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NO. 83-250

IN THE SUPREME COURT OF THE STATE OF MONTANA
1983

MONTANA INNKEEPERS ASSOCIATION, Plaintiff and Appellant, VS. CITY OF BILLINGS, Defendant and Respondent.
Appeal from: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone
Honorable Charles Luedke, Judge presiding

Counsel of Record:

For Appellant:

Philip W. Strope argued, Helena, Montana Hjort, Lopach & Tippy, Helena, Montana Roger Tippy argued, Helena, Montana
For Respondent:

K. D. Peterson argued, Billings, Montana
For Amicus Curiae:

Larry Huss, Helena, Montana
Larry Mansch aruued Helena Montana
Landoe, Brown Law Firm, Bozeman, Montana

Submitted.  September 13, 1983  
Decided  October 27, 1983  
Filed. QCT 2 ? 1983  

Clerk

Honorable John M. McCarvel, District Judge, delivered the
Opinion of the Court.
This is an appeal from the District Court of the
Thirteenth Judicial District of the State of Montana, in and
for the County of Yellowstone, the Honorable Charles Luedke
presiding.
The appellant-plaintiff, Montana Innkeepers Association,
hereinafter referred to as "Innkeepers," instituted a
declaratory judgment proceeding pursuant to the provisions of
the Uniform Declaratory Judges Act, Title 27, Chapter 8,
Montana Code Annotated, against the City of Billings,
Montana, respondent-defendant, hereinafter referred to as
"City," to declare Ordinance No. 83-4461 enacted by the City
Council of Billings, Montana, to be illegal and void. Amicus
curiae briefs were permitted to be filed by the Montana Legal
Defense Fund, Inc., a division of the Montana Taxpayers
Association, and by the City of West Yellowstone, Montana,
which has enacted a similar ordinance.
Prior to the 1972 Constitution of the State of Montana,
local governments could exercise only such powers as were
expressly granted to them by the State together with such
implied powers as were necessary for the execution of the
powers expressly granted.
The 1972 Montana Constitution, in addition to providing
for the continuance of the county, municipal and town
governmental forms already existing, opened to local
governmental units new vistas of shared sovereignty with the
state through the adoption of the self-government charters.
Whereas the 1972 Montana Constitution continues to provide
that existing local governmental forms have such powers as
are expressly provided or implied by law (to be liberally
construed), Art. XI, Sec. 4, 1972 Mont. Const., a local-

government unit may now also act under a self-government

charter with its powers uninhibited except by express

prohibitions of the constitution, law or charter, Art. XI,

Sec. 6, 1972 Mont. Const.:

"Self-government powers. A local government unit adopting a self-government charter may exercise any power not prohibited bv this constitution, law or charter . . ."
The broad expanse of shared sovereignty given to

self-governing local units is illustrated by section 7-1-103,

MCA, which provides:

"A local government unit with self-
government powers which elects to provide
a service or perform a function that may
also be provided or performed by a
general power government unit is not
subject to any limitation in the
provision of that service or performance
of that function except such limitations
as are contained in its charter or in
state law specifically applicable to
self-government units."

And again in section 7-1-106, MCA:

"The powers and authority of a local
government unit with self-government
powers shall be liberally construed.
Every reasonable doubt as to the
existence of a local government power or
authority shall be resolved in favor of
the existence of that power or
authority."

State ex rel. Swart v.Molitor (Mont. 1981), 621 P.2d 1100,

Pursuant to such authorization, according to the

Secretary of the Montana League of Cities and Towns, Inc.,

the following nineteen local governments have elected to be

self-governing:

Anaconda-Deer Lodge County Glasgow

Billings Helena

Bridger Hingham

Broadview Neihart

Browning Poplar

Butte-Silver Bow County Sunburst

Circle Virginia City

Clyde Park West Yellowstone
Ennis Whitefish
Fromberg

The City of Billings is a municipality in the State of
Montana, which has adopted a charter form of government with
self-governing powers. On August 23, 1982, the City of
Billings adopted Ordinance No. 82-4461, which provides for a
"fee" of $1.00 per adult transient occupant for each day of
occupancy of a room in a hotel, motel, or other place of
lodging within the City when the occupancy is for a period of
one day or more, but not exceeding fourteen consecutive days.
The ordinance was referred to the electors of the City of
Billings at the election held in November 1982, the voters
approved it, and the ordinance became effective January 1,

The owner or operator of a lodging establishment is

obligated to collect the fee and remit the same to the City

monthly, less 2 percent administrative costs, and is subject

to penalty for noncollection, audit and inspection.

Section 5.10.010 of the ordinance states specifically

its purpose:

"Purpose of the occupancy fee imposed by this ordinance is to provide a portion of the revenue necessary to construct and reconstruct the arterial and collector streets of the City in a good substantial condition and a portion of the necessary expense of police and fire and allocable incidental administration costs. The fees imposed hereby will enable those persons non-resident of the City to pay a portion of the services of the city that extant within the City for their benefit and protection during their sojurn within the City. "
In addition the city council could allocate up to 20 percent

of revenue to promote tourism, conventions and other similar

activities within the City.

Innkeepers is a nonprofit corporation organized under

the laws of the State of Montana. It is a voluntary trade
a.ssociation organized and existing for the benefit of the
lodging industry of the State of Montana. Members thereof
are the owners and operators of lodging establishments within
the City of Billings wherein they pro.trid.e, among other
things, overnight lodging services for the genera1 public.

The District Court held that the express purpose of the
ordinance was to generate revenue; that the ordinance does
not indicate any activity that is being regulated; and
concluded, as a matter of law, that the "fee" imposed by the
0rdin.a-nce is a tax, and not a "fee." Innkeepers do not
appeal that portion of the District Court order.

The sole issue on a-ppeal is whether the tax imposed by
the ordinance is a tax prohibited by statute, and
specifically section 7-1-112(1, MCA, which provides as
follows:

"A local government with self-government
powers is prohibited the exercise of the
following powers unless the power is
specifically delegated by law:

" (1) the power to authorize a tax on income or the sale of goods or services, except that this section shall not be construed to limit the authority of a local government to levy any other tax or establish the rate of any other tax."
The power to tax the sale of goods or services has not
been delegated to local governments.

The District Court held that the renting of a hotel or
motel room is the sale of a service, but since the ordinance
imposed the tax on the person occupying the room and not on
the transfer of that room, it is not a tax on the sale of
goods or services. Counsel for the City a.rgued that the
renting of the room has nothing to do with the tax imposed.
Therefore, every nonresident of the City upon entering the

City is subject to the tax. However, hotel and motel operators are the only busi-nesses permitted to levy the tax. Restaurants, bars and other businesses may not collect the tax from a transient nonresident. This reasoning of course is fallacious. The renting of the room cannot be divorced from the collection of the tax. Therefore, the tax is a tax on the sale of a service and prohibited by section 7-1-112(1), MCA. J. A. Tobin Const. Co. v. Weed (1965), 158 Colo. 430, 407 P.2d 350. 68 Am.Jur.2d Sales and Use Taxes,

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Montana Law