                      TO BE PUBLISHED IN THE OFFICIAL REPORTS



                           OFFICE OF THE ATTORNEY GENERAL


                                     State of California



                                     DANIEL E. LUNGREN


                                       Attorney General



                         ______________________________________
                  OPINION            :
                                     :          No. 91-1210
                  of                 :
                                     :          MAY 7, 1992
        DANIEL E. LUNGREN            :


           Attorney General          :


                                     :


         CLAYTON P. ROCHE            :


        Deputy Attorney General      :


_________________________________________________________________
               THE CALIFORNIA PUBLIC UTILITIES COMMISSION has requested an opinion
on the following question:

               May a city levy a transient occupancy tax upon a state employee who, while on state
business, contracts for a hotel room and submits payment for the room with a state issued check?

                                         CONCLUSION

               A city may levy a transient occupancy tax upon a state employee who, while on state
business, contracts for a hotel room and submits payment for the room with a state issued check.

                                           ANALYSIS

               Subdivision (a) of section 7280 of the Revenue and Taxation Code1 provides in part:

              "The legislative body of any city or county may levy a tax on the privilege
       of occupying a room or rooms in a hotel, inn, tourist home or house, motel, or other
       lodging unless the occupancy is for any period of more than 30 days."

In 46 Ops.Cal.Atty.Gen. 16 (1965) we concluded that federal, state, and local officials, while
traveling on official business, would be subject to what is commonly termed a "transient occupancy
tax" regardless of the fact that their employing agency reimbursed them for travel expenses, whether
in the form of per diem, mileage, or in accordance with the actual expenses incurred.2 We left open
the question, however, whether a different conclusion would be reached if, in addition, payment
would be made by the government agency itself. (Id. at p. 19.)


       1

        All section references are to the Revenue and Taxation


Code unless otherwise indicated.


       2

        Our 1965 opinion dealt with Government Code section


51030, the predecessor statute to section 7280.


                We are now presented with that question: is there a different result when the official
enters into the rental agreement and submits payment for the room with a state issued (or other
governmental) check? We conclude that the result would be the same irrespective of the source of
the payment.

                The issue to be resolved here, as in our 1965 opinion, concerns the scope and effect
of the federal and state constitutional immunity from local taxation recognized over the years by the
courts. In our 1965 opinion, we reviewed at length the case law applicable to the constitutional
immunity of the United States and the state from local taxation, starting with McCulloch v.
Maryland 17 U.S. (4 Wheat.) 315 (1819). We summarized the case law as follows:

               "It is evident from [the] cases . . . that the United States Supreme Court does
       not intend to invalidate state taxes merely because the economic burden thereof falls
       on the federal government. Thus it appears that the decisions of the United States
       Supreme Court have depended upon whether the legal incidence of the tax fell upon
       the United States and not on whether the economic burden of the tax was borne by
       the United States. Only in those instances where the legal incidence of the tax has
       fallen directly upon the government has the immunity been recognized. . . ." (46
       Ops.Cal.Atty.Gen. 16, 19.)

As for state officials subject to local transient occupancy taxes, we said:

               "While the state itself is ordinarily regarded as exempt from taxes imposed
       by counties unless the Legislature has expressly provided therefor [citations], and the
       United States, its agencies, and instrumentalities are immune from state taxation
       [citations], such exemptions do not extend to the officers and employees thereof
       unless the legal incidence of the tax falls directly upon the government. In this
       sense, there is no difference in imposing a tax on an official or employee of the
       United States government and imposing a tax on an official or employee of the State
       of California." (Id. at pp. 17-18.)

               In our 1965 opinion, we found the transient occupancy tax to be an "excise tax"
levied upon the occupant--in this case the governmental employee. The tax is thus levied only
indirectly upon the employer even where the employer ultimately shoulders the economic burden.
All other things being equal, does the fact that the employer-governmental agency furnishes the
employee with a government check to pay the room charges mandate a different outcome?
               In United States v. County of Fresno (1977) 429 U.S. 452 [97 S.Ct. 699, 50 L.Ed.2d
683], the United States Supreme Court held that the State of California could collect a property tax
from United States Forest Service employees for their possessory interests in houses located on
federal property in national forests and furnished to them as part of their compensation. The court
concluded:

               ". . . The `legal incidence' of the tax involved in this case falls neither on the
       Federal Government nor on federal property. The tax is imposed solely on private
       citizens who work for the Federal Government. The tax threatens to interfere with
       federal laws relating to the functions of the Forest Service only insofar as it may
       impose an economic burden on the Forest Service--causing it to reimburse its
       employees for the taxes legally owed by them. . . ." (Id. at p. 464.)

               In United States v. New Mexico (1982) 455 U.S. 720 [102 S.Ct. 1373, 71 L.Ed.2d
580], the court ruled that independent contractors paying for purchases with drafts drawn on the

                                                  2.                                            91-1210

United States Treasury would be subject to state gross receipts and use taxes even though the
purchases were to be used in the construction and repair of federal atomic laboratories. Regarding
the use of government checks for payment, the court stated:

               " . . . [T]he Government earnestly argues that its contractors are entitled to
       tax immunity because, among other things, they draw checks directly on federal
       funds, instead of waiting a time for reimbursement. . . . We cannot believe that an
       immunity of constitutional stature rests on such technical considerations, for that
       approach allows `any government functionary to draw the constitutional line by
       changing a few words in a contract.' [Citation.]" (Id. at p. 737.)

                In a similar vein, the Ohio Supreme Court ruled in Akron Home Medical Services,
Inc. v. Lindley (Ohio 1986) 495 N.E.2d 417, 421, that "the mere voluntary payment by the federal
government of an obligation incurred by a Medicare recipient hardly rises to the level of a direct
tax."

                Accordingly, we reject the argument that the election by a governmental agency to
advance the room rental charges incurred by its employees while on official business transmutes a
local transient occupancy tax into a direct tax on the government. In our view, the tax remains on
the employee for "the privilege of occupying a room." (§ 7280, subd. (a); see 65 Ops.Cal.Atty.Gen.
267, 269 (1982).) It is the employee who is the contracting party and obligated to make payment.
Under such circumstances, it cannot be said that the "legal incidence" falls upon the governmental
agency at the time the check is tendered. (See Comptroller v. World Inns (Md. 1987) 528 A.2d 477
[federal employees contracting for the rental of rooms are subject to state sales tax]; Keystone Auto
Leasing, Inc. v. Norberg (R.I. 1985) 486 A.2d 613, 615 ["As long as a state makes no claim of right
to collection from the federal government or its instrumentalities, a state may impose a tax"].)3

               In answer to the question presented, therefore, we conclude that a city may levy a
transient occupancy tax upon a state employee who, while on state business, contracts for a hotel
room and submits payment for the room with a state issued check.



                                             *****




       3
      Of course, a local ordinance may exempt public officials


from the imposition of the transient occupancy tax while


traveling on official business.


                                                 3.                                         91-1210
