The Federal Constitutional Court has considered the bed tax to be constitutional. The bed tax is levied on paid overnight stays in tourist accommodation establishments in Hamburg, Bremen and Freiburg, among others, and is owed by the operators of the tourist accommodation establishment. We explain why the Federal Constitutional Court has considered the bed tax to be constitutional.

Since 2005, a large number of countries, cities and municipalities have introduced a tax on paid overnight stays in tourist accommodation establishments in their territory, citing Art 105 paragraph 2a sentence 1 GG. The operator of the tourist accommodation service shall notify the tax to his tax office as part of a tax advance notification. As a rule, he then passes them on to the overnight guest, who pays them when booking or registering at the tourist accommodation. The basis of assessment is usually the net charge.

First, the bed tax was levied on all paid nights. However, the Federal Administrative Court ruled in 2012 that professionally induced overnight stays were to be exempt from the bed tax. The old regulations have been adapted to this as far as possible.

Contrary to this, the federal legislature has reduced the sales tax rate for the entrepreneurial rental of residential and sleeping rooms to seven percent by § 12 paragraph 2 number 11.

Various hotel operators complained against the bed tax. In doing so, they proceeded against their tax application by way of objection and action and appealed against the judgment in Revision. All proceedings were rejected as unfounded. In particular, it was formally pointed out that the respective laws governing the bed tax originate from the legislative competence of the Land under Art 105 paragraph 2a sentence 1 GG. Accordingly, it is a local expense tax, which is not similar to the sales tax. Sales tax and bed tax differ in that sales tax is tax-free only for certain transactions in a very wide area of application. The bed tax, on the other hand, has a very narrow scope, limited to paid nights in the respective area. Moreover, the introduction of the bed tax is not prevented by the reduction of the sales tax on tourist accommodation services.

The accommodation operators were not satisfied with these judgments. Many filed constitutional complaints and complained about the violation of constitutional law. Accordingly, the Federal Constitutional Court had to decide whether the bed tax violates the occupational freedom under Article 12(1) GG, the property freedom under Article 14(1) GG, the freedom of action under Article 2(1) GG, the general principle of equality under Article 3(1) GG or the right to informational self-determination under Article 2(1) GG in conjunction with Article 1(1) GG. It also checked whether the states, municipalities and cities had any legislative competence at all. The Federal Constitutional Court ruled that the bed tax does not violate constitutional law.

The bed tax is constitutional only if it was also legally enacted. However, the legislative power to waive the bed tax by the countries could be lacking.

First, the Federal Constitutional Court has developed the nature of the bed tax. This is important in order to determine the legislative power, which depends on the nature of the tax. The bed tax is not a corporation tax within the meaning of the first sentence of Article 106(3) GG, since it does not apply to a presumed profit of tourist accommodation establishments. Rather, the object of control is the expense of the overnight guest. The tax levied is therefore intended as an indirect tax to cover the overnight expenses incurred by the overnight guests for the paid overnight stay and is thus intended to be passed on to the consumer.

According to the opinion of the Federal Constitutional Court, the bed tax is an expense tax. Expenditure taxes are those taxes which relate to the use of income for personal necessities of life in which economic capacity is expressed. Thus, expense is an externally recognizable state for which financial resources are used and which is typically an expression and indicator of economic performance. Expenditure taxes are therefore distinguished from those taxes that are linked to the creation of income. The latter is, for example, income tax or corporate tax.

Due to the manifold processes that represent expense, it is virtually impossible in expense taxes to check the economic performance of the consumer and to tax it solely on economic performance. Therefore, the expense itself indicates the existence of economic performance. Thus, the external operation of a paid overnight stay in a tourist accommodation establishment suggests that financial resources are used for a personal life need, which indicates an economic performance of the overnight guest. Even with primarily professionally arranged overnight stays, the amount of overnight expenses reflects the performance of the spender to the outside world. This also applies if the use of the income is professionally initiated and in this respect is deductible in accordance with the income tax law as advertising costs in the income determination. Under this definition, the bed tax is also to be classified as an expense tax.

According to Art 105 paragraph 2a sentence 1 GG, an expense tax may not be comparable to a tax regulated by federal law, so that the provinces have the legislative competence. The comparability must be subject to stringent requirements, since every expense tax is ultimately based on the same assessment basis as the sales tax. Otherwise, the legislative competence of the country would be too restricted and would have no independent scope of application. Accordingly, the expense tax must not have the same tax base, tax base and economic impact as a federal tax. However, the bed tax as an expense tax is not comparable to the sales tax or another tax regulated by federal law.

Although the bed tax with the expenses for overnight stays from the same source as the general sales tax and is also paid by tax registration. Both types of control are also designed for rolling. However, the bed tax and the sales tax have different characteristics. The bed tax is limited to the cost of paid overnight stays in a tourist accommodation establishment. In contrast, VAT has a broader scope of application and few tax-free transactions. In addition, the bed tax has a maximum tax rate of 5%, while the sales tax has the reduced tax rate of 7%. The procedure is also different from that for VAT, since there is no deduction at a second level. There are also no special arrangements for small business owners. Furthermore, the bed tax is not a flat tax at state level. Rather, it concerns only an overnight stay, for which no special tax exists at federal level.

The concrete exercise of the tax legislative competence of Art 105 paragraph 2 a sentence 1 GG could contradict the principle of the legal system's freedom of objection and the principle of the federal conduct of the Länder.

A violation of the principle of federal loyalty cannot be assumed. A violation can only be assumed if the state legislature abuses its legislative powers. However, the Länder have made use of their legislative powers for expense taxes alone. The bed tax has no steering effect and therefore does not affect the legislative competence of the Federation. In particular, the bed tax should not avoid overnight stays abroad. Rather, the bed tax is intended to finance the municipalities. Therefore, the bed tax does not interfere with the competence of the federal government.

However, the use in the specific case could object to the reduction of the tax rate for hotel stays by the federal legislature. The Basic Law expressly stipulates that the Länder have competence for local expense taxes. If they now have to comply with the VAT regime, this considerably limits their own expressly granted legislative powers. Moreover, even the accumulated tax rate (5 % + 7 %) falls significantly short of the original tax rate of 19 %. Ultimately, the bed tax does not reduce the federal income source of the income tax, since there is hardly any fear that overnight stays would be missed.

Accordingly, the legislative competence of the Länder for bed tax is based on Art 105 paragraph 2a sentence 1 GG.

The Federal Constitutional Court first examined whether the bed tax interferes with the freedom to exercise the profession. In principle, Article 12 (1) GG protects against such impairments, which are related precisely to the professional activity, by directly preventing or restricting a professional activity (so-called occupational regulation tendency). It therefore depends on whether the profession of tourist accommodation operator is directly affected by the bed tax.

The legislature did not immediately intend to regulate the exercise of profession by introducing the bed tax. In particular, the profession should not be steered in a certain direction by the bed tax, such as a packaging tax. The latter is centrally aimed at producing less packaging waste. Rather, the tax should be transferred to the overnight guests and thus not burden the operator at all. The bed tax therefore does not directly interfere with the freedom to practise.

The operators of hotels, however, are burdened by the administrative burden in the context of the tax collection now carried out by them by the bed tax. In addition, the tax is linked to a paid overnight stay in a tourist accommodation and thus to the core of the business activity. Therefore, administrative tasks have the same effect as directing an activity. In particular, the burdened are indifferent whether they are deliberately or moderately indirectly burdened. Every burden – regardless of whether it is wanted or unwanted – burdens them. In particular, it is inevitable for operators to escape the scheme, since the bed tax is linked to professional activity.

Therefore, the tourist accommodation operators are affected in their occupational freedom guaranteed by Article 12, paragraph 1, GG, by being used as paying agents for the collection of tax and thus being determined in their professional function to calculate, declare and pay the tax.

But not every intervention in a fundamental right is itself necessarily unconstitutional. Only if it cannot be justified with regard to the constitution, the unconstitutionality is to be assumed. Therefore, the Federal Constitutional Court also examines whether the intervention in the occupational freedom by the bed tax is not constitutionally justified and in this respect makes a comprehensive consideration. As part of the substantive justification, the Federal Constitutional Court considers the bed tax to be constitutional for a variety of reasons.

Although the accommodation operators are the debtors of the bed tax. However, this is understandable and not arbitrary, because they make the overnight effort possible. They have a special legal and economic relationship with the tax object and make a decisive contribution to the realization of the tax-related event of the overnight stay. In particular, tourist accommodation operators can easily pass the tax on overnight guests.

The complainants are also not significantly burdened by the obligations in the taxation procedure, because the information required for taxation can be collected at the time of booking or when checking in or checking out. The additional obligations in the taxation procedure do not go beyond similar burdens on the reporting right and VAT law. The tax liability mechanism serves the purpose of collecting tax in accordance with administrative practicability. In particular, it is not suitable in the same way to make use of the overnight guests as tax debtors, as this is not practical.

In addition, contrary to the opinion of the Federal Administrative Court, there is no obligation to exempt overnight stays for professional reasons from taxation. In particular, constitutional law does not make it clear that the advantage is mandatory. However, favoritism is also not constitutionally prohibited. The provincial legislature can therefore freely decide whether or not it makes the beneficiary.

In addition, the bed tax does not suffer from a structural collection deficit or enforcement deficit. A constitutionally compliant design of a tax event requires that the burden success is also uniform. For this purpose, it is necessary for the collection method to be designed for equality in load success. This is not the case if the tax entitlement largely cannot be enforced. However, only regularly occurring implementation deficiencies do not alone lead to the unconstitutionality of the substantive tax norm, but only justify the inefficiency of the regulations.