             THEA~TORNEYGENERAL
                                 OF     !lYExAs
                            AUSTIN        ~~.TEXAS



                                  November       19,   1959


Honorable   Robert S. Calvert                   Opinion    No. ~~-738
Comptroller    of Public Accounts
Capitol   Station                               Re:    Whether the Hotel Occu-
Austin 11, Texas                                       panty Tax applies      to
                                                       officers    and, employees
                                                       of the Federal Reserve
                                                       Bank while travelling
                                                       on official    business    of
Dear Sir:                                              the bank.

              In your   letter        dated    September      17,   1959,   you state:

                 “I am in receipt    of a letter   from Mr. George
        F. Rudy, General Counsel,        Federal Reserve Dank of
        Dallas,     asking our opinion     as to whether the Hotel
        Occupancy Tax applies        to officers   and employees of
        this Federal Reserve Bank while travelling            on
        official     business   of the bank.     I am enclosing  his
        letter     herewith   and will thank you to advise me in
        your opinion      the correct   answer to give Mr. Rudy.”

               Articles   23.02 and 23.03, Chapter 23, H.B. 11, 3rd
C.S.,    56th Leg. , impose the Hotel Occupancy Tax upon occu-
pants    of any~ space in a hotel,    and provide that the hotel
shall    collect     such tax.

           As correctly  pointed    out by the letter    referred                   to
in the above quotation,    Section   7 of the Federal Reserve                      Act
( 38 Stat. 258, 12 U.S.C.A.,    Section  531) exempts Federal
Reserve Banks from taxation     in the following    language:

               “Federal   Reserve Banks, including   the capital
        stock and surplus      therein, and the income derived
        therefrom    shall be exempt from Federal,    State,  and
        local   taxation,   except taxes upon real estate.”

             Under the authority              of this Section    it appears
that when the Federal Reserve                 Bank contracts    directly,    or in
its name through an agent,       for            a space in a hotel,      and pays
the hotel     for such space from             its funds,    it would not be
liable   for the tax imposed by               Chapter 23 of House Bill       11..
See Attorney     General’s  Opinion             No. V-1492 (l952),     and Kern-
Limerick    v. Scurlock,   347 U.S.             110 (1954).    However, i
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Hon. Robert     S. Calvert,    Page 2                 Opinion   No. W-738



different     result    obtalns  where employ,ees or officers   of the
Bank rent     hotel    rooms while travelling    at the expense of the
bank.

             There are essentially        two methods of reimbursing
employees    for the expenses       of travelling.     The first     Is the
per diem method.       This,   in effect,     compensates    the employee
on an “in lieu” basis,       i.e.,    the employee does not receive
reimbursement     for actual     expenses   but instead    receives     a
specified    amount for each day that he is on the road..               This
amount is received      by the employee regardless         of how much is
paid for the hotel      space,     or whether the employee even rents
such space.     Under this state of facts,          it is apparent that
the Federal Reserve Bank does not contract             directly     with the
hotel    for the occupancy     of a space in the hotel;         consequantly,
the tax is not imposed upon the Bank.              The employee contracts
with the hotel      in his private     capacity    and is liable     for the
Hotel Occupancy Tax in such capacity.

               The second method of compensating         employees travel-
ling at the expense of the Bank is by reimbursement                of actual
expenses.       Here agains the Bank does not contract          directly
with the hotel.         The employee contracts      with the hotel     in his
private     capacity;    the consideration      for occupancy   of the
hotel     space is paid to the hotel       by the employee likewise       in
his private      capacity.     The Federal Reserve Rank, by virtue
of its employment agreement,          contracts    with the employee to
reimburse      him for actual    expenses incurred;      the Hotel Occu-
pancy Tax is one of such expenses.              The tax is an individual
liability      of the employee.      It is not imposed upon the Bank;
the fact that it is passed to the Bank does not make it an
invalid     imposition     on the Bank.

               Two cases furnish    direct     support for this conclu-
sion.    In the case of Alabama v. King       -- and Boos,       314 U.S. 1
(1941), King and Booze7 sold lumber on the order of a con-
tractor     for use by the latter      in constructing     an army camp for
the United States.        The contractor       sold the lumber to the
United States pursuant to a “cost-plus-a-fixed-fee”                agreement.
The question      was whether the Alabama sales tax, chargeable              to
the seller      but required   to be collected       from the buyer, was
unconstitutional       as being a direct       tax upon the United States.
The government contended        that under the peculiar        facts    con-
cerned it was the purchaser         and the tax was directly         upon it.
The Supreme Court held that the tax was the liability                  of the
contractor,      and the fact that it was passed directly            to the
government under the cost-plus           contract    did not invalidate
it.
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        Hon.   Robert   S. Calvert,     Page 3                  Opinion   No. ~~-738



                       The case of Federal Reserve Bank of Chica o v
        Department of Revenue of State,               339 Mich.     5b’( 6’-i++2d
        639     (1954)      i nvolves    the tax exemption quoted’above’and
        facts    closeiy      analogous     to those in question       in Alabama v.
        King and Boozer,          supra.      This case held that a retailer
        was not exemot from a retailer’s               gross receiots      tax on oro-
        ceed.s from sales to the Federal Reserve Bank:                     The basis
        for the decision          was that the legal incid,ence          or the tax
        was on the retailer;             the fact that the tax was passed to
        the Federal Reserve Bank did not make it a tax on the Rank.
        (The act levying          ths tax expressly       permitted    passage of
        the tax to the purchaser,             and prohibited      advertising   to
        the effect       that the tax was not included            in the price    of
        articles      sold.        In reaching     its decision,     the Court
        stated     (page 61 5):
               II. . . . The state sales tax statuts         operates on
               retailers    in Michigan.       They alone are obligated
               to pay the tax.         The purchasers    are under no
               such obligation       sxcept as they assume, by con-
               tract    of purchase,     to shoulder  the economic bur-
               den. . . .”

                   As pointed out above,   in the instant   case ..the
        Hotel Occupancy Tax is a liability     of the smploy~ee;    only
        the economic  burden thereof,  which is assumed by the Bank
        through the employment contract    with the employee,    is
        borne by the Federal Reserve Bank.

                   (The foregoing    opinion    is limited  to the facts
        assumed therein.     The opinion     request   does not set forth
        the exact method by which ths Federal Reserve Ban:: compen-
        sates its employees    for travel    expenses. )




                                        SUMMARY

                          The Hotel Occupancy Tax applies     to
                  officers     and employees  of the Federal
                  Reserve Bank while travelling      on offi-
                  cial    business  of the bank, where such
                  officers     and employees are compensated
                  by the Bank for the cost of hotel       occu
                  panty either     on the “per diem” basis or
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Hon. Robert   S. Calvert,    Page 4                    Opinion   No. ~~-738



          by reimbursement    of   actual   expenses
          incurred.
                                        Very truly      yours,


                                        WILL WILSON
                                        Attorneys General




JNP:bct

APPROVED:

OPINION COMMITTEE:
Morgan Nesbitt, Chairman

Phocion Park
Jerry~ Roberts
Robert A. Rowland
Robert Shannon

REVIEW-EDFOR THE ATTORNEYGENERAL

By:   W. V. Geppert
