If a Tennessee city has a private act passed before July 1, 2021, that authorizes up to a 5% hotel occupancy tax, but the city council didn't actually vote to charge the full 5% until after that cutoff date, is the city stuck with the new statewide 4% cap?

Subject

Grandfathering Protection Related to a Municipality's Levying of a Hotel Occupancy Privilege Tax

Plain-English summary

In recent years, Tennessee has tightened limits on how much local hotel occupancy tax cities and counties can charge. Tenn. Code Ann. § 67-4-1402(a)(2) caps a municipal hotel tax at 4% of the room rate, and a related rule says that on or after May 1, 2025, a municipality cannot increase its tax such that the cumulative tax in an incorporated area exceeds 8%. The General Assembly built a grandfathering clause into § 67-4-1402(b) that preserves any "private act, ordinance, or resolution levying or authorizing the levy" of an occupancy tax that existed on or before July 1, 2021.

The Comptroller asked whether that grandfathering protection saves a municipality whose pre-2021 private act authorized up to a 5% tax but whose city council did not vote to actually impose the full 5% until after July 1, 2021. The AG concludes that the grandfathering applies. The statute uses the word "authorizing," not just "levying." That word would mean nothing if the protection only covered authorities that had already been exercised. So a municipality with a pre-2021 private-act authorization can still vote to impose the full authorized rate now, without running into the 4% statewide cap. Because the answer to the first question is no, the second question (whether a related provision in § 67-4-1402(a)(3) would help) is moot.

What this means for you

For municipal finance officers and city attorneys

The opinion holds that a pre-July 1, 2021, private act authorizing a municipality to "levy and collect" an occupancy tax "in an amount not to exceed" a specified percentage is grandfathered in full, even if the council had not yet voted to impose the maximum rate by that date. Such a municipality is not subject to the 4% statewide cap in § 67-4-1402(a)(2). The opinion also notes that the grandfathering is "except as provided in § 67-4-1414," which restricts how the revenue may be used.

For municipal council members weighing a tax increase

The opinion holds that a grandfathered private act's authorization "remains in full force and effect," so a municipality may vote to impose up to the authorized rate after July 1, 2021. The opinion turns on the word "authorizing" in § 67-4-1402(b): grandfathering covers both private acts that already imposed a tax and those that merely authorized one. Its reasoning addresses private acts that authorize a levy, not acts that impose a fixed rate.

For hotel and short-term rental operators

The opinion's effect is that a municipality with unused private-act authority can raise its occupancy tax up to the authorized rate without further action from the General Assembly. The opinion addresses only the municipality's authority to levy; it does not address collection mechanics.

For county finance officers in non-metro counties

The opinion is about municipalities (cities and towns), but the same § 67-4-1402(b) grandfathering clause covers private acts authorizing levies for any "municipality" as defined, which excludes only counties with a metropolitan form of government. The same logic should apply: a pre-2021 authorization preserves the right to vote up to the authorized cap.

For the General Assembly

The opinion reads the grandfathering clause to cover not only private acts that levied a tax but also those that authorized one, resting that reading on the statutory phrase "or authorizing the levy" in § 67-4-1402(b) and the rule that every word be given full effect (Hayes v. Gibson County).

For tourism districts and visitors' bureaus

Under the opinion, a municipality with unused private-act authority is not necessarily capped at 4%; it may be able to levy up to its private-act maximum. The opinion does not address revenue forecasting.

Common questions

What's the statewide cap on a municipal hotel occupancy tax?

§ 67-4-1402(a)(2) caps the tax at 4% of the room rate. Plus, on or after May 1, 2025, no municipality may increase its tax such that the cumulative tax in an incorporated area exceeds 8%.

What's the grandfathering provision?

§ 67-4-1402(b) provides that § 67-4-1402 "does not void or modify a private act, ordinance, or resolution levying or authorizing the levy of a tax upon the privilege of occupancy in a hotel that existed on or before July 1, 2021, except as provided in § 67-4-1414."

Why does the word "authorizing" matter?

The grandfathering clause covers two things: private acts that already imposed a tax ("levying") and private acts that gave the municipality permission to impose a tax ("authorizing the levy"). If the grandfathering only protected already-imposed taxes, the word "authorizing" would be redundant. The AG cites Hayes v. Gibson County for the rule that statutes are read to give every word effect.

What about the May 1, 2025, cumulative-cap provision?

That provision in § 67-4-1402(a)(2) bars a municipality from raising its tax to a level where the combined state and local tax exceeds 8% in an incorporated area. The AG opinion does not directly address whether this cumulative cap also fails to apply to grandfathered authorities, but the same logic of § 67-4-1402(b) ("does not void or modify") suggests the grandfathered authority is preserved.

What is § 67-4-1414?

§ 67-4-1414 limits how revenue from grandfathered private-act occupancy taxes can be spent. § 67-4-1414(a)(1) generally provides that "a municipality with a preexisting privilege tax or authority shall not change the use of the revenue except in accordance with this part and subject to the restrictions of this part." § 67-4-1414(a)(2) qualifies this with rules for changing allocations within the existing designated use.

Does this opinion apply to every Tennessee city?

It applies to any "municipality" with a pre-2021 private act authorizing a higher hotel occupancy tax than the city has currently imposed. "Municipality" under § 67-4-1401(3) means any incorporated city or town or a county, but not counties with a metropolitan form of government.

Can the city council impose less than the authorized maximum?

Yes. The private act authorizes "up to" a specified rate. The council can choose any rate up to that ceiling.

Background and statutory framework

The current statewide framework

Tenn. Code Ann. § 67-4-1402(a)(2) caps the tax a municipality may levy on hotel occupancy at 4%. On or after May 1, 2025, a municipality "shall not increase the tax in an amount such that the cumulative tax in an incorporated area of a county exceeds eight percent (8%)."

§ 67-4-1401(3) defines "municipality" to mean an incorporated city or town or a county, but excludes counties with a metropolitan form of government.

The grandfathering provision

§ 67-4-1402(b) provides:

Nothing in this part shall void or modify a private act, ordinance, or resolution levying or authorizing the levy of a tax upon the privilege of occupancy in a hotel that existed on or before July 1, 2021, except as provided in § 67-4-1414.

The AG focuses on the words "or authorizing the levy." Those words signal that the grandfathering protection does not require the municipality to have actually imposed the tax before July 1, 2021. Mere authorization is enough.

Statutory construction principle

The AG cites Hayes v. Gibson County, 288 S.W.3d 334, 337 (Tenn. 2009), for the rule that "[i]n our examination of statutory language, we must presume that the legislature intended that each word be given full effect." Reading "authorizing the levy" as redundant of "levying" would violate that rule.

The role of § 67-4-1414

§ 67-4-1414 governs how grandfathered tax revenue may be spent. § 67-4-1414(a)(1) provides that "a municipality with a preexisting privilege tax or authority shall not change the use of the revenue except in accordance with this part and subject to the restrictions of this part." § 67-4-1414(a)(2) qualifies this for certain municipalities, providing they "shall not change the designated use, but may otherwise change the allocations of the revenue."

The cross-reference in § 67-4-1402(b) ("except as provided in § 67-4-1414") clarifies that the grandfathering preserves the authority to levy, but the use of the revenue is still subject to § 67-4-1414's restrictions.

Result

The AG concludes that a municipality with a pre-July 1, 2021, private act authorizing it to "levy and collect" an occupancy tax in an amount not to exceed 5% can vote to impose the full 5% even after July 1, 2021, without becoming subject to the 4% cap in § 67-4-1402(a)(2). The grandfathering protection in § 67-4-1402(b) covers both already-imposed taxes and pre-existing authorities to levy.

Citations

• Tenn. Code Ann. § 67-4-1401(3) (municipality definition)
• Tenn. Code Ann. § 67-4-1402 (occupancy tax framework)
• Tenn. Code Ann. § 67-4-1402(a)(2) (4% cap and May 1, 2025 cumulative cap)
• Tenn. Code Ann. § 67-4-1402(b) (grandfathering of pre-July 1, 2021 private acts)
• Tenn. Code Ann. § 67-4-1414 (revenue use restrictions on grandfathered taxes)
• Tenn. Code Ann. § 67-4-1414(a)(1)-(2) (use and allocation rules)
• Hayes v. Gibson County, 288 S.W.3d 334 (Tenn. 2009)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2025/op25-021.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
December 19, 2025
Opinion No. 25-021

Grandfathering Protection Related to a Municipality's Levying of a Hotel Occupancy Privilege Tax

Question 1
Is a municipality's levying of an occupancy tax subject to the caps set out in Tenn. Code Ann. § 67-4-1402(a)(2) if the municipality collects the occupancy tax pursuant to a private act that existed on or before July 1, 2021, and authorizes the municipality to "levy and collect" an occupancy tax "in an amount not to exceed 5%," but the municipality's governing body did not vote to levy the full 5% until after July 1, 2021?

Opinion 1
No.

Question 2
If the answer to Question 1 is yes, does Tenn. Code Ann. § 67-4-1402(a)(3) exempt the municipality from the caps in subdivision (a)(2) if the municipality's private act, effective before May 1, 2025, authorizes the municipality to "levy and collect" an occupancy tax "in an amount not to exceed 5%," but the municipality's governing body did not vote to levy the full 5% until after May 1, 2025?

Opinion 2
Because of the answer to Question 1, the question as posed is moot.

ANALYSIS

In recent years, the General Assembly has enacted several measures related to the ability of municipalities to levy hotel occupancy privilege taxes. As currently codified, Tenn. Code Ann. § 67-4-1402 generally provides that "the tax levied by a municipality upon the privilege of occupancy in a hotel must not exceed four percent (4%) of the consideration charged to a transient by the hotel operator." Tenn. Code Ann. § 67-4-1402(a)(2). This rule, however, is not without qualification. In the same provision, for instance, the statute now provides that "on or after May 1, 2025, a municipality shall not increase the tax in an amount such that the cumulative tax in an incorporated area of a county exceeds eight percent (8%)." And through other provisions, the General Assembly has included additional statutory qualifications with respect to preexisting taxes or authority to levy. See, e.g., Tenn. Code Ann. § 67-4-1402(b).

Here, the request seeks guidance regarding the interplay between preexisting authority to levy an occupancy tax and the statutory limits referenced above from § 1402(a)(2). For the reasons stated below, we are of the opinion that a municipality is not subject to the statutory caps under the circumstances described in the first question. And given our conclusion on that issue, the second question as posed is moot.

1. The first question is concerned with whether a municipality may levy an occupancy tax irrespective of the caps in § 1402(a)(2) when the municipality collects the tax pursuant to a private act that authorizes the municipality to "levy and collect" an occupancy tax "in an amount not to exceed 5%." More pointedly, the question is posed presupposing two temporal conditions: (1) the private act providing such authorization existed on or before July 1, 2021, and (2) the municipality's governing body did not vote to levy the full 5% until after July 1, 2021.

Based on grandfathering protection provided within the Tennessee Code, a municipality's levying of an occupancy tax would not be subject to the caps in § 1402(a)(2) in the scenario described. Section 1402(b) directly specifies that § 1402 "does not void or modify a private act, ordinance, or resolution levying or authorizing the levy of a tax upon the privilege of occupancy in a hotel that existed on or before July 1, 2021, except as provided in § 67-4-1414." Tenn. Code Ann. § 67-4-1402(b). And setting aside momentarily the referenced exception involving § 1414, this language clearly states that a private act authorizing a levy remains valid if it existed on or before July 1, 2021. Moreover, if such a private act is not modified by § 1402—as the above language from subsection (b) instructs—a tax collected pursuant to the grandfathered private act would not be subject to § 1402(a)(2)'s caps.

Additionally, it is of no consequence that, in the scenario described, the municipality's governing body did not vote to levy the full 5% authorized under the private act until after July 1, 2021. The fact that authorizations to levy remain valid indicates that a post-July 1, 2021, imposition of the levy would be entirely permissible. Indeed, "[i]n our examination of statutory language, we must presume that the legislature intended that each word be given full effect." Hayes v. Gibson Cnty., 288 S.W.3d 334, 337 (Tenn. 2009). And here, the General Assembly unmistakably conferred grandfathering protection not only on private acts that levied occupancy taxes, but also with respect to private acts that authorized a levy on hotel occupancy. See Tenn. Code Ann. § 67-4-1402(b) (pertaining to private acts "levying or authorizing the levy" that existed on or before July 1, 2021 (emphasis added)).

As for § 1402(b)'s indication that its effect may be limited by what is provided in § 1414, the pertinent limitation from § 1414 concerns how revenue derived from a preexisting privilege tax or authority is used. And to this end, § 1414 provides generally that "a municipality with a preexisting privilege tax or authority shall not change the use of the revenue except in accordance with this part and subject to the restrictions of this part." Tenn. Code Ann. § 67-4-1414(a)(1). The substantive import from § 1402(b), however, remains the same: among other preexisting local law, "any authorization to levy . . . granted[] under a private act . . . remains in full force and effect on and after July 1, 2021."

Indeed, if such preexisting authorization to levy remains in full force and effect, this generally confirms two things. First, if the authorization to levy "remains," this confirms that the power to levy is still valid even if a municipality's governing body did not vote to levy the full tax already authorized until after July 1, 2021. And second, if the authorization remains "in full force and effect," in our view this confirms that the amount of the authorized levy is not encumbered. In the scenario described in the question, then, the municipality's levying of a 5% occupancy tax would not be subject to the caps in § 1402(a)(2).

2. As referenced earlier, the request asks that we entertain a second question if we answer the first question in the affirmative. Because we have answered the first question in the negative, however, the question as posed is moot.

JONATHAN SKRMETTI
Attorney General and Reporter

MATTHEW KERNODLE
Assistant Attorney General

Requested by:
The Honorable Jason E. Mumpower
Comptroller of the Treasury
State Capitol
Nashville, Tennessee 37243