Previously the Hotel Occupancy Tax (?HOT?) was defined and examples given of the appropriate use of HOT funds. Additionally a two-part test to determine if HOT funds were being spent appropriately was examined.
A city will sometime hire a third party firm or organization to manage and use HOT funds.
A contract with a third party should reference the statute authorizing the Hotel Tax and duties regarding the expenditures of the Tax. Further the Contract should state that any HOT funds given to a Third Party should be kept in a separate account by the Third Party and the funds cannot be commingled with any other money.
- Since HOT funds are taxes paid by the public, a fiduciary duty is imposed on the Third Party regarding the management of the HOT funds.
- Fiduciary Duty means the Third Party has a duty to put the City?s interest above its own in the management and expenditure of HOT funds entrusted to it., Additionally the Third Party has a fiduciary duty to maintain complete and accurate financial records of each expenditure of HOT funds and upon request the records shall be made available to the City.
- The level of financial records kept should be such that an independent party could examine the records and determine if the money was spent appropriately.
Because HOT funds are a public tax a City that contracts with a third party to manage HOT funds should cause an independent audit every year to two to determine if the monies are being spent appropriately and accurate records are being kept.
A Third Party that wishes to manage HOT funds for a city should put in procedures to make sure the HOT funds are maintained in a separate account, that financial records are kept that will show how and when and what the HOT funds were spent. This is important that an officer of a corporation is liable for any tort committed through him or her, regardless of whether the officer personally benefits from the tort committed.4 This includes being individually liable for breaching a fiduciary duty owed by the corporation (third party) to the City. 5
- Texas Tax Code at § 351.101(c)
- Texas Tax Code at § 351.101(d)
McCollum v. Dollar, 213 S.W. 259, 261 (Tex.Com.App.1919); Gardner Machinery Corp. v. U.C. Leas., 561 S.W.2d 897, 899 (Tex.Civ.App.1978, writ dism’d) Gardner, 561 S.W.2d at 900; Searle-Taylor Mach. Co., Inc. v. Brown Oil Tools, Inc., 512 S.W.2d 335, 338 (Tex.Civ.App.1974, writ ref’d n.r.e.)