By Thom Roddy – Published March 20, 2024 (updated at 2:07pm)

On March 19, 2024, the North Carolina Court of Appeals decided GERALD COSTANZO et al., Plaintiffs, v. CURRITUCK COUNTY, NORTH CAROLINA, et al., Defendants. The suit by Costanzo against Currituck County was based on the county’s misuse of Tourism Taxes transferred to the county’s general fund for non-tourism-related expenditures. A 2004 Amendment to N.C. Sess. Law 1987, Chapter 209, H.B. 555, § 1(e) changed the landscape and narrowed what tourism funds could be expended for. In 2004, embattled county manager Donald “Ike” McRee served as county attorney. The county attorney position description requires a “Thorough knowledge of State General Statutes pertaining to the administration of County government.” They said the court did not believe the county acted in bad faith. Even with a thorough knowledge of the amendment, ambiguity was at issue.

Currituck County did not heed a 2004 Amendment that deleted text in N.C. Sess. Law 1987, Chapter 209, H.B. 555, § 1(e)., that directed the net proceeds of such tax (occupancy tax) levied under this subsection shall be used “only for tourism-related expenditures, including beach nourishment.” N.C. Sess. Law 2004-95, H.B. 1721 § 2(e).

Plaintiffs in the case argued that “the County’s expenditures of occupancy tax proceeds for the following purposes are unlawful: (1) public safety services and equipment, (2) non-promotional operations and activities of the County’s Economic Development Department, (3) construction of a park and restoration of a building historically used as a jail, (4) loan of occupancy tax proceeds to finance the construction of a water treatment facility, and (5) funding of special service districts. “

The court concluded that “The Amendment limits the discretion of the Board of Commissioners and requires that such funds shall be spent only as permitted by strict construction of the term “tourism-related expenditures.” Considering the evidence contained in the record, in a light most favorable to the County, we hold that the County did not act in accordance with the Amendment when spending occupancy tax proceeds for public safety services and equipment. “

“This is not to say that the County has acted in bad faith, rather our determination is based on expenditures contained in the record which were no longer authorized after the Amendment was enacted. Therefore, we reverse the trial court’s denial of summary judgment for plaintiffs and remand to the Superior Court for entry of summary judgment for plaintiffs as to the past expenditures in their second cause of action. We also vacate the trial court’s grant of summary judgment for the County on the remaining claims.”

“Counties . . . exist solely as political subdivisions of the State and are creatures of statute. They are authorized to exercise only those powers expressly conferred upon them by statute and those which are necessarily implied by law from those expressly given.”

“In view of the foregoing claims, plaintiffs requested a permanent injunction against the transfer occupancy tax proceeds to the County’s General Fund, used for any unlawful purpose, as well as a permanent injunction requiring the County to restore and replace unlawfully used occupancy tax proceeds.”

“An application of guiding legal principles and precedent leads us to conclude that significant alterations to the original language contained in the Session Law and additions included in the Amendment convey an intent by the Legislature to narrow the scope of expenditures funded by the net proceeds of levied occupancy tax. The Amendment limits the discretion of the Board of Commissioners and requires that such funds shall be spent only as permitted by strict construction of the term “tourism-related expenditures.” Considering the evidence contained in the record, in a light most favorable to the County, we hold that the County did not act in accordance with the Amendment when spending occupancy tax proceeds for public safety services and equipment. This is not to say that the County has acted in bad faith, rather our determination is based on expenditures contained in the record which were no longer authorized after the Amendment was enacted. Therefore, we reverse the trial court’s denial of summary judgment for plaintiffs and remand to the Superior Court for entry of summary judgment for plaintiffs as to the past expenditures in their second cause of action. We also vacate the trial court’s grant of summary judgment for the County on the remaining claims. Furthermore, we remand this matter to the trial court for proceedings not inconsistent with this opinion. REVERSED IN PART, VACATED IN PART, AND REMANDED. Judge MURPHY concurs. Judge HAMPSON concurs in a separate opinion.”

BlackwaterReports is working to confirm details on what this could cost local taxpayers and the exact sum that would need to be reimbursed to Tourism.