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Hotel Occupancy Tax Funds: What are They? Part I of III.

March 21, 2011 by  
Filed under Municipal Law Articles

(March 21, 2011): Many states have passed laws that allow a city to authorize a Hotel Occupancy Tax (“HOT”).

This is a tax that is charged to individuals who stay at hotels within a city or its extra-territorial jurisdiction.  Cities are normally allowed to institute this tax pursuant to a state statute.  For most cities in Texas, this tax is capped at 7.0%  of the price paid for a room in a hotel. The price paid for a room does not include the cost of food served by the hotel and the cost of personal services performed by the hotel for the person except for those services related to cleaning and readying the room for use or possession.

Certain persons do not have to pay the HOT tax when renting a room.  Some common exemptions are: (i) a permanent resident of the city where the hotel is located; (ii) certain members of charitable organizations; or (iii) state or government employees traveling as a part of their job duties.

HOT taxes collected by a hotel are paid to the City.  However, a city may use these HOT funds only as authorized by state statute.  In Texas, HOT funds are to be used only to promote tourism and the convention and hotel industry in the city that authorized the HOT tax.  The prerequisites for the expenditure of the HOT tax funds on authorized uses are that the funds shall be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry.

Common authorized purposes on which cities may spend HOT funds include: (i) acquiring sites for and/or construct, enlarge, and maintain convention centers and/or visitor information centers; (ii) providing the facilities, personnel and materials to register convention delegates or registrants: (iii) advertising and conduction solicitations and promotional programs to attract tourists and convention delegates and registrants: (iv) generally promoting and supporting the arts, dance, drama, folk art, radio, etc  that are related to the presentation, performance and exhibition of the art forms authorized; (v) restorating, preserving and promoting of historic sites or museums that is near the convention center or located where frequented by tourists and convention delegates; or (vi) sporting events that will draw tourists.

In part II, tourism will be defined, a common test will be examined to determine if spending of HOT funds will directly enhance and promote tourism, and the fiduciary duty in relation to managing these HOT funds will be discussed.

Leonard Schneider represents a number of Texas cities and municipalities, serving as City Attorney.  Should you have questions regarding these issues, call us for a complimentary consultation.  We can be reached at: 1 (800) 475-1906.

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