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.

In addition, various amendments to state law have permitted temporary state tax rebates to fund convention centers and related hotel facilities. The most recent was in 2015, when the Legislature amended the law to allow state tax rebates to six cities — El Paso, Frisco, Nacogdoches, Odessa, Round Rock and Tyler — to repay bond debt for a hotel project built within 1,000 feet of a convention facility. Ten cities were already eligible for these rebates.

The 2015 rebates weren’t passed without controversy. During a boisterous debate in the 2015 legislative session, opponents criticized the Legislature’s selective action in permitting HOT tax rebates for some cities but not others. Lawmakers on both sides of the issue proposed granting the rebate to many more cities — including some that weren’t even considering developing a hotel convention center — to ensure their home areas weren’t left out. The additional rebates didn’t pass, however, and the legislators opposing them made their disapproval loud and clear.

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.