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Hotel Occupancy Tax Funds and Proper Use – Part II of III

Hotel Occupancy Tax Funds(March 22, 2011): In Part I the term Hotel Occupancy Tax was defined, and examples of how it can be used were given. Hotel Occupancy Tax funds (in Texas) are to be spent on authorized uses if the HOT funds are spent in a manner directly enhancing and promoting tourism and the convention and hotel industry.

 

 

 

I.  Two-Part Test For Hotel Occupancy Tax Funds in Texas:

A two-part test in Texas that is commonly recognized by administrative agencies and cities is: (i) will the spending of the Hotel Occupancy Tax funds put “heads in beds”, in other words, will the funded project using Hotel Occupancy Tax funds likely attract overnight tourists to the city hotels and motels thereby promoting the city’s hotel industry; and (ii) does the expenditure of Hotel Occupancy Tax funds fit into the uses authorized by the state law? See Bennett Sandlin, General Counsel Texas Municipal League “The Hotel Tax Two-Step”, Texas Town & City pp. 45-46 (April 2005).

II.  When Should the Two-Part Texas for Hotel Occupancy Tax Funds be Applied?

This two-part test should be applied to every proposed used of Hotel Occupancy Tax funds for a particular project.  For example, will the donation of Hotel Occupancy Tax funds to a shelter meet the test? While funding a shelter is a worthy cause, it is unlikely that the promotion of a shelter will directly enhance and promote the attraction of tourists to the city.   Nor does the shelter likely fit into any authorized uses.

III.  Uses of Hotel Occupancy Tax Funds:

What about the donation of $1000.00 of Hotel Occupancy Tax funds to a Chamber of Commerce for its annual fund-raiser dinner?  While the Chamber annual fund-raiser may attract political figures from out-of-town, will that directly enhance and promote tourism? The political figures may tell others outside of the city about the Chamber and extol the city, but will that likely cause future tourists to come to town?  Objectively, the expenditure of the $1000.00 of Hotel Occupancy Tax funds to a Chamber fund-raiser, at the most, will indirectly enhance and promote tourism and therefore does not meet the first part of the test.  Further, the promotion of a Chamber normally will not fit into an authorized use or category which is the second part of the test. Id.

What about donating Hotel Occupancy Tax funds to advertise a weekend long folk music festival in the city that attracts out-of-town artists and folk music lovers?  This likely meets the first part of the test in that promotion of the two and ½ day music festival will directly enhance and promote tourism that will result in overnight stays in the hotels and motels of the city.  This also fits the second part of the test in that many Hotel Occupancy Tax statutes allow the funding of art events that include the presentation and performance of music.

What about the advertising of various city weekend long events or conventions in a city in a State-wide or State sponsored travel magazine?  This is similar to promoting the music festival above.  The purchase of the advertising is likely to directly enhance tourism to the city by letting readers of these magazines know of events that they may wish to attend, such as a music festival, a week-long sporting event, or a three-day convention for school administrators. This would also meet the second part of the test because a permissible category to spend HOT Funds is to advertise and promote programs to attract tourists and convention delegates.

Every proposed expenditure of Hotel Occupancy Taxes funds should be subjected to the Two Part test because there may be different facts that may allow or disallow the expenditure.

Part III will address the management of Hotel Occupancy Tax funds and fiduciary duty in the managing of these funds.

Leonard Schneider Healthcare AttorneyLeonard Schneider, J.D., represents cities and municipalities in connection with administrative, regulatory and civil litigation matters.  Other Liles Parker attorneys and staff also have experience representing Texas cities and municipalities.  Should you have questions regarding this article, please call Leonard Schneider for a complimentary consultation.  You may contact Leonard at: 1 (800) 475-1906.    

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