The Hotel Occupancy Tax (AKA “HOT Tax” or “Bed Tax”)

The San Jacinto Monument, a popular tourist attraction in Southeast Houston.

The San Jacinto Monument, a popular tourist attraction in Southeast Houston.

Not everyone equates tourism with economic development, but in my experience the two go hand-in-hand–while it may not pull in the revenue that a million dollar capital investment expansion project does, tourism adds to the bottom line of any local economy that has something to offer visitors, as numerous studies have shown. In that vein, the Hotel/Motel tax offers a really great economic development tool for cities that choose to impose it. In this post I’ll explain how the tax is assessed at the State, local, and county levels, and then explain how that tax can legally be used.

The State of Texas imposes a tax of six percent on travelers who pay for a room or space in a hotel costing $15 or more each day. Local taxing authorities are authorized to impose an additional tax of up to nine percent (cities) and seven percent (counties) of the cost of sleeping rooms costing $2 or more each day. Many entities are exempt from paying the tax; retailers, including hotel and motel operators, can search the Comptroller’s office to learn more about exemptions from Texas franchise tax, sales and use tax, and hotel occupancy tax.

There are very specific rules about how Hotel Occupancy Tax revenues can be used. What this means for you is that IF your business venture falls into one of these categories, you MAY be able to request Hotel Occupancy Funds to help with your costs. But please be cautioned that even if your project does qualify as a legal expenditure, the final decision on any expenditure rests with the individual taxing entity.

To qualify as a legal expenditure of hotel occupancy funds, an expenditure must meet both of the following criteria:

Criteria #1: Every expenditure must DIRECTLY enhance and promote
tourism AND the convention and hotel industry. 

Criteria #2: Every expenditure of the hotel occupancy tax must clearly fit into one of nine statutorily provided categories for expenditure of local hotel occupancy tax revenues. Those categories are as follows:

  1. Funding the establishment, improvement, or maintenance of a convention center or visitor information center.
  2. Paying the administrative costs for facilitating convention registration
  3. Paying for advertising, solicitations, and promotions that attract tourists and convention delegates to the city or its vicinity.
  4. Expenditures that promote the arts.
  5. Funding historical restoration or preservation programs.
  6. Funding certain expenses, including promotional expenses, directly related to a sporting event within counties with a population of under 1 million.
  7. Funding the enhancement or upgrading of existing sports facilities or sports fields for certain municipalities.
  8. Funding transportation systems for tourists
  9. Signage directing tourists to sights and attractions that are visited frequently by hotel guests in the municipality.

All of these criteria for cities are outlined in the Texas Municipal Code, Chapter 351. The rules for counties, which are similar, can be found in Chapter 352.

As you may imagine, there is some wiggle room in the interpretation of these criteria, and cities and counties often contact the Attorney General’s Office for an opinion on whether or not a particular expenditure is legal. There are also several exceptions and special circumstances that are outlined in the tax code. The best authority, but virtually all accounts, on the allowable use of Hotel Occupancy Tax revenue is Scott Joslove, the President and CEO of the Texas Hotel & Lodging Association (THLA). Mr. Joslove is an attorney and a registered lobbyist for the travel industry, and he often counsels local government officials on how best to use their hotel motel revenues. His guide, What Cities Need to Know to Administer Municipal Hotel Occupancy Taxes is available by calling the THLA at 512-474-2996. An abridged version is available online at the Texas Municipal League website.

Also, many cities choose to direct a portion of their hotel occupancy revenue to a local or regional Convention & Visitors Bureau. If you have an event or a business that you think would help attract visitors to the city or county where it is located, look for the local CVB and ask for their assistance–chances are good that they’ll be more than happy to assist you in publicizing your event or business to out-of-town visitors. The Texas Association of Convention and Visitors Bureaus can point you in the right direction.