(March 21, 2011): Many states have passed laws that allow a city to authorize Hotel Occupancy Tax funds to be collected. Hotel Occupancy Tax funds are essentially taxes that are 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.
I. Hotel Occupancy Tax Funds in Texas:
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.
II. Exemptions from Paying Hotel Occupancy Tax Funds When Renting a Room:
Certain persons do not have to pay the Hotel Occupancy 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.
III. How Can Hotel Occupancy Tax Funds be Used by a City:
Hotel Occupancy Tax funds 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, Hotel Occupancy Tax funds are to be used only to promote tourism and the convention and hotel industry in the city that authorized the charging of Hotel Occupancy Tax funds as an additional tax. The prerequisites for the expenditure of these 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 Hotel Occupancy Tax 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) restoring, 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 these funds will directly enhance and promote tourism, and the fiduciary duty in relation to managing these Hotel Occupancy Tax funds will be discussed.