Attorney General's Opinion

Attorney General Richard Blumenthal

May 28, 1996

Gene Gavin, Commissioner
Department of Revenue Services
25 Sigourney Street
Hartford, CT 06105

Dear Commissioner Gavin:

You have requested our advice on several issues involving the tourism districts created under Conn. Gen. Stat. § 32-302(a). These questions turn on the status of the tourism districts for purposes of the statutes at issue.

Your first question is whether the tourism districts are exempt from state sales tax under § 12-412(l) as "political subdivisions" of the state or "agencies' of the state or any political subdivision thereof.

Section 12-412 provides in part:

12-412 Exemptions. Taxes imposed by this chapter shall not apply to the gross receipts from the sale of and storage, use or other consumption in this state with respect to the following items:

(1) ... (A) Sales of tangible personal property or services to the United States, the state of Connecticut or any of the political subdivisions thereof, or its or their respective agencies ...

It is our opinion that this exemption does not apply to the tourism districts because they are neither political subdivisions of the state, nor agencies of the state or any of the political subdivisions thereof.

In State ex rel, Maisano v. Mitchell, 155 Conn. 256 (1967), the Connecticut Supreme Court discussed the meaning of the term "political subdivision:"

"'The term "political subdivision" is broad and comprehensive and denotes any division of the State made by the proper authorities thereof, acting within their constitutional Powers, for the purpose of carrying out a portion of those functions of the State which by long usage and the inherent necessities of government have always been regarded as public."' Commissioner of internal Revenue v. Shamberp's Estate, 144 F.2d 998, 1004 (2d Cir.) (quoting from 30 Op. Atty. Gen. 252, 253 [U.S. 1914]; Commissioner of Internal Revenue v. White's Estate, 144 F.2d 1019, 1020 (2d Cir.).

Id. at 263-64.

In Dugas v. Beauregard, 155 Conn. 573 (1967), the court outlined the characteristics of a political subdivision:

The attributes which are generally regarded as distinctive of a political subdivision are that it exists for the purpose of discharging some function of [local] government, that it has a prescribed area, and that it possesses authority for subordinate self-government through officers selected by it. See Sachem's Head Property Owners' Assn. v. Guilford, 112 Conn. 515, 517, 152 A. 877; State ex rel. Malkin v. McMahon, 88 Conn. 461, 463, 469, 91 A. 445; 1 McQuillin, Municipal Corporations (3d Ed.) section 2.07.

Id. at 578. For example, cities, towns and boroughs are political subdivisions.

Here, the tourism districts are geographic subdivisions only. Arguably, they carry out some governmental function, in that promotion of tourism, as an aspect of economic development, is within the authority of both the state and municipal governments. However, they lack an essential attribute of a political subdivision in that the tourism districts have no authority for 'subordinate self-government." They have no powers beyond those prescribed in Ch. 588o, which are very limited. (Endnote 1). In particular, they have no power to levy taxes or to make appropriations. See Dugas v. Beauregard, 155 Conn. at 578-79.

It is also significant that the statute creating the tourism districts does not designate them as "political subdivisions" of the state. When the legislature has intended to create a political subdivision, the statutory language employed has been clear. See, e.g., Conn. Gen. Stat § § 32-1la (creating the Connecticut Development Authority); 32-188 (creating the Connecticut Convention Center Authority); 32-203, (creating the Lower Fairfield County Conference or Exhibition Authority). (Endnote 2).

Nor are the tourism districts agencies of the state or any political subdivision thereof. Although funded by the state pursuant to § 32-305, the districts do not administer any state program nor are they authorized to act on behalf of the state. See, e.g., Catholic Family & Community Services v CHRO, 3 Conn. App. 464, 467 (1985). Rather, the districts are designated recipients of state expenditures for tourism promotion. They do not perform an exclusively governmental function nor are they subject to extensive regulation or control. Other than being subject to state audit, § 32-305, the tourism districts are subject to little state oversight. Each has its own board of directors and adopts its own charter and bylaws.

Municipal interests are represented in the districts, in that each municipality that comprises the district appoints at least one representative to the board of directors, but additional, non-governmental representatives may also be appointed to the board of directors of each district. See § 32-302(b). The districts do not supplant municipal authority in the field and are not subject to the regulation or control of any municipality.

Accordingly, it is our opinion that the tourism districts are not agencies of the state or any political subdivision thereof. Therefore, the tourism districts are not exempt from sales taxes under § 12-412(l). None of the other exemptions set forth in § 12-412 would provide a basis for exempting the tourism districts from sales tax liability. Of course, the General Assembly may, through future legislation, exempt tourism districts from the sales tax if it so chooses.

You have also inquired whether the Single Audit Act, Conn. Gen. Stat. § 4-230 et seq. and/or the Municipal Auditing Act, Conn. Gen. Stat § 7-391 et seq. apply to the tourism districts.

The state Single Audit Act applies to certain entities receiving state financial assistance. The entities subject to the Act are defined in § 4-230. (Endnote 3). A tourism district is clearly not a 'municipality.' Therefore, the question is whether a tourism district is an 'audited agency' or a 'nonprofit agency' as defined in the statute.

The tourism districts are not listed in § 4-230(10) which defines 'audited agency.' We have already opined that the tourism districts are not political subdivisions. Therefore, the only other type of 'audited agency' subject to the act which might describe a tourism district is an agency 'created or designated by a municipality to act for such municipality ..." However, it is our view that this language does not include the tourism districts.

The tourism districts are not "created" or "designated" by municipalities. Rather they are created by an act of the legislature as a vehicle to equitably distribute state tourism promotion dollars. There is nothing in the language of the statute to indicate that the districts have authority to act on behalf of any municipality. (Endnote 4). Thus, it is our conclusion that the tourism districts are not audited agencies within the meaning of § 4-230(10).

Whether tourism districts meet the statutory definition of 'nonprofit agency' for purposes of the single audit act is a more complex question. Nothing in the statutory scheme creating the tourism districts requires them to operate on a not-for-profit basis. Therefore, in order to determine whether they operate on that basis, the charter and bylaws of each district must be examined. Further, operating on a nonprofit basis alone is not sufficient to qualify as a 'nonprofit agency.' They must also 'provide[] services contracted for by the state, a municipality or an audited agency ..." Our inquiries to the director of the Tourism Division at the Department of Economic and Community Development revealed that some, but not all, tourism districts have entered into such contracts. Accordingly, whether a tourism district meets the definition of 'nonprofit agency' and therefore is subject the Single Audit Act must be determined on a case by case basis.

The entities subject to the Municipal Auditing Act are "municipalit[iesl," "audited agenc[ies]" and "reporting agenc[ies]." Notably absent from the list of entities subject to the Municipal Auditing Act is "nonprofit agency." The statutory definitions of "municipality" and "audited agency" in § 7-391(Endnote 5) are virtually identical to the definitions of "municipality" and "audited agency" respectively in the Single Audit Act, and we have already opined that the tourism districts do not meet such definitions(Endnote 6) Accordingly, the Municipal Auditing Act does not apply to tourism districts.

Your final question is whether the Department of Revenue Services has any responsibility under either the Single Audit Act or Municipal Auditing Act with regard to funds disbursed to the tourism districts. The State Single Audit Act imposes duties on the Secretary of the Office of Policy and Management and on recipients of state financial assistance and agencies designated by the Secretary as the "cognizant agency" for an audit conducted pursuant to the Act. The department is neither a recipient of state financial assistance nor has it been designated a cognizant agency and, therefore, has no responsibility under the Single Audit Act. The Municipal Auditing Act imposes duties on municipalities and on "audited agencies." The Department is neither. Accordingly, the Department has no responsibility under the Municipal Auditing Act. However, Section 32-305, which subjects the tourism districts to annual audits by the Connecticut Tourism Council, does require the Commissioner of Revenue Services to adopt regulations 'concerning accounting procedures necessary to carry out the purposes of this section."

We trust this is responsive to your inquiry.

Very truly yours,


Shelagh P. McClure
Assistant Attorney General

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