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 selfgovernment 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 selfgovernment 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 

Ennis 

Fromberg 

West Yellowstone 

Whitefish 

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, § 

Hotels and motels sell a product or service which is 

temporary lodging. The occupant is the consumer since he 

purchases the service. No title changes hands, but the 

consumer comes into temporary possession of the room. A tax 

placed on that transaction is a sales tax. 

The District Court relied as sole support for its 

decision on the case Teachers Retirement System of Georgia v. 

City of Atlanta (1982), 249 Ga. 196, 288 S.E.2d 200. That 

case held a public entity cannot claim its tax-exempt status 

on properties it has acquired through foreclosure, for that 

would result in significant loss of revenue to the taxing 

authorities. The entity acquires title to those properties 

subject to existing taxes. The Georgia court merely decided 

- who must pay the tax. 

A crucial distinction must be made between Teachers 

Retirement System and the case at hand. In the Georgia case, 

the validity of constitutionality of the taxes was not at 

issue. The question of whether the Atlanta hotel--motel 

excise tax wa.s or was not a sales tax was not before the 

court. Teachers Retirement System based its entire case on 

the sole argument that it enjoyed tax-exempt status. Whether 

a tax is actually imposed on the vendor, or upon the 

occupant, may be important for deciding whether the taxing 
authorities can collect the tax. It is of no importance in 

determining the nature of the tax--whether it is or is not a 

sales tax. Therefore, Teachers Retirement System is of 

minimal significance to the issue of whether the City of 

Billings has imposed an invalid sales tax. 

Ordinance No. 82-4461 enacted by the City is illegal and 

void. The judgment. of the District Court is reversed. 

~Ystrict Judge, sitting in 

place of Mr. Justice Frank B. 

Morrison, Jr. 

We concur: 

La..$ &&J woaQ Chief Justice