Audit Procedures for Hotel Occupancy Tax
Chapter 2 - Tax Law and Policy
- Tax Rate
- Charges for Personal Services
- Items Not Subject to Hotel Occupancy Tax (when separately stated)
- Charges That Are Subject to Hotel Occupancy Tax
- Charges That Are Subject to Sales and Use Tax
- Package Deals
- Charges for Guaranteed Rooms
- Banquet and Meeting Room Charges
- Exemptions from Hotel Occupancy Tax
Charitable or Eleemosynary
Specific Nonprofit Entities
Some Rentals by Private Clubs
- Exemption Certificates and Good Faith Acceptance
Rewards Points Redemption Programs
The Hotel Occupancy Tax law is covered in TEX. TAX CODE ANN. Chapter 156.
A hotel is any building in which members of the public obtain sleeping accommodations for consideration of $15.00 or more per day ($2.00 minimum for local taxes) effective October 1, 2003. Prior to that date the $2.00 or more charge applied to both state and local tax.
The term hotel includes:
- Lodging houses
- Rooming houses
- Tourist homes, houses or courts
- Bed & breakfast
- Beach House
- Manufactured homes
- Skid mounted bunk houses
- Rental Houses - Houses rented for less than 30 days
- Other buildings where sleeping rooms are furnished in return for payment of money
NOTE: Apartments, condominiums, and rent houses are not normally subject to hotel tax because they are usually rented for more than 30 days. When these are rented to a transient clientele they will be subject to hotel tax if they are occupied for less than 30 days. Refer to the Permanent Resident section of this manual.
The definition of a hotel does not include:
- Nursing homes
- Dormitory or other housing facility owned or leased and operated by an institution of higher education
- Apartment buildings which only lease to permanent residents (occupancy for at least 30 consecutive days) do not meet the definition of a hotel and their rental is not subject to hotel tax.
Since September 1, 1987, the State rate has been 6% of the price paid for a room in a hotel. (See TEX. TAX CODE ANN. §156.052)
|Sept 01, 1987 through today||=||6%|
|Oct. 02, 1984 through Aug. 31, 1987||=||4%|
|Prior to Oct. 02, 1984||=||3%|
|Statute References:||CHAPTER 351. MUNICIPAL HOTEL OCCUPANCY TAXES
CHAPTER 352. COUNTY HOTEL OCCUPANCY TAXES
CHAPTER 334. SPORTS AND COMMUNITY VENUES
The total rate charged by a hotel may include additional local hotel taxes. Additional rates are due to the following governmental authorities that may levy an additional hotel occupancy tax based upon the cost of rooms ordinarily used for sleeping.
- Municipalities may levy a tax rate not to exceed 7% , except:
- Certain eligible central municipalities - may not exceed 9%:
- Municipalities boarding the Gulf of Mexico with a population of more than 250,000 (effective June 18, 1999); and
- Municipalities with a population of less than 5,000 adjacent to a home-rule city with a population of less than 80,000 (effective September 1, 2003)
- General law municipalities bordering the Gulf of Mexico that have a boundary within 30 miles of Mexico - may not exceed 7.5% (effective June 18, 2003; expires January 1, 2006)
- Certain eligible central municipalities - may not exceed 9%:
- Counties - rates vary according to population size of the county, whether there is a municipality within the county and whether the county borders on the Gulf of Mexico.
- Sports or community venue districts may levy a tax rate not to exceed 2%. Effective March 28, 2003, counties with a population of more than two million adjacent to a county with a population of more than one million may levy a tax rate not to exceed 3%.
CHAPTER 351. MUNICIPAL HOTEL OCCUPANCY TAXES
Municipalities may impose, by ordinance, a hotel occupancy tax on the rental of a room in a hotel that costs $2 or more per day and is ordinarily used for sleeping. Municipal hotel tax, therefore, is not due on the rental of meeting or banquet rooms. See Tax Code Section 351.002.
351.003. Tax Rates
|(a)||Except as provided by this section, the tax authorized by this chapter may be imposed at any rate not to exceed seven percent of the price paid for a room in a hotel.|
|(b)||The rate in an eligible central municipality may not exceed nine percent of the price paid for a room. This subsection does not apply to a municipality to which Section 351.106 applies.|
|(c)||The rate in a municipality that borders on the Gulf of Mexico and has a population of more than 250,000 or in a municipality with a population of less than 5,000 adjacent to a home-rule city with a population of less than 80,000 may not exceed nine percent of the price paid for a room.|
|Text of subsection (d) is effective until January 1, 2006.|
|(d)||A general-law municipality that borders on the Gulf of Mexico and has a boundary that is within 30 miles of Mexico may by ordinance increase the rate of the tax under Subsection (a) to a maximum rate of 7.5 percent if the increase is approved by a majority of the registered voters of the municipality voting at an election held for that purpose.|
Authorized uses of municipal hotel tax revenue are provided in the Tax Code Sections 351.101 through 1075. Links to this chapter may be found under the heading "Local Hotel Taxes" on the "Hotel Tax" page of the Comptroller's website.
CHAPTER 352. COUNTY HOTEL OCCUPANCY TAXES
352.003. Tax Rates
The commissioner's courts of certain counties are authorized to impose, by order or resolution, a hotel occupancy tax on a hotel room that costs $2 or more per day and is ordinarily used for sleeping. County hotel tax, therefore, is not due on the rental of meeting or banquet rooms. See Tax Code Section 352.002.
|(a)||Except as provided by this section the tax authorized by this chapter may be imposed at any rate not to exceed seven percent of the price paid for a room in a hotel or, until January 1, 2001, eight percent of the price paid for a room in a hotel in a county with a population of more than 3.3 million.|
|(b)||The county tax rate in a municipality that has a population of 1.9 million or more may not exceed two percent of the price paid for a room in a hotel.|
|(c)||The rate in a county that does not have a municipality may not exceed four percent of the price paid for a room in a hotel.|
|(d)||The tax rate in a county authorized to impose the tax under Section 352.002(a) (12) may not exceed three percent of the price paid for a room in a hotel.|
|(e)||The tax rate in a county authorized to impose the tax under Section 352.002(a)(6) and that has a population of less than 40,000 and adjoins the most populous county in this state may not exceed three percent of the price paid for a room in a hotel.|
|(f)||The tax rate in a county that borders the Gulf of Mexico, has a population of more than 200,000, and borders the Neches River may not exceed two percent of the price paid for a room in a hotel in the county.|
|(g)||The tax rate in a county that is authorized to impose the tax under Section 352.002(a)(17) may not exceed two percent of the price paid for a room in a hotel.|
Authorized uses of county hotel tax revenue are provided in the Tax Code Section 352.108. Links to this chapter may be found under the heading "Local Hotel Taxes" on the "Hotel Tax" page of the Comptroller's website.
CHAPTER 334. SPORTS AND COMMUNITY VENUES
The Texas Legislature authorizes counties and municipalities to establish, by resolution, sports and community venue projects. See Local Government Code Section 334.021. Venue projects may be funded by one or more types of taxes and require voter approval.
The venue district tax, which must be used to support stadiums, arenas, or other community facilities like convention centers, is in addition to the city and county hotel tax. For example, the city of Austin imposes a seven percent city hotel tax and a two percent Convention Center/Waller Creek Project hotel tax.
Another example is the city of Dallas began collecting a 5% motor vehicle rental tax on May 1, 1998 and an additional 2% local hotel occupancy tax on August 1, 1998. This revenue is used for the payment of bonds for the voter approved community and sports venue project that has since been named the American Airlines Center.
Houston voters approved a referendum in 1996 allowing a portion of hotel and rental car taxes to be spent on a new baseball park and football stadium. The sports authority was created in 1997 by the Texas Legislature to collect and distribute that tax money. The Harris County-Houston Sports Authority has helped to develop three Houston sports venues.
334.254. Tax Rate
Except as provided by Subsection C, the
|(a)||Tax authorized by this subchapter may be imposed by a municipality or county at any rate not to exceed two percent of the price paid for a room in a hotel.|
|(b)||The ballot proposition at the election held to adopt the tax must specify the maximum rate of the tax to be adopted.|
|(c)||A county with a population of more than two million that is adjacent to a county with a population of more than one million may impose the tax authorized by this subchapter at any rate not to exceed three percent of the price paid for a room in a hotel.|
Another statute, Local Government Code Section 334.256, from the, requires that when a hotel collects a sports and community venue tax, each hotel bill or receipt must include a statement that lists the entities that impose hotel taxes and their rates. See below for current and prior law.
334.256. Notice of Tax (Local Government Code)
Current law, effective October 1, 2003:
|(a)||Each bill or other receipt for a hotel charge subject to the tax imposed under this subchapter must contain a statement in a conspicuous location stating the applicable hotel occupancy tax rate collected by the hotel from the customer for the State of Texas (insert state rate of tax) and the tax rate and identity of each other taxing authority that has imposed a hotel occupancy tax for the room night (insert rate of tax).|
|(b)||If a hotel charge is subject to any additional hotel occupancy taxes, the statement required by Subsection (a) must be modified to state each additional entity that imposes a hotel occupancy tax and the rate of that tax.|
Prior law, effective September 1, 1997 through August 31, 2001:
Each bill or other receipt for a hotel charge subject to the tax imposed under this subchapter must contain a statement in a conspicuous location stating:
"____________ (insert name of taxing municipality or county) requires that an additional tax of ______ percent (insert rate of tax) be imposed on each hotel charge for the purpose of financing a venue project."
Restrictions to the authorized uses of sports and community venue hotel tax revenue are provided in the Local Government Code Sections 334.2515 and 2516. Links to this chapter may be found under the heading "Local Hotel Taxes" on the "Hotel Tax" page of the Comptroller's website.
NOTE: The Comptroller's agency audits for the state portion of the hotel tax. If a county, city, or sport and community venue hotel tax is being collected erroneously, it may be assessed in the state tax audit. This tax is termed error tax and is reportable to the state as taxes collected in error. Local authorities are responsible for auditing their own taxes.
Charges for Personal Services
Charges for personal services (which are unrelated to the cost of the actual occupancy of the room) or charges to use a telephone are not subject to the hotel occupancy tax if they are separately stated. This includes charges for room service, messenger service, and valet service. If the charge represents an amount that would be subject to sales tax on a stand alone basis (and the charges are separately stated) then they are subject to sales tax. In these instances the hotel should obtain a sales and use tax permit and charge and collect the appropriate taxes.
Question: A hotel collects a separate charge for a shuttle service to and from an airport. The charge is a separate line item on the guest folio identified as 'Airport Charge'. The room card key folder informs each guest that this amount will be deducted if they do not use the shuttle service. Would this separate shuttle service charge be subject to the hotel occupancy tax? Would it be subject to the limited sales and use tax?
Answer: A separately stated charge for items or services not directly related to occupying or cleaning and readying a room or space in a hotel for occupancy is not subject to the state hotel occupancy tax. The separately stated shuttle service charge is not subject to hotel occupancy tax because it is personal service and not related to occupying a room. The shuttle service charge is also not subject to the limited sales and use tax.
Items Not Subject To Hotel Occupancy Tax (when separately stated)
- Messenger service
- Room service
- Valet service (Personal services)
- Use of a telephone (This is subject to telecommunications tax)
- Baby sitting service
- Shuttle service
Charges That Are Subject to Hotel Occupancy Tax
Some other charges that, when connected with the actual occupancy of the room, are subject to the Hotel Occupancy Tax whether or not they are separately stated. Such charges include but are not limited to:
- Equipment rentals - Use of a television, rental of audio visual equipment
- When a separately stated charge is provided with a banquet room rental charge and the hotel is the caterer - the rental charge is subject to the limited sales and use tax [Rule 3.293(f)(5)]
- When provided in conjunction with the rental of a banquet or meeting room and the hotel is not the caterer - the rental charge is subject to state (but not local) hotel tax [Rule 3.162(a)]
- Additional bed or cot charge or rollaway rentals
- Pet Charges
- Pet Cleaning Charges
- Reservation Fees
- In-room safe rental charges
- Microwave and refrigerator rentals
- Energy Charge - A separate charge for energy that is directly related to the occupancy of the room
An example of equipment rental could be as follows. The fitness equipment is furnished in connection with the occupancy of the room would be subject to Hotel Occupancy tax. All charges for items or services, other than personal services or charges for the use of a telephone, which are furnished in connection with the actual occupancy of a hotel room are subject to hotel occupancy tax, whether separately stated or not. Rule 3.162(a) (2). Like a rollaway bed, television, microwave, or other room furnishing, hotel tax should be collected on a charge for fitness equipment in a hotel occupant's room. Hotels would then owe sales taxes to suppliers on the purchase or rental of this equipment.
A charge for the use of fitness equipment not located in the occupant's room, is a charge for an amusement service and would be subject to the limited sales and use tax. An example would be a separately stated charge for the use of an off-premises exercise room.
Charges that are Subject to Sales and Use Tax
- Mandatory gratuities on food and beverages not distributed to qualifying employees (Rule 3.337). However, if mandatory gratuities are based on sale or service of alcoholic beverages, the charges are subject to the mixed beverage gross receipts tax when the hotel has a mixed beverage permit (Rule 3.1001).
- Room Service - Charges for ready to eat food are subject to sales taxes. Rule 3.293(b) Charges for alcoholic beverages are subject to mixed beverage tax or sales taxes depending on the TABC permit held. Rule 3.1001(c).
- Delivery Charges - For sales tax, delivery charges associated with the sale of a taxable item (e.g., food) are taxable. Rule 3.303(a). For mixed beverage tax, delivery charges associated with the sale or service of alcoholic beverages are taxable mixed beverage receipts. Rule 3.1001(c).
- Phone Charges - Fax and phone charges are taxable telecommunication services and are subject to sales tax. The hotel is also responsible for the Telecommunication Infrastructure Fund assessment on its receipts from charges for taxable phone calls and faxes.
- Fax transmittal service - This represents a taxable telecommunications charge. The charge to send a fax is subject to Telecommunications Infrastructure tax - the charge to receive a fax is taxable if the transmission originates in Texas. If the hotel does not retain the documentation to show the origination of the fax - then the hotel should charge tax for the receipt of faxes.
- Swim/athletic club fees
- Parking fees including Valet Parking Service
- Charges to store a motor vehicle
- Charges for movies - The rental of a movie in a hotel room is not subject to hotel occupancy taxes. Movie rentals are subject to limited sales and use taxes. The hotel should collect sales taxes on separately stated charges for movies, whether provided on video cassette, DVD, or transmitted electronically.
- Charges for internet access - Internet access services are subject to sales tax. The first $25 of the monthly fee is exempt. Because hotels often cannot track charges per guest, they may charge and collect tax on all services. See Rule 3.366(b). The internet charges that do not exceed $25.00 would not be subject to tax - records must be retained to support these charges. If the internet charges are purchased tax-free from the Internet Service Provider, there may also be tax due on the taxable use of these services by the hotel/management company employees.
- Rental/access charge for video games
- Sales of toiletries
- Personal shopper charges for items that are subject to sales tax (as well as the sales price of the items) would be taxable. If the items are not subject to sales tax (such as groceries) the personal shopper charges would not be subject to tax. If the charge for these items represent a dollar for dollar reimbursements of their cost - the items would not be subject to sales tax again when resold (reimbursed by the customer).
(Refer to Hotel Occupancy Tax Rule 3.162.)
If a hotel includes meals, drinks, admission to tourist attractions, or any other unrelated benefit in the charge for lodging, the hotel occupancy tax must be paid on the total charge. In order to be deducted from the amount subject to hotel occupancy tax, these charges must be separately stated on the bill to the customer. These separately stated charges might be subject to the limited sales and use tax or the mixed beverage tax.
Charges for Guaranteed Rooms
A room charged to a customer who did not show is subject to Hotel Occupancy Tax. The definition of occupancy and occupant includes not only the use or possession but also the right to use or possess any room for any purpose.
A deposit that is not directly related to the room charge would not be subject to hotel tax because the deposit does not give the customer the right to use or possess the room. Guaranteed "no show" charge rates that are less than the room rate are not taxable, such as a percentage or sliding scale rate.
Example: A client has a contract to occupy 100 rooms. The client only occupies 80 rooms. The hotel bills the client for the 20 unoccupied rooms and should charge hotel occupancy taxes. Attrition or cancellation charges are subject to hotel occupancy taxes if by paying the fee the guest has paid the consideration necessary to achieve the right to occupy or use a room in a hotel. An attrition or cancellation fee is not subject to hotel tax if the charge is less than the reserved room rate, such as a percentage or sliding scale of the room rate.
Banquet and Meeting Room Charges
The Hotel Occupancy Tax is due on the rental of meeting and banquet rooms if the room is located in the same building (under the same roof) as the rooms with sleeping accommodations. Hotel tax is not due on charges imposed on buildings owned by a hotel which are physically separate from the hotel and which are not used for the purpose of providing sleeping accommodations. (Refer to Hotel Occupancy Tax Rule 3.162)
State hotel occupancy tax is due on lump-sum charges that include a banquet or meeting room, food and equipment. Local taxes (city, county, and sports and community venues) are not due on banquet or meeting room charges - only the state tax is due.
When a hotel serves food, the hotel is considered a food service operator and should charge sales taxes on the entire charge for food preparation and service, including items used by the customer (e.g., tables, decorations, equipment). See Rule 3.293(f).
When food is not provided, and the banquet room is located in the hotel (building with sleeping rooms), the 6% state (not local) hotel tax is due on charges for all items furnished with the room, other than charges for the use of a telephone or for personal services. Personal services do not include cleaning and readying a room for occupancy. See Rule 3.162(a).
Sales taxes are due on separately stated charges for equipment provided by the hotels in connection with a catered event. If the hotel is not providing food, equipment charges such as audio visual equipment, whether lump sum or separated, are subject to state hotel occupancy tax when provided with the rental of a room subject to hotel tax.
When the hotel has a mixed beverage permit, the 14% mixed beverage gross receipts tax is due on the total amount received from the preparation, sale, or service of alcoholic beverages, including ice and nonalcoholic beverages sold to be mixed and consumed on the premises. See Rule 3.1001(b).
Sales of soft drinks and mixers from a mini bar are subject to the limited sales and use tax, not the mixed beverage tax.
The following examples assume the banquet room is located in the hotel and the hotel holds a mixed beverage permit:
- Cashier Fee - sales tax or mixed beverage gross receipts tax is due, depending on what is purchased (e.g., tickets for the bar is mixed beverage tax; tickets for food is sales tax).
- Bartender Fee - mixed beverage gross receipts tax is due, whether or not the hotel supplies the alcoholic beverages (preparation and service of alcoholic beverages).
- Carving Fee - sales tax is due if the hotel charges for food (part of food service).
- Cover Charge - sales tax is due on the sale of an admission to an amusement service if the event or location of the service is within the State of Texas. See Rule 3.298. Cover charges may be subject to Mixed Beverage Tax is the charge is in connection with a reduced price for drinks. (Happy Hour).
- Table Set Up - sales tax if hotel charges for food (part of food service); state hotel tax if food not provided (readying room for occupancy).
- Cleaning Charge - state hotel tax (readying room for occupancy; see Note below).
- Phone Rental or Set Up - subject to sales tax if the hotel charges for food (part of food service); subject to state hotel tax if food not provided (for phone rental, equipment furnished with hotel room; and for phone set up, readying room for occupancy). If the hotel also charges for the phone's use, the rental/set up fee becomes part of a telecommunications service subject to both sales taxes and the telecommunications infrastructure assessment.
- Margarita Machine Rental - mixed beverage gross receipts tax if hotel sells or serves alcoholic beverages (preparation or service of alcoholic beverages); sales tax if hotel charges for food and does not sell or serve alcoholic beverages (part of food service); or state hotel tax if the hotel does neither (equipment furnished with hotel room).
- Ice Carving/Ice Sculpture - sales tax if hotel charges for food (part of food service); state hotel tax if food not provided (item furnished with room).
- Banner Hanging Charge - sales tax if hotel charges for food (part of food service); state hotel tax if food not provided (readying room for occupancy).
- Bar Set Up - mixed beverage gross receipts tax (preparation of alcoholic beverages).
Note: Hotel tax is not due on banquet rooms located in a separate building from the hotel (building with sleeping rooms). Sales taxes would be due on these room charges if the hotel provides food. Sales taxes would also be due on cleaning fees.
As mentioned above the hotel may be responsible for reporting Mixed Beverage Tax, which is another tax that may be audited by the Comptroller of Public Accounts auditor. An excerpt from the mixed beverage rule is shown below.
Mixed Beverage Tax - Rule 3.1001 subsection (c) provides in part as follows:
Taxable mixed beverage receipts. The Mixed Beverage Gross Receipts Tax applies to, but is not limited to, receipts for the following items:
|(1)||receipts from the sale or service of alcoholic beverages;|
|(2)||receipts from the sale or service of nonalcoholic beverages that are mixed and consumed with alcoholic beverages on the permittee's premises;|
|(3)||receipts from cover charges, door charges, entry fees or admission fees that are related to reduced prices for alcoholic beverages as described in 16 TAC sec. 45.103 (relating to Regulations of "Happy Hour"). If cover charges are determined to be related to reduced prices for alcoholic beverages, the tax base will be the entire receipts from the cover charge plus the reduced sales or service prices received for the alcoholic beverages.|
|(4)||as an alternative to paragraph (3) of this subsection, a permittee may elect to report the services or sales of alcoholic beverages at the normal service or selling price and exclude the cover charges, door charges, entry fees or admission fees from the tax base. The normal sales or service price is the price charged for the alcoholic beverage when no cover charge, door charge, entry fee, or admission fee is collected. When the permittee elects to use this option, the cover charges, door charges, entry fees, or admission fees will be subject to sales tax under Sec. 3.298 of this title (relating to Amusement Services);|
|(5)||the normal selling price of alcoholic beverages served with meals with no separate charge. If the specific alcoholic beverage is being sold or served at a promotional price at the same time as the meal, the tax base for the alcoholic beverage will be the promotional price.
This subsection refers to promotions usually promoted as "free drink(s) with a meal."
Exemptions from Hotel Occupancy Tax
These areas are discussed in greater detail in separate sections in this chapter. Not all entities will qualify - the rules and statutes should be referenced. The exemption granted for Hotel Occupancy Tax is more narrowly construed than for Sales and Use Tax. Not all organizations that are exempt from sales tax are exempt from the hotel occupancy tax. The organization claiming the exemption should apply to the Comptroller's Office for this exempt status.
If an exemption applies, then the organization or individual claiming exemption must present an exemption certificate to the hotel. Beginning October 1, 2003, hotel owners and operators may accept, in good faith, hotel occupancy tax exemption certificates when presented with documentation proscribed by the Comptroller. See section of Hotel Occupancy Tax Rule 3.161 on Exemption Certificates and Good Faith Acceptance for specifics.
- Permanent Residents
- Governmental Agencies
- Charitable or Eleemosynary Organizations
- Educational Organizations
- Religious Organizations
- Rentals by Private Clubs to members
- College/University Dormitories
- Specific Nonprofit Entities
Employees of exempt organizations are also exempt when traveling on official business of the organization. The method of payment does affect the exemption. Representatives claiming an exemption who are not employees of the organization must pay with the organization's funds (organization check, credit card, or direct billing to the organization).
NOTE: An exempt organization that operates a hotel will not be exempt from the collection and reporting of the hotel occupancy tax.
A permanent resident is any person/occupant who has or shall have the right to occupancy of any room or space in a hotel for at least 30 consecutive days without interruption. A person may be an individual, organization, or entity. A permanent resident is not subject to the Hotel Occupancy Tax.
A person becomes a permanent resident by either entering into an agreement to occupy a room for 30 or more consecutive days or having actually occupied a room for 30 consecutive days.
Guests who provide written notification that they will stay for at least 30 consecutive days are permanent residents from that day forward, as long as there is no interruption in the right of occupancy for the next 30 days. Guests without a written commitment do not become permanent residents until the 31st day, and they owe the hotel occupancy tax on the first 30 days. Any interruption in the right of occupancy voids the exemption. See Hotel Occupancy Tax Rule 3.161 (b)(6).
Permanent residents are not required to physically occupy a room or space. Permanent residents may have the right to use or occupy different rooms in the same hotel without loss of the permanent resident exemption.
Companies can be permanent residents. Business entities such as airlines and railroads, may rent hotel rooms without having the same employee occupy the same room during the 30 days. The company, not the person occupying the room, is the renter. Therefore, the company may qualify as a permanent resident. A company may enter into a written agreement to guarantee payment of a room for 30 consecutive days. It is not necessary that the same room be rented or occupied so long as a room is rented for 30 consecutive days. Different individuals may use the rooms without affecting the exemption, but there may be no interruption in the right to occupy the rooms. To qualify for this exemption the specific number of rooms needs to be stipulated. See example below.
NOTE: The moving of a hotel customer from one room to another has no effect on the permanent resident status. The permanent resident exemption applies to only the number of rooms specified in the agreement.
Example: An airline agrees to pay for six rooms for 180 consecutive days. On days 42 through 56 the airline pays for ten rooms. The four additional rooms are not exempt from hotel tax because they exceed the number of rooms specified in the agreement and the rooms have not been rented for more than 30 consecutive days.
Effective August 26, 1991, the permanent resident exemption is valid until there is an interruption in payment, meaning there is a break in the right to use, possess, or occupy a room or space in the hotel. After the interruption the guest must once again qualify for the exemption.
U.S. government agencies and its employees (including military personnel) are exempt from state and local hotel occupancy taxes. State agencies and most state employees are not exempt and must pay state and local hotel occupancy taxes. Texas state agencies may request a refund of the hotel occupancy taxes paid.
Statutory exemption is available for certain Texas state officials that have been issued a hotel occupancy tax exemption photo ID or card. These state officials, judicial officers, heads of state agencies, the Executive Director of the Legislative Council, the Secretary of the Senate, state legislators, legislative employees, members of state boards and commissions, and designated state employees of the State of Texas (who present a Hotel Occupancy Tax Exemption Photo Identification Card when traveling on official state business) are exempt from both state and local hotel occupancy taxes.
Exempt from state and local hotel occupancy taxes are:
- Designated Texas state employees who have been issued a Hotel Tax Exemption Photo Identification Card (If a state employee has not been issued this Photo ID Card - they must pay the hotel tax to the hotel.) For the purpose of claiming an exemption, a Hotel Tax Exemption Photo Identification Card includes:
(A) any photo identification card issued by a state agency that states "EXEMPT FROM HOTEL OCCUPANCY TAX, under Tax Code, §156.103(d)", or similar wording; or (B) a Hotel Tax Exemption Card that states "when presented with a photo identification card issued by a Texas agency, the holder of this card is exempt from state, municipal, and county hotel occupancy tax, Tax Code, §156.103(d)", or similar wording.
- The United States government and its employees traveling on official business representing the United States government
- Diplomatic personnel of a foreign government who present an appropriate Tax Exemption Card issued by the United States Department of State
United States government agencies and their employees traveling on official business are exempt from Texas and local hotel occupancy taxes. For example, the National Pork Board (as an agency of the federal government) is exempt from the state and local hotel occupancy taxes. Federal employees traveling on official business for the federal government may issue a hotel occupancy tax exemption certificate in the name of the exempt entity instead of paying the state and local hotel occupancy taxes. Hotels may request that the employee show proof of employment such as a government ID, business card, payroll receipt, etc.
Government contractors are not exempt from state and local hotel occupancy taxes. This includes contractors that are reimbursed by a governmental agency.
Most State employees are not exempt from Hotel Occupancy Tax [Rule 3.161(b)]. For example, State police officers are state employees and, as such, should be reimbursed by their agency when traveling on official business. The hotel tax paid by the state or reimbursed to a state employee may be refunded as provided in Rule 3.163.
A State of Texas agency may request a refund of hotel occupancy taxes paid directly to a hotel or reimbursed to employees from the agency on a state travel voucher. Comptroller's Rule 3.163 provides the procedures for state agencies to obtain refunds of hotel occupancy taxes.
On September 1, 2001, the state hotel tax refund claims were changed to be filed on a fiscal year quarter instead of a calendar year quarter. A state agency may apply for a refund of state hotel tax no later than two years after the end of the fiscal year in which the travel occurred as provided by State of Texas Travel Allowance Guide, sec. 1.17 and sec. 8.06. A state agency may apply for a refund of local hotel occupancy taxes for each calendar quarter according to the local city or county ordinance. In the absence of a local ordinance, the same time limitation that applies to the refund of state hotel occupancy taxes will also apply to municipal, county and sports and community venue hotel occupancy taxes.
The Texas Legislature does not provide hotel occupancy tax exemptions for city, county, and state police officers. Federal police officers (while traveling on official business) are exempt from state and local hotel taxes.
Police officers employed by Texas institutions of higher education may be exempt from state hotel occupancy tax while on business trips, but must pay any local hotel taxes imposed. A completed Hotel Occupancy Tax Exemption Certificate should be furnished to the hotel when claiming an exemption. Beginning October 1, 2003, police officers from non-Texas institutions of higher education are no longer exempt and must pay all hotel taxes. (See Educational Organizations)
NOTE: Exemptions for state hotel occupancy tax are different from the exemptions for city, county and sports and community venue hotel occupancy taxes. Local government officials are not exempt from paying the state and local hotel occupancy taxes.
Exempt from city, county, and sports and community venue taxes:
Federal employees, foreign diplomatic personnel, and certain Texas state employees (except for state college and university personnel who must pay the local tax to the hotel and then be reimbursed by their institution.)
Not exempt from either state or local Taxes:
Local government personnel must pay all hotel occupancy taxes.
Charitable or Eleemosynary
This exemption is more narrowly construed than it is for sales tax exemptions. Charitable organizations are nonprofit organizations that devote all or substantially all of their activities to the alleviation of poverty, disease, pain, and suffering by providing food, clothing, drugs, treatment, shelter, or psychological counseling directly to indigent or similarly deserving members of society for little or no charge (with its funds derived primarily from sources other than fees or charges for its services).
If the organization engages in any substantial activity other than the activities described in the preceding paragraph, it will not be considered as having been organized for purely public charity, and therefore, will not qualify for exemption. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization.
Organizations that have received a letter of exemption from the Comptroller as charitable are exempt from the state hotel occupancy tax. These organizations must still pay any applicable local hotel taxes.
Although some charitable organizations are not organized for profit and they do perform services that are charitable in nature, many of these organizations do not meet the requirements necessary for the exemption under the Hotel Occupancy Tax law and statute. See Comptroller Rule 3.161 for definitions.
Some organizations that do not qualify for the exemption:
- Service Clubs
- Professional groups
- Trade or business groups
- Medical associations
- Veterans groups
- Chambers of Commerce
- Professional associations
- Business leagues
- Information resource groups
- Research organizations
- Support groups
- Home schools
- Organizations that merely disseminate information by distributing publications
- Volunteer fire departments - while exempt from sales and use tax are not provided a hotel occupancy tax exemption by the Texas Legislature. Members will need to pay any hotel taxes imposed when traveling on official business of the fire department.
A nonprofit organization or governmental entity whose activities are devoted solely to systematic instruction, particularly in the commonly accepted arts, sciences, and vocations, and has a regularly scheduled curriculum using the commonly accepted methods of teaching, a faculty of qualified instructors, and an enrolled student body or students in attendance at a place where the educational activities are regularly conducted. An organization that has activities consisting solely of presenting discussion groups, forums, panels, lectures, or other similar programs, may qualify for exemption under this provision, if the presentations provide instruction in the commonly accepted arts, sciences, and vocations.
The organization will not be considered for exemption under this provision if the systematic instruction or educational classes are incidental to some other facet of the organization's activities. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization.
Educational organizations include:
- Independent school districts,
- Public and private elementary and secondary schools,
- Texas institutions of higher education (public and private colleges, universities, junior colleges, and community colleges) as defined in Education Code Section 61.003 (out-of-state institutions of higher education were exempt from state hotel occupancy tax from September 1, 1959, through August 31, 1999, and from September 1, 2001, through September 30, 2003), and
- Regional education service centers are also educational organizations for hotel occupancy tax purposes.
The 76th Texas Legislature (1999) repealed the hotel occupancy tax exemption for non-Texas institutions of higher education. Two years later in a bill intended to make no substantive revisions to the statutes, the word "Texas" was omitted in the definition and out-of-state institutions of higher education were exempt, again. The 78th Legislature (2003) put “Texas” back into the definition and currently only Texas public and private universities, colleges, junior colleges, and community colleges are exempt.
Summary of exemption for non-Texas institutions of higher education (state hotel occupancy tax only):
- September 1, 1959 through August 31, 1999 - exempt
- September 1, 1999 through August 31, 2001 - not exempt
- September 1, 2001 through September 30, 2003 - exempt
- October 1, 2003 through present - not exempt
Some examples of organizations that do not meet the requirements for exemption under this definition are:
- Professional associations
- Business leagues
- Information resource groups
- Research organizations
- Support groups
- Home schools, and
- Organizations that merely disseminate information by distributing printed publications.
An organization that qualifies as an educational organization is a Girl Scout troop (at the troop level only). Representatives of individual troops may issue a hotel exemption certificate in the official name of the troop instead of paying the state hotel occupancy tax. To claim the exemption non-employees cannot use their own funds, but must pay with the organization's funds (check, credit card, or direct billing). The Girl Scout general council does not qualify for the exemption. (See STAR document 200210494L).
Additionally, each individual Camp Fire Boys and Girls club under the national organization is further recognized as an educational organization and entitled to an exemption from the state portion of the hotel occupancy tax. This exemption only applies to the individual boys and girls clubs and does not extend to the national organization or any other subordinate organizations. (STAR document 200109470L).
Police officers employed by Texas institutions of higher education (while traveling on official business) are exempt from state hotel occupancy tax, but must pay any local hotel taxes imposed. For officers from non-Texas institutions of higher education, see summary of exemption for non-Texas institutions of higher education above.
A religious nonprofit organization that is an organized group of people regularly meeting for the primary purpose of holding, conducting and sponsoring religious worship services, according to the rights of their sect, may qualify for exemption. The organization must be able to provide evidence of an established congregation showing that there is an organized group of people regularly attending these services. An organization that supports and encourages religion as an incidental part of its overall purpose, or one whose general purpose is furthering religious work or instilling its membership with a religious understanding, will not qualify for exemption under this provision. No part of the net earnings of the organization may inure to the benefit of any private party or individual other than as reasonable compensation for services rendered to the organization.
Examples of organizations which do not meet the requirements for exemption under this definition are:
- Conventions or associations of churches
- Evangelistic associations
- Churches with membership consisting of family members only
- Missionary organizations and groups who meet for the purpose of holding prayer meetings, bible study or revivals.
Missionary organizations, bible study groups, or churches that are made up of only family members do not qualify.
The State Comptroller's office may be contacted to determine the exempt status of an organization.
Exempt from state tax only:
Employees and representatives of nonprofit religious organizations are exempt from the state hotel occupancy tax when traveling on official business of the organization. The exemption does not include local hotel taxes; therefore, the guest must pay local tax on the hotel charges.
NOTE: An exempt organization that operates a hotel will not be exempt from the collection and reporting of Hotel Occupancy tax.
For more information on qualifying and applying for a letter of exemption, visit the Comptroller's "Exempt Organizations" website or contact the Comptroller's office toll free at (800) 252-1385.
Out-of-state organizations are required to apply with the Comptroller's office for tax exemption in the same manner as in-state organizations. Charitable and religious tax-exempt organizations should have a letter from the Comptroller's office granting the exemption.
Specific Non-Profit Entities
Some non-profit entities are exempt by law other than the hotel occupancy tax statutes. The qualifying entity must have a letter of hotel tax exemption issued by the Comptroller's office. Entity employees traveling on official business are exempt from state and local hotel occupancy taxes.
Examples include certain non-profit electric cooperatives, non-profit telephone cooperatives, non-profit housing authorities, housing finance corporations, public facility corporations, health facilities development corporations, and cultural education facilities finance corporations.
The reason for exemption should be written on the exemption certificate. For example, "exempt per Electric Cooperative Act, Utilities Code, Chapter 161" or "exempt per Telephone Cooperative Act, utilities Code, Chapter 162."
Some Rentals by Private Clubs
Private clubs are exempt from the collection of Hotel Occupancy tax on room rentals to their members only. These organizations must collect and report the tax on all room rentals to non-members. A private club includes:
- The YMCA
- The YWCA
- Country clubs
- Private resorts
(Refer to Hotel Occupancy Tax Rule 3.161)
Hotel occupancy taxes are not due on the rental of rooms by a private club to its members. Who occupies the room does not make the rental taxable, as long as the member directly pays the club for the room. Hotel taxes are due on room rentals to nonmembers. Incidentally, if only members are able to rent rooms, then the rental charge is a special privilege of membership and sales taxes are due on the charge. But when rooms are also available for rent by the public, then the rental to club members is no longer a special privilege and not subject to either sales or hotel taxes.
Dormitories and other housing facilities owned or leased and operated by institutions of higher education as defined in subsection (a) (2) of Rule 3.161 and used to provide sleeping accommodations for persons engaged in educational programs or activities at the institutions are excluded from the definition of a hotel in Tax Code, Section 156.001, and their rentals are not subject to tax.
Effective October 1, 1995, hotels owned or leased and operated by institutions of higher education are not excluded and their rentals are subject to tax.
Exemption Certificates and Good Faith Acceptance
Anyone claiming an exemption must provide the hotel with a completed Texas Hotel Occupancy Tax Exemption Certificate (form 12-302). The certificate can be found online at the Comptroller's "Window on State Government" website or by calling toll free at (800) 252-1385.
Representatives claiming an exemption must either be employees of the organization or must pay the hotel charges with the organization's funds (organization's check, credit card, or direct billing to the organization). One exemption certificate can be used to claim exemption for more than one room. The most common organizations and individuals that qualify for hotel tax exemption are described in publication 96-224 (Hotel Occupancy Tax Exemptions) which is available on the Comptroller's website.
The exemption certificate should include the following information:
- The name of the hotel
- The reason the occupant is claiming the exemption
- The date (day, month and year)
- The name of the exempt organization
- The complete address of the exempt organization
- The signature of a representative of the exempt organization
- A check off for the type of exemption claimed
Certain entities may be issued identification numbers for administrative purposes, but a tax number does not guarantee that an organization is exempt. An organization does not have to provide an identification number on the certificate.
Effective October 1, 2003, hotels may accept exemption certificates in good faith when presented with the following supporting documentation:
- Federal employees traveling on government business - a valid government identification card;
- Designated Texas state employees - a special hotel tax exemption photo ID or card that states that holder is exempt from hotel occupancy taxes
- Foreign diplomats - a tax exemption card issued by the U.S. Department of State that exempts diplomat or mission from hotel occupancy tax, unless the card specifically excludes hotel occupancy tax
- Employees and representatives of a specific nonprofit entity or nonprofit charitable, educational, or religious organization traveling on organization business - a Comptroller's letter of hotel occupancy tax exemption or verification that the organization is on the Comptroller's list of exempted entities, such as a printed copy of the Comptroller's website listing the organization as exempt for hotel occupancy tax.
The list of of organizations that have received a letter of hotel occupancy tax exemption is found on the Comptroller's website.
There are no resale provisions allowed in the Hotel Occupancy Tax Law. Therefore resale certificates are not acceptable as a substitute for the tax due. Persons who resell hotel rooms and agents who obtain rooms on behalf of another must pay tax to the hotel.
Some hotel rooms may be exempt from state tax only or exempt from both state and local taxes. The audit conducted by the Comptroller of Public Accounts will not encompass adjustments for local taxes that may have been overpaid or that may be due.
Exempt from state tax only:
- Employees and representatives of nonprofit religious, charitable, and educational organizations are exempt from the state hotel tax when traveling on official business of the organization. The exemption does not include local hotel taxes; therefore, the guest must pay local tax on the hotel charges. State college and university personnel must pay the local tax to the hotel.
Exempt from city, county, and sports and community venue taxes:
- Federal employees, foreign diplomatic personnel, and certain Texas state employees who have been issued a Photo ID card (as described above).
Not exempt from either state or local taxes:
- Local government personnel must pay all hotel occupancy taxes.
The Texas Sales and Use Tax Exemption Certificate, form 01-339 (back), only applies to state and local sales taxes, not hotel occupancy taxes. Organizations that provide only sales tax exemption certificates must pay any hotel occupancy taxes imposed. Organizations that are exempt for both sales and hotel taxes must provide both certificates. Copies of these certificates are available on the Comptroller's Website.
A person traveling on behalf of an organization that is exempt from sales tax such as a church, school, or government agency, must pay sales taxes on all taxable purchases, even if the person is reimbursed by the organization on a per diem basis or for actual expenses. If the employee is directly paying for the bill, and not the organization, the employee must pay sales taxes on all taxable purchases (e.g., meals). See Rule 3.322(f) (6).
Taxes are not collected on sales of gift certificates. Instead, taxes are collected when the certificates are redeemed. The type of tax is determined by what is purchased with the certificate.
For example, when a gift certificate is redeemed for a meal at the restaurant, sales taxes are assessed on the amount of the meal. When the certificate is redeemed for a night's stay at the hotel, hotel occupancy taxes are charged on the amount of the room.
Gift certificates donated by the hotel are treated as coupons or discounts and no taxes are collected on the face value of donated certificates when redeemed. (No money changed hands.) Therefore, a hotel may not impose state or local hotel taxes when a room is given free of charge by the hotel.
For example, a promotion where guests pay for six days and receive the seventh day free - the seventh day is not subject to hotel tax.
A request for refund of hotel taxes erroneously paid should be made to the hotel that collected the tax.
Guests receiving certificates for free night stays may be required to pay hotel occupancy taxes, depending on the certificate. For example, a travel club furnishes certificates to members redeemable for one night lodging at selected hotels. When redeemed, the certificate represents money or a medium of exchange paid to the hotel (i.e., consideration). The travel club may declare on the certificate that taxes are the responsibility of the person using the certificate.
Rewards Points Redemption Programs
A "reward points" redemption program is a marketing program where members earn reward points for stays at participating hotels. Points can be exchanged for a free room or an upgrade. When a member stays at a participating hotel, the hotel pays a percentage of the room cost to a central rewards fund. When a member redeems points, the hotel is reimbursed or credited by the rewards fund for a predetermined cost of the free room or upgrade.
Reward points redemption programs may or may not be subject to hotel occupancy tax, depending on the specifics of the program. Tax is due when the hotel receives consideration of at least $15 per day for a room, unless an exemption applies. Prior to October 1, 2003, state tax was due on a room costing at least $2 per day; local taxes still apply to sleeping rooms costing $2 or more per day.
To be taxable, reimbursements or credits from the awards fund to a specific hotel must be withdrawn from that specific hotel's previous contributions to the fund. Hotel records must show that the hotel had contributed a sufficient amount to cover a specific month's reimbursement to the rewards fund, as well as administrative charges, prior to receiving payment or credit from the fund.
When a specific hotel is reimbursed or credited by contributions previously paid by that hotel to the rewards fund that hotel is, in effect, paying itself for the redeemed rooms and upgrades. There is no consideration and, thus, no tax is due.
If a hotel, however, has not previously contributed to the rewards fund an amount that covers a reimbursement or credit, including administrative charges, then there is consideration and tax is due.
Maintained by the Audit Division