The Hotel Occupancy Tax (?HOT?) was defined and examples of proper uses of the tax were given in Part I.
In Texas HOT tax funds may only be spent;
- (i) on authorized uses; and
- (ii) if the HOT funds are spent in a manner directly enhancing and promoting tourism and the convention and hotel industry. (emphasis added)
A two-part test commonly recognized in Texas by administrative agencies and cities is:
- (i) will the expenditure of the HOT funds put ?heads in beds?, in other words will the funded project using HOT funds likely attract overnight tourists to the city hotel and motels thereby promoting the City?s hotel industry; and
- (ii) does the expenditure of HOT funds fit into the uses authorized by the state law.1 Every proposed used of municipal HOT funds for a particular project should meet this two part test. The application of the test will be examined in the following examples.
Charities and faith based organizations are always seeking funds for worthy causes. Will the donation of HOT funds to a homeless shelter meet the test? It is unlikely that the promotion of the shelter will directly enhance and promote the attraction of tourists to the City. Also none of the authorized uses contemplate or mention a shelter.
There are non-profit organizations that promote the community such as a Chamber of Commerce. Is a donation of $1000.00 of HOT funds to a Chamber of Commerce for its annual fund raiser dinner a proper use? The Chamber annual fund raiser may attract political figures from out of town, but 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 HOT 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. Also the promotion of a Chamber normally will not fit into an authorized use or category which is the second part of the test.
Many cities have weekend or week long events such as a music festival. What about donating HOT funds to advertise a week end long folk music festival in the City that attracts out of town artists and folk music lovers? This will 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 HOT tax statutes allow the funding of art events that include the presentation and performance of music.
HOT funds may also be used for certain advertising. May HOT funds be used to advertise various City week end 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.
Each HOT fund expenditure should be subjected to the Two Part test because there may be different facts that may allow or disallow the expenditure.
The management of HOT funds will be examined in Part III.
- Bennett Sandlin, General Counsel Texas Municipal League ?The Hotel Tax Two-Step?, Texas Town & City pp. 45-46 (April 2005)