What Is The ‘HOT’ Tax? Your State And Local Government Hotel Occupancy Tax Explained

In the early 1970s, the Legislature authorized municipalities to collect the first local hotel occupancy taxes in Texas. In 1981, the Legislature began permitting some counties to levy their own HOT taxes; legislation in the intervening years has increased the number of eligible counties to about 70.

And in 1997, the Legislature offered hotel occupancy taxing authority as one of several revenue options to support sports and community venues, to be levied by a city, county or a partnership between the two.

Houston and Harris County, for example, created the Harris County – Houston Sports Authority in 1997 to support the Houston Astros baseball stadium, now called Minute Maid Park. Today, Texas cities and some counties may establish up to a 2 percent hotel occupancy tax to support a venue, if approved by public referendum.

Over the years, the Legislature has authorized the return of a portion of the state HOT tax collected in six communities — Corpus Christi, Galveston, Port Aransas, Quintana, South Padre Island and Surfside Beach — to clean and maintain public beaches and shorelines within those municipalities.

Local HOT Uses

Under Texas law, local HOT revenue can be used only to directly promote tourism and the convention/hotel industry. This means the proceeds should be spent on projects or events that result in visitors or attendees staying overnight in the community, generating more hotel occupancy tax.

The Texas Municipal League describes this as the first part of a two-part test it calls the hotel tax “two-step.” Provided the first test of directly promoting tourism and hotel activity is met, the expenditure then must fit into one of the categories authorized by statute.

According to the Comptroller’s Data Analysis & Transparency Division, these categories include:

• the construction, maintenance and operation of a convention or visitor center;
• facilities and personnel for the registration of convention delegates;
• advertising and promotional programs to attract tourists;
• encouragement and promotion of the arts;
• historical restoration and preservation projects;
• advertising to encourage tourists to visit historic sites and museums;
• signage directing the public to sights and attractions frequently visited by tourists;
• certain transportation systems serving tourists and hotel guests;
• and, for certain cities,
• sporting events for which the majority of participants come from out of town;
• qualifying sports facilities that routinely host regional or national tournaments; and
• coliseums or multiuse facilities.
  
  

What You Pay When You Stay

Determining the amount you pay in hotel occupancy tax is simple for locations with state HOT tax only — with few exceptions, a room costing at least $15 per night is subject to a 6 percent state tax anywhere in Texas. (Local hotel taxes are levied on room nights costing at least $2.)

The state and any applicable local tax is due on stays of no more than 30 consecutive days, unless the stay qualifies for another type of hotel tax exemption, such as that given to federal employees on official business.

The Legislature has authorized local HOT levies in piecemeal fashion, however, often through complex descriptions applying only to specific communities. Taxes may be due to the state and as many as three separate local jurisdictions collecting under the authority of different Tax Code and Local Government Code statutes.

In spring 2016, for instance, the authors priced a $188 room for a single midweek night in downtown Austin, a few blocks from the state Capitol. Hotel occupancy taxes of about $28 were tacked onto the bill, including 6 percent to the state, 7 percent to the city of Austin and another 2 percent supporting the Austin Convention Center.

Unfortunately, again due to the piecemeal implementation of hotel occupancy taxes across Texas, there is no comprehensive list of local rates, or even of jurisdictions levying the tax. In fact, not every county is permitted by law to levy the tax.

To determine the local rate at any location, the most practical course may be to check with the establishment where you plan to stay.

At present, it appears that about a third of eligible Texas cities, counties and special-purpose districts levy and collect local HOT taxes. To learn more, in early 2016 the Comptroller’s office surveyed a number of Texas local governments on their use of hotel taxes. (See the survey results in detail.)

Of 1,314 cities and 254 counties in Texas, 358 cities and 57 counties responded to the Comptroller survey (27.2 percent and 22.4 percent, respectively).

Among the survey participants, 61 percent of cities and 28 percent of counties levy a hotel occupancy tax. In their most recent fiscal year, survey respondents reported these entities collected a combined $135.9 million. Many of the largest cities and counties did not submit data for the survey, however, so it’s fair to assume that local HOT taxes bring in significantly more.

Of the 358 Texas cities responding to the Comptroller survey, 217 levy hotel tax (Exhibit 2) and collected $126.3 million in their most recent fiscal year. Most of the responding cities (84 percent) collect the maximum allowable tax rate of 7 percent or, in three cases, 9 percent.

Just 16 of 57 counties responding to the survey levy the hotel tax, collecting $9.7 million in their most recent fiscal year (Exhibit 3). In many cases, the 17 percent cap placed on combined HOT levies prevents counties from collecting the maximum statutory tax rate because of overlapping boundaries with cities. Half of the responding counties levying the tax collect 2 percent.