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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.    

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

What Are Hotel Occupancy Tax (HOT) Funds?(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.

Leonard Schneider Healthcare LawyerLeonard 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.  Leonard can be reached at: 1 (800) 475-1906.