NC Appeals Court ponders dispute over Currituck’s tourism tax money

The N.C. Appeals Court must decide in the weeks ahead whether Currituck County commissioners misspent tax money raised to boost tourism. The court heard oral arguments Monday in a case challenging Currituck’s use of occupancy tax proceeds.

A lower court ruled in favor of the county.

“We certainly disagree with the trial court that summary judgment was appropriate in favor of the commissioners,” said Robert Edmunds, the former N.C. Supreme Court justice representing plaintiffs. “I think it’s fairly obvious that spending money for police and … fire isn’t going to attract tourists.”

Former N.C. Supreme Court Justice Robert Edmunds argues at the N.C. Court of Appeals. (Image from N.C. Court of Appeals YouTube channel)

On the other side of the argument, attorney Christopher Geis argued that state law gives county commissioners discretion to decide whether a particular spending item boosts local tourism. Commissioners have made those decision for nearly 20 years under current state law, Geis said.

“Because the commissioners’ decisions have been reasonable — and not arbitrary, capricious, or in bad faith — they have not abused their discretion as public officials to make these decisions. The court should defer to them,” Geis said.

Christopher Geis at N.C. Court of Appeals
Attorney Christopher Geis argues on behalf of Currituck County at the N.C. Court of Appeals. (Image from N.C. Court of Appeals YouTube channel)

The appellate panel of Judges Hunter Murphy, Tobias Hampson, and Michael Stading aimed questions at both sides in the case.

“To what extent is this simply a policy dispute that our courts shouldn’t really wade into, in terms of who gets to decide what constitutes a tourism-related expenditure?” Hampson asked Edmunds. “Why is that not a policy question rather than a legal question?”

Murphy asked why county commissioners couldn’t justify spending money on public services that might help convince tourists to return in the future. “If there’s garbage piled up on the streetside because they only pick up garbage once a month versus once a week, that might not be some area I want to take my kids back to as I drive along those roads,” he said.

“At what point does bringing in new tourists need to be the focus of these funds versus retaining tourism and enhancing the experience of those that are visiting?” Murphy asked.

“I just want to know where you propose that we draw the line between a general public service and what would be tourism-related expenditures,” Stading said.

Edmunds responded that funding for a general purpose “is something that can be found in any county.” “I drove here from Guilford County,” he said. “I didn’t pass any … town that didn’t have a police department, any county that didn’t have a sheriff, any place that didn’t have a fire department. … If everybody gets that, it’s not a tourist attraction.”

The judges questioned Geis about the limits of county commissioners’ discretion. Murphy asked why commissioners wouldn’t be able to justify using tourism money for local schools.

“When I was reading these things rhat you were saying clearly wouldn’t be included, I can come up with justifiable reasons why those can promote tourism,” he said. “All these things … a better educated work force goes a long way, so buying schoolbooks is related to that. So if all these things you’re saying clearly would not be included, if there’s a rational way to think about them being included in the same way as these other services, then is there any line at all?”

Murphy also asked for proof that commissioners had considered tourism impacts when making budget decisions involving occupancy tax money. “If this is just in the individual commissioners’ heads and it’s not being said publicly, it’s not being shown publicly, … at least there might be an issue of fact that there hasn’t been full consideration.”

Currituck County compounds that problem by spending occupancy tax dollars along with money raised through other taxes, attorney Troy Shelton argued for the plaintiffs.

“There’s essentially no way without some kind of forensic accounting to understand where the tourism dollars are being spent,” Shelton said. Money should flow into and out of a single account for the county’s Tourism Development Authority. “The money comes into that account, and the money goes out of that account so you can know what it’s being spent on. That’s not what happens.”

Troy Shelton at N.C. Court of Appeals
Attorney Troy Shelton argues at the N.C. Court of Appeals. (Image from N.C. Court of Appeals YouTube channel)

In Costanzo v. Currituck County, 23 individuals and the Corolla Civic Association contend that county officials are violating a 2004 state law. Plaintiffs say the county is using occupancy tax money to fund items beyond permitted “tourism-related” expenses.

“The parties’ contrasting briefs present the Court with two incompatible options. Either, as Plaintiffs say, the 2004 statutory amendment provides a workable standard to review the County’s expenditure of funds derived from its occupancy tax or, as the County says, the County’s power to spend those funds is virtually limitless,” wrote the plaintiffs’ attorneys in a brief to the court.

“The County has created tests for those expenditures that it cannot fail unless it wants to,” plaintiffs argued. “In its brief, the County acknowledges that some expenditures, ‘absent other facts,’ would not be tourism-related. Specifically, the County states that using those funds for school textbooks or for social workers’ salaries would not be permissible ‘tourism-related’ expenditures. However, … the tests that the county uses (or purports to use) can readily justify those impermissible expenditures.”

“The tests that the County applies when determining what expenditures are ‘tourism-related,’ however, do not reflect what the General Assembly intended in 2004, nor are these adaptable tests consistent with what the 2004 amendment says,” according to the plaintiffs’ brief.

“Whenever local governments have stepped beyond their delegated powers, our courts have not hesitated to intervene,” plaintiffs argued. “Were it otherwise, counties could nullify State law, even though the counties themselves are merely creations of the State. Nothing supports that outcome.”

The Costanzo case has attracted attention from groups that promote the state’s hospitality industry. The N.C. Travel and Tourism Coalition, N.C. Restaurant and Lodging Association, N.C. Hospitality Alliance, and N.C. Vacation Rental Managers Association filed a friend-of-the-court brief on Oct. 31. Those groups supported efforts to force Currituck County to comply with the 2004 law.

“Occupancy tax statutes are special taxes levied for a particular purpose — the support and development of tourism in a specific city or county,” according to the hospitality groups’ brief. “The decision of the Superior Court granting summary judgment contains no explanation for its decision, even though it appears there was evidence before the trial court that Currituck County is spending at least some portion of its occupancy tax revenues for general services, which is not consistent with that county’s occupancy tax legislation.”

Plaintiffs filed suit against the county in 2019. A trial judge ruled in December 2021 in favor of the county government. The friend-of-the-court brief argued that the Currituck case could affect other communities across the state.

“To the extent Currituck County seeks to argue that a tourism development authority can disregard the statutory limitations and conditions on its spending authority and transfer occupancy tax revenues into their general fund, that contention clearly is not correct under the law,” according to the brief. “Any decision in this appeal should be careful not to upset the hundreds of occupancy tax statutes that apply to other jurisdictions, where no one has ever argued that occupancy tax revenues may simply be transferred to a general fund for spending on general public services.”

The Travel and Tourism Coalition has been pushing since 1991 to have local occupancy taxes devoted to “growing the tourism economy,” the brief argued. “The occupancy tax is the only tax specifically targeting an industry where that industry is not opposed to the additional tax, as long as the proceeds of the tax are reinvested in tourism promotion or for tourism related

Currituck County’s 2004 occupancy tax law differs from statewide guidelines adopted in the 1990s, according to the tourism groups. Yet revenue from the county’s 6% occupancy tax still must be split between promotion of travel and tourism and “tourism-related expenditures.”

Yet at least some occupancy tax proceeds end up in the county’s general fund, according to the tourism groups. “[T]o the extent the County merely deposits occupancy tax revenue into its general fund for subsequent spending, doing so cannot either meet the legislative intent of Currituck’s legislation, or that statute’s specific language.”

The 2004 law marked a change, the tourism groups argued. Currituck’s original 1987 occupancy tax law allowed the county to count building construction, solid waste collection, and police and emergency services as “tourist-related” purposes.

Currituck’s critics argue that the county continues to use occupancy tax money for more general local government purposes.

“The fact that the 2004 Currituck Statute is titled ‘TO … CHANGE THE PURPOSES FOR WHICH THE TAX MAY BE USED’ should not be controversial or hard to interpret. The prior statute was being superseded and made to be in closer conformity to the Guidelines,” the tourism groups argued.

“The Guidelines do not contemplate the use of occupancy tax revenue for such general services as ‘police protection and emergency services’ that had been permitted uses under the prior Currituck statute, and certainly do not contemplate occupancy tax revenues raised for ‘tourism-related expenditures’ being transferred to Currituck’s general fund for subsequent spending.”

“The general services provided by local government are no doubt a key component of local government — but they are not tourism-related expenditures,” according to the brief.

There is no deadline for a decision from the Appeals Court.

The post NC Appeals Court ponders dispute over Currituck’s tourism tax money first appeared on Carolina Journal.


Have a hot tip for First In Freedom Daily?

Got a hot news tip for us? Photos or video of a breaking story? Send your tips, photos and videos to All hot tips are immediately forwarded to FIFD Staff.

Have something to say? Send your own guest column or original reporting to