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 

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 occupants 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 KernLimerick v. Scurlock, 347 U.S. 110 (1954). However, i 
1 . 

Hon. Robert S. Calvert, Page 2 

different result obtalns where employ,ees or officers of the 

Bank rent 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 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 travelling 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 Occupancy 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 conclusion. In the case of Alabama v. King -- and Boos, 314 U.S. 1 

(1941), King and Booze7 sold lumber on the order of a contractor 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 concerned 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. 
. . 

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 oroceed.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. 

1 

In reaching its decision, the Court 

stated (page 6 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 contract of purchase, to shoulder the economic burden. . . .” 

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:: compensates its employees for travel expenses. ) 

SUMMARY 

The Hotel Occupancy Tax applies to 

officers and employees of the Federal 

Reserve Bank while travelling on official 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 
. . 

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-ED FOR THE ATTORNEY GENERAL 

By: W. V. Geppert