Navigating Texas Lodging and Hotel Occupancy Taxes for Property Managers

Texas has all kinds of places to stay: regular motels, hotels, tiny houses, treehouses, mud huts, yurts, and more. Even though they’re all different, they share one thing: they must all pay Texas’s State Hotel Occupancy Tax. Cities and counties can also add their own local version of this tax. Together, these taxes are called HOT.

The local hotel occupancy tax is meant to help bring more visitors to the area and support local hotels and convention centers. Cities are allowed to charge this tax to anyone who pays for a hotel room. If you have questions regarding HOT in Texas, reach out to one of our trusted Texas hotel occupancy tax lawyers today.

How are Hotels Defined in Texas?

Any business that counts as a hotel has to charge the state hotel tax. If a city or county charges a local hotel tax, the business must collect that too. “Hotels” include places like motels, hotels, bed-and-breakfasts, inns, tourist homes, and bedsits. It also includes short-term rentals such as HomeAway, Verbo, and Airbnb.

When is Local Hotel Occupancy Tax Applicable?

Local hotel tax only applies to the cost of the room where someone sleeps. It doesn’t apply to food, banquet halls, or meeting rooms. However, if everything is billed together at one price, then the whole amount is taxed. For example, a stay at a bed-and-breakfast where meals are included, a hunting trip package, and a honeymoon package would all be fully taxed.

If the bill lists the room cost separately from everything else in the package, then only the room cost is taxed as a hotel stay. The other items may have their own taxes, like sales tax or mixed beverage tax, but they won’t be charged the hotel tax.

Usages of Local HOT Revenue

Local hotel tax money can only be spent on things that help bring visitors to the area and support hotels and convention centers. Texas cities can use this money for projects like:

• Building or maintaining convention centers or visitor centers: This includes constructing, expanding, repairing, or operating these facilities.
• Helping register people attending conventions: This means providing staff, space, and materials for check-in and registration.
• Advertising to bring in visitors: Cities can spend the money on ads and promotions to attract tourists and convention groups.
• Supporting the arts: This includes promoting, improving, or funding arts programs that help draw visitors.
• Preserving historic places: Money can go toward restoring historic sites or promoting museums and historic attractions.
• Covering costs for sporting events that bring in tourists: If most of the participants are from out of town, HOT money can be used.
• Improving sports fields or facilities: Cities can upgrade or enhance sports areas that visitors use.
• Building or maintaining large event spaces: This includes coliseums or multi-use facilities.
• Adding signs that guide visitors: Signs that help tourists find local attractions can be funded with HOT money.

Cities and counties can also use local hotel tax money to help pay off bonds for approved projects. They can also hire outside companies to manage or run these hotel tax projects.

Community and Sport Venues

Local hotel tax money can also be used to buy land or build, improve, or equip a convention center or anything needed to support it.

These include:

• Convention centers and related facilities: This includes convention centers themselves, as well as connected places like theaters, opera houses, music halls, rehearsal halls, parks, zoos, museums, aquariums, civic center hotels, or public plazas.
• Sports and event facilities: This covers arenas, coliseums, stadiums, or similar spaces used for professional or amateur sports, community events, livestock shows, agricultural expos, promotional events, and other civic or charity events.
• Watershed protection projects: Local hotel tax money can also be used for projects that protect and preserve local water sources.

Local hotel occupancy tax revenue can not be used for general expenditures or handled in the same manner as general revenue.

Tax Administration and Rates

The state hotel tax rate is 6% of whatever a guest pays for a room. When you add up all possible taxes, state, county, city, and venue taxes, the total tax rate can’t be more than 17%. A 2016 survey from the Comptroller showed that most cities can charge up to 7%. Some cities that pay for a convention center can add another 2%. Most counties can also charge up to 7%.

A city can create a local hotel tax by passing a new city rule (an ordinance). A county can create a local hotel tax by approving an order or resolution, but the state legislature has to allow it first. A sports or community venue can only add a hotel tax if voters approve it.

Who Administers the Hotel Occupancy Tax?

The Comptroller’s office handles the state part of the hotel tax. Each city or county sets its own local hotel tax rate based on state rules, and the money collected from that local tax goes directly to that city or county.

Exemptions to HOT 

• Federal employees and military members: If they are traveling for official work and show a valid government ID, they do not have to pay state or local hotel taxes.
• Foreign diplomats: If they have a hotel tax exemption card, they do not have to pay state or local hotel taxes.
• Certain Texas state officials: Judges, agency heads, members of state boards or commissions, and members of the Texas legislature receive a special hotel tax exemption ID. They do not have to pay any hotel tax.
• District attorneys and district judges: They can get an exemption card from the Comptroller that makes them exempt from all state and local hotel taxes.
• Other Texas state employees: They must pay hotel taxes, but their agency can request a refund from the Comptroller later.

The 30-Day Rule

Hotel tax doesn’t apply to permanent residents. If someone stays in the same room for 30 days in a row or more, they count as a permanent resident and don’t have to pay the hotel tax.

A permanent resident is someone who has the right to stay in the same hotel room for at least 30 days in a row without any break. A “person” can be an individual, a group, or a business. If the stay is interrupted at any point, the person no longer qualifies for the exemption.

If a guest tells the hotel in writing that they plan to stay for 30 days in a row, they don’t have to pay the tax starting from the day they give that notice, as long as they actually stay the full 30 days. If the guest doesn’t give written notice, they must pay the hotel tax for the first 30 days. After that, they don’t have to pay the tax anymore.

If a guest ends up not staying the full 30 days, the hotel has to pay the tax. For this reason, some hotels choose to collect the tax up front and then refund it or give a credit later if the guest stays all 30 days.

Talk to a Texas Hotel Occupancy Tax Lawyer 

Hotel occupancy tax rules can be confusing, and even small mistakes can lead to costly penalties. Having the right legal guidance can help you stay compliant and protect your business. If you have questions or need help with Texas hotel occupancy tax issues, reach out today. Call Coleman Jackson, P.C. at (214) 599-0431 or reach out via our online form to speak with a Texas hotel occupancy tax lawyer who can guide you through the process.

This law blog is written by the attorneys at Coleman Jackson, P.C., located at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206, for educational purposes only. It does not create an attorney-client relationship between this law firm and the reader. You should consult with legal counsel in your geographic area regarding any legal issues affecting you, your family, or your business.

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