### 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 OccuAustin 11, Texas panty Tax applies to officers and,employees of the Federal Reserve Bankwhile travelling on official business of Dear Sir: the bank.

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

“I amin receipt of a letter from Mr. George F. Rudy, General Counsel, Federal Reserve Dankof Dallas, asking our opinion as to whether the Hotel Occupancy **Tax** applies to officers and employees of this Federal Reserve Bankwhile travelling on official business of the bank. I amenclosing his letter herewith and will thank you to advise mein 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 occupants of any~space in ahotel, andprovide that the hotel shall collect such tax.

As correctly pointed out bythe letter referred to in the above quotation, Section 

### 7of the Federal Reserve Act (

### 38Stat. 

### 258,12U.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, andthe 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 whenthe Federal Reserve Bank contracts directly, or in its namethrough anagent, for a space in ahotel, and pays the hotel for such space from its funds, it would not be liable for the tax imposed by Chapter 

### 23of House Bill 11.. See Attorney General’s Opinion No. V-1492 (l952), and KernLimerick v. Scurlock, 

### 347U.S. 110 (1954). However, i1

.

Hon. Robert S. Calvert, Page 2

employ,ees or officers of the different result obtalns where Bankrent hotel rooms while travelling at the expense of the bank. Opinion No. 

### W-738

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 bythe employee regardless of howmuchis 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 Bankdoes 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 travelling at the expense of the Bankis byreimbursement of actual expenses. Here agains the Bankdoes **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 bythe employee likewise in his private capacity. The Federal Reserve Rank, byvirtue of its employment agreement, contracts with the employee to reimburse him for actual expenses incurred; the Hotel Occupancy Tax is one of such expenses. The tax is anindividual liability of the employee. It is not imposed upon the Bank; the fact that it is passed to the Bankdoes not makeit an invalid imposition onthe Bank.

Twocases furnish direct support for this conclusion. In the case of Alabama v. King andBoos, 

### 314U.S.1 -- 

### (1941),King and Booze7 sold lumber on the order of acontractor for use by the latter in constructing an armycampfor the United States. The contractor sold the lumber to the United States pursuant to a“cost-plus-a-fixed-fee” agreement. The question waswhether 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 concerned it was the purchaser andthe tax was directly upon it. The Supreme Court held that the tax wasthe liability of the contractor, andthe fact that it waspassed directly to the government under the cost-plus contract did not invalidate it.. .

Hon. Robert S. Calvert, Page 

### 3 Opinion No. 

### ~~-738

The case of Federal Reserve Bankof Chica ov Department of Revenue of State, 339Mich. 

### 5b’(6’-i++2d **639** (1954) involves the tax exemption quoted’above’and facts closeiy analogous to those in question in Alabama v. King and Boozer, supra. This case held that aretailer wasnot exemot from a retailer’s gross receiots tax on oroceed.s from sales to the Federal Reserve Bank: The basis for the decision 

### wasthat the legal incid,ence or the tax was on the retailer; the fact that the tax waspassed to the Federal Reserve Bankdid not makeit atax 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 

### wasnot included in the price of articles sold. 1 In reaching its decision, the Court stated (page 

### 65): 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 contract of purchase, to shoulder the economic burden.

. . .” Aspointed 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 bythe 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 bywhich ths Federal Reserve Ban:: compensates its employees for travel expenses. )

SUMMARY TheHotel Occupancy Tax applies to officers and employees of the Federal Reserve Bankwhile travelling on official business of the bank, 

### wheresuch officers and employees are compensated by the Bank for the cost of hotel occu panty either on the “per diem” basis or. .

Hon. Robert S. Calvert, Page 4 Opinion No. 

### ~~-738

by reimbursement of actual expenses incurred. Very truly yours,

WILLWILSON Attorneys General

JNP:bct APPROVED: OPINIONCOMMITTEE: Morgan Nesbitt, Chairman Phocion Park Jerry~Roberts Robert A. Rowland Robert Shannon REVIEW-ED

FORTHEATTORNEY GENERAL By: W.V. Geppert