State and local hotel taxes help fund tourism in Texas
A Stay That Pays
It's not enough to have a state full of great tourist attractions. Having sports and shopping in Houston and Dallas, the River Walk in San Antonio or the unique sights and events found in rural Texas doesn't mean much if nobody knows about them.
Publicizing attractions and conventions across the nation and around the world can be expensive, however, and competition is fierce. To get the word out, Texas and many of its cities and counties generate funding through hotel occupancy taxes.
State and local stakes
The state of Texas imposes a 6 percent hotel/motel occupancy tax on the amount visitors pay for a hotel room. The state tax generated $227.9 million in 2003, according to the Texas Comptroller of Public Accounts.
About 92 percent of the state hotel occupancy tax revenue goes into the state's General Revenue Fund, according to the Comptroller. The Texas Legislature divvies up the General Revenue Fund for numerous uses.
The remaining 8 percent goes into an economic development account, which is devoted to promoting Texas attractions to people in other states. Though substantial, the tax is not a huge revenue generator--the state hotel/motel occupancy tax brought in less than 1 percent of all Texas tax revenues in 2003.
Cities and counties also can each levy taxes of up to 7 percent of the cost of a hotel room, meaning some hotels will have a state, a county and a city tax added to the cost of a room. Most cities charge the maximum, said Scott Joslove, the Texas Hotel and Lodging Association's (THLA's) president and chief executive officer. Local voters must approve each city tax.
More than 500 Texas cities levy a city hotel occupancy tax, according to THLA. In 2001, city taxes added $279.8 million to local coffers, according to an October 2002 report by the Texas Department of Economic Development (TDED), renamed the Texas Economic Development Office in 2003.
The rules are different for counties. Typically, the Legislature must pass a law allowing a county to collect the tax. Once the legislation is in place, county commissioners must approve the tax. Voter approval is not required.
In 2001, 20 counties reported combined revenues of about $21.4 million from hotel occupancy taxes, according to the TDED report. Harris County generated $17.3 million through the tax, by far the largest amount. El Paso County reported nearly $2 million; no other county reported more than $1 million in revenues.
Funding a fiesta
The revenues from the hotel occupancy tax are important for San Antonio, said David Cooksey, director of research for the San Antonio Convention and Visitors Bureau. The city's combined state, city and county hotel occupancy tax rate is 16.75 percent, Cooksey said.
"We use 2 percent for convention center expansion funds, basically for repaying bond debt," he said. "Without the center and the expansion, we would lose hundreds of millions of dollars in revenues."
Another 1.75 percent goes to pay bond debt for the SBC Center, home of the San Antonio Spurs basketball team.
"Without that, we'd have no Spurs, and they wouldn't be bringing NBA championships to the city," Cooksey said.
The Convention and Visitors Bureau gets about 40 percent of the city's hotel tax revenues, he said. The bureau uses that money to market San Antonio, often by hosting conventioneers and meeting planners.
"We just had a breast cancer symposium," Cooksey said. "On a weekend in early December, which is usually a slow time, we had 75 percent hotel occupancy; our restaurants were booming, and the bars were full."
Bright lights, big taxes
When state, city and county hotel occupancy taxes are combined, Texas has some of the highest rates in the country. That can be hard on hotels, Joslove said.
"Of the cities we compete with [for tourists], Texas is the highest," he said. "As much as 50 percent higher than other cities in some cases. Although cities may get the revenues, hotels have to drop their prices to compete for the same business."
In Texas, cities and counties must use hotel occupancy tax proceeds for economic development--they cannot mix the funds with general revenue.
There are two basic rules for using hotel occupancy tax revenues. First, cities and counties must use the expenditures to enhance and promote tourism and the convention and hotel industry. Second, they must use the money to maintain or promote a convention center or visitor information center, to promote the arts, to fund historical restoration or to promote sporting events that increase hotel use.
In 2001, Texas cities spent about $90.8 million, or 32 percent, of their hotel tax revenues on convention facilities, according to TDED. Cities spent about $60.8 million on tourism, $32.6 million on the arts, $18.8 million on conference registration, $15.7 million on historical renovation and $14.3 million on administration. About $46.9 million went to other uses.
The rules governing how the money can be spent are detailed, and there are a number of restrictions for cities and counties depending on the size of the jurisdiction and its location, among other factors. Coastal communities, for example, must use at least 1 percent of the cost of a room to match state funds available for beach-cleaning programs.
There are also many exceptions to hotel tax laws. For example, larger cities--those with a population of more than 200,000--must use at least 50 percent of the tax on advertising and promotion programs for tourism. Houston, however, has a minimum of 23 percent.
Chart the art
State law also restricts the amount of hotel occupancy tax revenues that can be used to promote the arts. About 125 local arts agencies and numerous organizations receive funding from the taxes, according to a 2004 report by the University of Texas' Lyndon Baines Johnson School of Public Affairs. Larger cities are limited to spending 15 percent of hotel tax revenues, or the amount generated by a tax of 1 percent of the cost of a hotel room, whichever is higher.
Hotel occupancy taxes are the largest source of government funding for many of the groups, according to the report. Arts programs reported about $32.6 million in funding from the tax in 2001.
Changes to the tax code since 1997, however, have made it more difficult for cities and counties to use the money for the arts. Still, according to the report, the Attorney General has made it clear that local governments, not the state, should determine which arts activities promote and enhance tourism and the hotel and convention industry.