If a small Texas city already taxes hotels in its ETJ, does a new county hotel tax force the city to drop its tax over the 15% cap?

TX AG Opinion GA-0408: Does a later county hotel tax knock out a city's ETJ tax over the 15% cap?

Plain-English summary

The Somervell County Attorney asked a question about overlapping hotel occupancy taxes. The City of Glen Rose, which has fewer than 35,000 people, adopted a 7 percent municipal hotel occupancy tax in 1996 and also imposed it on three hotels in its extraterritorial jurisdiction (the area just outside the city limits). In 2005, Somervell County adopted its own 7 percent county hotel tax. Add the state's 6 percent, and the combined rate in the ETJ would reach 20 percent, well over the 15 percent ceiling in Tax Code section 351.0025(b). The county attorney wanted to know who had priority, the city or the county, and whether the city had to back off.

The opinion reframed the question. Section 351.0025(b) limits cities, not counties, so there is no priority contest between them. The real question was whether section 351.0025(b) is an absolute cap that forces Glen Rose to stop collecting once the combined rate tops 15 percent, or only a bar against a city adopting a tax that itself causes the combined rate to exceed 15 percent.

The opinion held it is the latter, and the deciding words are "as a result of the adoption." If those words were missing, the statute would be a flat cap regardless of timing. By including them, the legislature made the city's own act of adopting the tax the trigger. The cap applies only when a city's adoption directly and immediately drives the combined rate over 15 percent. When Glen Rose adopted its tax in 1996, the combined rate was under 15 percent; it only crossed the line later when the county acted. So the city's adoption did not cause the excess.

The opinion reinforced this by pointing to other Tax Code provisions where the legislature clearly made one subdivision's taxing authority yield to another's later action, including a provision that strips a county tax in a city's ETJ once the city adopts its own ETJ tax, and an automatic sales-tax reduction provision. Because the legislature knew how to write that kind of yield-to-later-action rule and did not do so in section 351.0025(b), the opinion concluded a city that already imposed its ETJ tax does not lose it when a county's later tax pushes the combined rate past 15 percent. Glen Rose could keep its tax, and the AG did not need to reach the follow-up question about reducing the rate.

Currency note

This opinion was issued in 2006. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The hotel occupancy tax provisions in Tax Code chapters 351 and 352 have been amended many times since 2006, including the county-authorization and ETJ provisions discussed here. Anyone working through a combined-rate question today should check the current statutes and the specific county authorization rather than rely on this opinion.

Who this opinion affected (as of 2006)

Small cities (under 35,000) with ETJ hotel taxes: The opinion told them that an ETJ hotel tax already in place did not have to be repealed just because a county later adopted a tax that pushed the combined rate over 15 percent.

Counties adopting hotel occupancy taxes: It clarified that section 351.0025(b) constrains cities, not counties, but it also flagged separate provisions under which a county's tax may not reach hotels in a city's ETJ once the city taxes there.

Hotels in a city's extraterritorial jurisdiction: It meant their existing city hotel tax stayed in place, and the interplay with a new county tax depended on the specific statutory provisions governing that county's authority.

Common questions

Does the 15% cap force a city to drop its hotel tax when a county adds one?
No. The opinion concluded the cap applies only when the city's own adoption of the tax causes the combined rate to exceed 15 percent, not when a later county tax does.

Who has priority, the city or the county?
The opinion said that is the wrong framing. Section 351.0025(b) limits cities, not counties, so there is no priority contest; the city simply does not lose a tax it lawfully adopted earlier.

Why does the phrase "as a result of the adoption" matter so much?
Because, the opinion explained, those words make the city's act of adopting the tax the trigger. Without them the cap would be absolute; with them it applies only when the city's adoption directly causes the excess.

Could the legislature have made the city's tax yield to the county's later tax?
Yes. The opinion noted other Tax Code sections do exactly that, so the legislature knew how, and its choice not to do so in section 351.0025(b) was meaningful.

Background and statutory framework

The state imposes a 6 percent hotel occupancy tax (Tex. Tax Code Ann. §§ 156.051, .052 (Vernon 2002 & Supp. 2005)). Certain counties may impose a county hotel tax generally capped at 7 percent (id. §§ 352.002, .003(a) (Vernon Supp. 2005)), and Somervell County's authority arose under section 352.002(a)(9), subject to a provision that a tax authorized by that subsection does not apply to a hotel in a city that taxes the hotel under chapter 351 (id. § 352.002(a)(9), (d)). Municipalities may impose a hotel tax generally capped at 7 percent (id. §§ 351.002, .003 (Vernon 2002)), and a city under 35,000 may impose it in its ETJ, but "may not impose a tax under this section if as a result of the adoption" the combined state, county, and municipal rate in the ETJ exceeds 15 percent (id. § 351.0025(a)-(b)).

Construing the statute by its plain language (Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864 (Tex. 1999)), and reading "impose" in its ordinary sense (Tex. Gov't Code Ann. § 311.011(a) (Vernon 2005)), the opinion found the phrase "as a result of the adoption" makes the city's adoption the trigger. To avoid rendering that phrase superfluous, the opinion applied the canon that effect must be given to every word (City of San Antonio v. City of Boerne, 111 S.W.3d 22 (Tex. 2003), quoting Spence v. Fenchler, 180 S.W. 597 (Tex. 1915)), and concluded section 351.0025(b) does not apply where the combined rate was under 15 percent when the city adopted its tax. It contrasted provisions where the legislature expressly subordinated one subdivision's tax to another's later action, including the rule stripping a county tax in a city's ETJ once the city adopts an ETJ tax, and an automatic sales-and-use-tax reduction (Tex. Tax Code Ann. §§ 352.002(e), 321.102(e) (Vernon 2002 & Supp. 2005)). Because the legislature did not write such a rule into section 351.0025(b), the opinion concluded the city keeps its tax.

Citations

Statutes:

• Tex. Tax Code Ann. §§ 156.051, .052, 351.002, .003, 351.0025(a)-(b), 352.002, .003(a), 352.002(a)(9), (d), (e), 321.102(e) (Vernon 2002 & Supp. 2005)
• Tex. Gov't Code Ann. § 311.011(a) (Vernon 2005)

Cases:

• Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864 (Tex. 1999)
• City of San Antonio v. City of Boerne, 111 S.W.3d 22 (Tex. 2003)
• Spence v. Fenchler, 180 S.W. 597 (Tex. 1915)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0408
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2006/ga0408.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain - the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

March 2, 2006

The Honorable Ronald D. Hankins
Somervell County Attorney
Post Office Box 1335
Glen Rose, Texas 76043

Opinion No. GA-0408

Re: Authority of a municipality with a population of fewer than 35,000 to impose a hotel occupancy tax in its extraterritorial jurisdiction when the combined rate of state, county, and municipal hotel occupancy taxes would exceed 15 percent (RQ-0390-GA)

Dear Mr. Hankins:

You ask about the authority of a municipality with a population of fewer than 35,000 to impose a hotel occupancy tax in its extraterritorial jurisdiction when the combined rate of state, county, and municipal taxes would exceed 15 percent.[1]

The state imposes a hotel occupancy tax at the rate of 6 percent of the price paid for a hotel room. See TEX. TAX CODE ANN. §§ 156.051, .052 (Vernon 2002 & Supp. 2005). Section 352.002 of the Tax Code authorizes various counties having certain characteristics to impose a hotel occupancy tax at a rate that generally may not exceed 7 percent. Id. §§ 352.002, .003(a) (Vernon Supp. 2005). Section 351.002 of the Tax Code authorizes municipalities to impose a hotel occupancy tax at a rate that generally may not exceed 7 percent. Id. §§ 351.002, .003 (Vernon 2002). A municipality with a population of fewer than 35,000 may impose the tax in its extraterritorial jurisdiction. Id. § 351.0025(a). However, such a "municipality may not impose a tax [in its extraterritorial jurisdiction] if as a result of the adoption the combined rate of state, county, and municipal hotel occupancy taxes in the extraterritorial jurisdiction exceeds 15 percent of the price paid for a room in a hotel." Id. § 351.0025(b).

You inform us that the City of Glen Rose ("Glen Rose") in Somervell County adopted by ordinance of October 1, 1996, a municipal hotel occupancy tax at the rate of 7 percent that it also imposes in its extraterritorial jurisdiction under section 351.0025(a). See Request Letter, supra note 1, at 1. You state that Glen Rose currently collects taxes from three hotels in its extraterritorial jurisdiction. Id. You also inform us that Somervell County is authorized to impose a tax under section 352.002(a)(9). See id.; see also TEX. TAX CODE ANN. § 352.002(a)(9) (Vernon Supp. 2005). You advise us that, in 2005, the Somervell County Commissioners Court passed an order imposing a tax at the rate of 7 percent for all hotels in the county. See Request Letter, supra note 1, at 2. Because of recent legislation, the tax may not be imposed at hotels within Glen Rose. See TEX. TAX CODE ANN. § 352.002(d) (Vernon Supp. 2005) (providing that the tax imposed by a county authorized by subsection (a)(9) "does not apply to a hotel located in a municipality that imposes a tax under Chapter 351 applicable to the hotel"). Your question is about exercising taxing authority in Glen Rose's extraterritorial jurisdiction. As you note, the tax rates of the state (6 percent), the county (7 percent), and the city (7 percent) when combined would exceed 15 percent. See Request Letter, supra note 1, at 2. Section 351.0025(b) clearly prohibits a municipality from adopting an ordinance imposing a municipal hotel occupancy tax at a rate that when combined with existing state and county taxes would exceed 15 percent. See TEX. TAX CODE ANN. § 351.0025(b) (Vernon 2002). You ask, however, whether the county or the municipality has priority under section 351.0025(b) when the municipality adopted its tax prior to the county's adoption of its tax. See Request Letter, supra note 1, at 2. If the county has priority, you ask whether the municipality may adopt a tax at a rate so that the combined rate does not exceed 15 percent under section 351.0025(b). See id.

We are to construe section 351.0025, if possible, according to its plain language. See Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865-66 (Tex. 1999). The section provides as follows:

(a) A municipality with a population of less than 35,000 by ordinance may impose the tax authorized under Section 351.002 in the municipality's extraterritorial jurisdiction.

(b) The municipality may not impose a tax under this section if as a result of the adoption the combined rate of state, county, and municipal hotel occupancy taxes in the extraterritorial jurisdiction exceeds 15 percent of the price paid for a room in a hotel.

TEX. TAX CODE ANN. § 351.0025(a)-(b) (Vernon 2002). Section 351.0025(b) plainly limits the authority of municipalities, not counties, to impose a hotel occupancy tax in the municipality's extraterritorial jurisdiction. Id. § 351.0025(b). Thus, it is not a question of priority between the municipality and the county. The pertinent inquiry is whether section 351.0025(b) is construed either (1) as an absolute cap requiring Glen Rose to cease imposing the tax in its extraterritorial jurisdiction at the 7 percent rate or (2) as a prohibition only against imposing a new tax or a new rate that results in a combined rate exceeding 15 percent.

Section 351.0025(b) limits a municipality's authority to "impose" a tax under certain circumstances. See id. The common meaning of the word "impose," in the context of imposing a tax, is "to establish or apply by authority." See MERRIAM WEBSTER'S COLLEGIATE DICTIONARY 583 (10th ed. 1993); see also TEX. GOV'T CODE ANN. § 311.011(a) (Vernon 2005) (general rule of statutory construction to give words their ordinary meaning). Consequently, under section 351.0025(b), "impose" could refer either to establishing a tax, applying the tax, or both.

The statute clarifies that the intended meaning of "impose" is to establish a tax. The key phrase is "as a result of the adoption." TEX. TAX CODE ANN. § 351.0025(b) (Vernon 2002). Had that phrase been omitted, then section 351.0025(b) would operate as an absolute cap limiting the municipality's authority to impose a tax regardless of when the county adopted its tax ("The municipality may not impose a tax under this section if . . . the combined rate of state, county, and municipal hotel occupancy taxes in the extraterritorial jurisdiction exceeds 15 percent . . . ."). But by including the phrase "if as a result of the adoption," section 351.0025(b) makes the act of adopting a tax a condition to the subsection's application. Id. Under section 351.0025(a), a municipality imposes a tax by adopting an ordinance. See id. § 351.0025(a). Section 351.0025(b) suggests that it applies only when a municipality's adoption of a tax ordinance directly and immediately causes the combined rate to exceed 15 percent. Here, the combined rate did not exceed the maximum when the municipality adopted its tax. The combined rate did not exceed 15 percent until the county adopted its tax.

Of course, in a broader sense, the excess combined rate under section 351.0025(b) was a "result" of a municipality's adoption of a tax even though the municipality adopted its tax years before the county adopted its tax. But that will always be the case. "[W]hen possible to do so, effect must be given to every sentence, clause, and word of a statute so that no part thereof be rendered superfluous or inoperative." City of San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003) (quoting Spence v. Fenchler, 180 S.W. 597, 601 (Tex. 1915)). If the phrase "as a result of the adoption" means only that the statute applies when a municipality's tax is one of the causes of a combined rate in excess of 15 percent, then the phrase attaches a meaningless condition. To give the phrase meaning that is not superfluous, we construe section 351.0025(b) as inapplicable if the combined rate of state, county, and municipal taxes did not exceed 15 percent at the time the municipality adopted its hotel occupancy tax.

Section 351.0025 contrasts markedly with the language the legislature has used when it intended the taxing authority of one political subdivision to be subject to the later action of another subdivision. For example, section 352.002(e) clearly provides that the specified county may have its authority to tax restricted due to the subsequent act of a municipality in the county:

[T]he tax imposed by a county authorized by Subsection (a)(17) to impose the tax does not apply to a hotel located in the extraterritorial jurisdiction of a municipality that imposes a tax under Chapter 351 applicable to that hotel. If, after the date the county begins to impose a tax under this chapter, a municipality in the county adopts an ordinance under Section 351.0025 authorizing the imposition of the municipal tax in the municipality's extraterritorial jurisdiction, the county may not impose a tax applicable to a hotel located in that territory on or after the date the municipality begins to impose that tax.

TEX. TAX CODE ANN. § 352.002(e) (Vernon Supp. 2005); see also id. § 321.102(e) (Vernon 2002) (providing for an automatic reduction of a local government entity's sales and use tax "[i]f as a result of the imposition" of a sales and use tax the combined tax rate in the area exceeds 2 percent). In section 351.0025(b), if the legislature had intended for a municipality's authority to tax to be restricted by later actions of the county, it could have said so. We conclude that a municipality that has exercised its authority to impose a hotel occupancy tax under section 351.0025(a) does not lose that authority when the county's later adoption of a county tax results in a combined state, county, and municipal tax rate that exceeds 15 percent. Accordingly, it is unnecessary to address your remaining question.

SUMMARY

Section 351.0025(b) of the Tax Code prohibits a municipality with a population of fewer than 35,000 from adopting and imposing a hotel occupancy tax in its extraterritorial jurisdiction when the combined rate of state, county, and municipal taxes would exceed 15 percent. The section does not, however, prohibit a municipality from imposing its tax if the combined rate did not exceed 15 percent when the municipality adopted its tax but exceeds that rate after the county adopts a county tax.

Very truly yours,

GREG ABBOTT
Attorney General of Texas

BARRY R. MCBEE
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee

Footnotes

1. See Letter from Honorable Ronald D. Hankins, Somervell County Attorney, to Honorable Greg Abbott, Attorney General of Texas (Aug. 23, 2005) (on file with the Opinion Committee, also available at http://www.oag.state.tx.us) [hereinafter Request Letter].