Press Release No. 40/2022 of 17 May 2022
Order of 22 March 2022
1 BvR 2868/15, 1 BvR 354/16, 1 BvR 2887/15, 1 BvR 2886/15
In an order published today, the First Senate of the Federal Constitutional Court rejected four constitutional complaints challenging the taxes on paid overnight stays in accommodation establishments (lodging tax) in the cities of Hamburg, Bremen and Freiburg im Breisgau.
Since 2005, many German cities and municipalities have started collecting lodging taxes from local accommodation establishments, usually a low percentage of the net nightly rate charged by these establishments. On 11 July 2021, the Federal Administrative Court (Bundesverwaltungsgericht) rendered a landmark judgment on local lodging taxes (file reference BVerwG 9 CN 1.11). In this judgment – which is not the object of the present proceedings – the Federal Administrative Court held that the Basic Law demanded to exempt ‘necessary business-related overnight stays’ from lodging taxes. Following this judgment, all cities levying lodging taxes now exempt business-related stays from them. The constitutional complaints in the present proceedings directly challenge finance and administrative courts’ decisions upholding the collection of lodging taxes, and indirectly challenge the legal provisions governing the taxes at issue.
The First Senate of the Federal Constitutional Court held that the challenged provisions are compatible with the Basic Law. Regarding jurisdiction, the Länder (federal states) acted within their legislative powers when adopting the laws on which the lodging taxes are based. A lodging tax is a ‘local tax on expenditure’ (Aufwandsteuer) within the meaning of Art.105(2a) first sentence of the Basic Law (Grundgesetz – GG). In particular, the Länder are not precluded from exercising their legislative powers under that constitutional clause on the grounds that local lodging taxes were equivalent to taxes governed by federal law, as there is no equivalent federal tax. In terms of substantive constitutional law, too, the provisions on lodging taxes are compatible with the Basic Law. They do not impose an excessive burden on the establishments concerned. Under constitutional law, the legislator may exempt business-related stays from lodging taxes, but is not required to do so.
Facts of the case:
Since 2005, many cities and municipalities have introduced a tax on overnight stays at accommodation establishments within their municipality. This so-called lodging tax, hotel occupancy tax or bed tax (hereinafter: lodging tax) usually amounts to a low percentage of the net nightly rate and is collected from guests (actual taxpayers) when they book or check into their accommodation. The accommodation establishments are liable to pay the tax amounts to the tax office.
The constitutional complaints were lodged by accommodation establishments. They are directed against the lodging taxes in Hamburg, Bremen and Freiburg im Breisgau. The complainants in proceedings II and III challenge tax declarations as well as decisions on their objections lodged in administrative proceedings. Like the complainant in proceedings I, they also challenge decisions of the finance courts concerning tax declarations, which are based on Land legislation they consider to be unconstitutional. The complainant in proceedings IV challenges a municipal tax bylaw imposing a lodging tax, and the administrative court decisions rendered in this context. The complainants claim that the various challenged provisions are in breach of the division of legislative powers for taxes on expenditure pursuant to Art. 105(2a) first sentence GG. Moreover, they assert violations of their occupational freedom following from Art. 12(1) GG, their freedom of action relating to financial assets following from Art. 2(1) GG and their fundamental right to equality following from Art. 3(1) GG.
Key considerations of the Senate:
The constitutional complaints are unsuccessful.
I. The challenged court decisions, and the underlying legal provisions, do interfere with the complainants’ general freedom of action in relation to financial assets derived from Art. 2(1) GG and with their freedom to practice an occupation derived from Art. 12(1) GG. However, these interferences are justified.
II. The Länder enacted the laws on which the taxes are based in accordance with their legislative powers. The contested lodging taxes are local taxes on expenditure within the meaning of Art.105(2a) GG, and are not equivalent to taxes governed by federal law.
1. Taxes on expenditure within the meaning of Art. 105(2a) first sentence GG are taxes on the use of income for personal necessities. In this regard, expenditure means externally recognisable consumption for which financial means are used and which typically reflects and indicates economic capacity. In this respect it is irrelevant who finances such consumption by which means and what its purposes are. Thus, the Hamburg culture and tourism tax, the Bremen tourist tax and the Freiburg overnight accommodation tax [as the local lodging tax is referred to in the respective legislation] are taxes on expenditure. These taxes are levied on guests paying for overnight lodging in an accommodation establishment. The tax on such payment is collected by the accommodation establishments as the entities liable for the tax (indirect tax liability), but the lodging taxes are designed to be passed on to consumers.
2. The taxes at issue here are neither equivalent to the sales tax nor to any other tax set out in federal law. The exclusive legislative competence of the Länder for local taxes on consumption and expenditure affords the Länder the power to create new taxes; this power is restricted by the prohibition to introduce local taxes equivalent to existing federal ones as contained in Art.105(2a) first sentence GG. Determining whether a tax imposed by a Land is equivalent to a federal tax requires an overall assessment examining the specific design of the tax on expenditure in question on the one hand, and potentially equivalent federal taxes on the other. This constitutional standard does not imply an extensive precluding effect curtailing the taxation powers of the Länder and municipalities. The lodging taxes at issue in the present proceedings do not constitute general sales taxes at Land or municipal level, nor is there a special federal tax on overnight stays at accommodation establishments. The Länder are therefore not precluded from exercising their legislative powers in this regard.
3. In the case at hand, the exercise of taxation powers under Art. 105(2a) first sentence GG by the Länder also does not exceed the limits set by the rule of law and the federal legal order. The challenged tax provisions do not violate the principle that the legal order be free of inner contradictions (Widerspruchsfreiheit der Rechtsordnung) given that the taxes at issue have, from the outset, no policy-related steering effects that could possibly encroach upon the legislative powers of the federal legislator. Nor do the taxes in question violate the principle of loyalty within the federal order (Bundestreue) as the provisions enacted by the Länder do not constitute an abuse of law-making powers.
III. The lodging taxes satisfy substantive constitutional law. In Hamburg and Bremen, the taxes are levied on the basis of Land legislation, while in Freiburg, the tax is levied on the basis of a bylaw, which in turn is based on Land legislation. The interference with Art. 2(1) GG is justified, as are the obligations affecting fundamental rights under Art. 12(1) GG that arise from the method of taxation [for accommodation establishments].
1. The interference with Art. 2(1) GG resulting from the levying of lodging taxes is justified given that the design of the underlying legal provisions satisfies equality requirements (Art. 3(1) GG) and does not place disproportionate burdens on the complainants.
a) It does not violate the principle of equitable burden allocation that the accommodation establishments are liable for the taxes. The legislative decision to have the accommodation establishments collect the lodging tax indirectly is based on comprehensible reasons and not arbitrary. Accommodation establishments have a special legal and economic relationship to the object of taxation since their contribution is essential for making overnight stays possible, which in turn give rise to the tax. Moreover, the lodging taxes are designed to be passed on to consumers. The complainants can simply collect the lodging taxes from guests who stay for reasons not related to business.
b) The exemptions from taxation of business-related overnight stays are compatible with the fundamental right to equality (Art. 3(1) GG). These exemptions constitute a deviation from the basic taxation decision – in this case the decision to tax “paid overnight stays in accommodation establishments” – which must also be measured against the right to equality. A legislative authority may recognise ‘business-related necessity’ as reason for differentiation with regard to taxes on expenditure. Accordingly, it may then exempt overnight stays that are necessary for business from taxation, for example to promote (local) business development. However, while the legislator may exempt business-related overnight stays from lodging taxes, it is not constitutionally required to make use of this option.
c) Moreover, the challenged provisions are not incompatible with Art. 3(1) GG on the grounds that they give rise to structural shortcomings at the level of implementation, in terms of collecting and enforcing the taxes. Given that the legal framework provides for documentation requirements as well as liability and sanction rules, it is not ascertainable that the exemption of necessary business-related stays gives rise to factual difficulties inherent in collecting lodging taxes to such an extent that it would render the legal framework contradictory due to an inherently ineffective design.
2. The fact that the legal framework makes it incumbent upon the complainants to collect the lodging tax amounts from their guests constitutes an interference with occupational freedom under Art.12(1) GG. However, this interference is justified as well. Regulating liability for the tax in a less intrusive way [e.g. by having tax offices directly collect the tax from the guests] does not constitute an equally suitable means for enforcing the tax. Making the complainants, as accommodation establishments, liable for the tax is evidently a more effective way of enforcing the tax, whereas directly collecting the tax from the guests would not be feasible for the tax authorities. Overall, it is reasonable (zumutbar) to have the complainants participate in the collection of the tax. It is true that the obligations to declare the tax and to pay the relevant amounts to the tax office impose additional burdens on the complainants that only arise because of the lodging taxes. However, these additional obligations are part of the typical business activities carried out by accommodation establishments and do not go beyond similar burdens arising from the law on registration of residence and sales tax law.
