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.

  1. 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.
  2. 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.
  3. 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

  1.  Texas Tax Code at § 351.101(c)
  2. ID.
  3. Texas Tax Code at § 351.101(d)
  4. 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)
  5. 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.)

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