but does not affect its classification as a sales tax. Consequently, the Teachers Retirement System case has limited relevance to the determination of the legality of the sales tax imposed by the City of Billings. Ordinance No. 82-4461 from the City is deemed illegal and void, leading to the reversal of the District Court's judgment.
