Lodgers Tax

What is the name of your state? NM

Considering everything is fact as presented, is this legal, or not? Any ramifications?

In this particular town, there is a local lodgers association that collects tax on each lodger that visits the area, i.e., Lodger's Tax.

The local city government receives the tax money to be administered to whom it decides, 50% is retained for city government purposes, and for simplicity sake, the other 50% is administred to the entity that the city government believes is the best candidate and must be used for promoting the area only.

Traditionally in this town, the local Chamber of Commerce receives the Lodgers Tax.

Due to the restriction of using the Lodgers Tax for advertising only, the local chamber of commerce decides to do the following with the cooperation of a local business (this being just one of many transactions done in the same manner):
1 - Contract out the creation of a website to an outside business
2 - This business creates the website and invoices the chamber for $17,000 (this being an obvious exorbitant amount of money, not clear how the amount was decided on)
3 - The chamber writes a check from the Lodgers Tax account to the business for $17,000
4 - The business then writes a check back to the chamber for $17,000 as a donation
5 - These monies are then deposited in the general fund

Once in the general fund, the chamber uses these monies to receive matching funds from the state for $17,000.

The chamber also claims a tax deduction.

Any thoughts?

It's legal if the business declares the $17k as income & doesn't have to donate it back to the Chamber. The business cannot write off the $17,000 as a charitable donation. However, this little scheme smells like a scam to me & might tick off the state as well. Report it to the state group that does the matching. Report it to your state representative & to a few other reps as well. Then stop worrying about it.