Can a Texas city use its hotel occupancy tax to help pay the operating budget for a public beach and its recreation facilities?

Texas AG Opinion JM-965: Hotel Tax Cannot Fund General Recreation

Plain-English summary

A hotel occupancy tax is money a city collects from people who rent hotel and motel rooms, and Texas law is picky about how a city may spend it. The city of Rockport wanted to put part of that money toward the operating budget for recreational facilities at Rockport Beach. Its county attorney asked the Attorney General whether that was allowed, and the answer was no.

The reason is that the Tax Code gives cities a closed list of things the hotel tax can pay for. Section 351.101 names five categories: building and running convention center facilities; registering convention delegates; advertising and promotion to bring in conventions and tourists; supporting the arts; and historical restoration or preservation projects near convention facilities or at spots tourists would visit. General recreational facilities, the kind a city runs for the everyday enjoyment of residents and visitors, are not on the list. Because the information Rockport supplied pointed to general recreation rather than any of the listed uses, the tax could not cover them.

Rockport had a clever counterargument. The statute also says the legislature intends this tax to be spent in a way that promotes tourism and the convention and hotel industry. If promoting tourism is the point, the argument went, then anything that draws tourists, including a nice beach with good facilities, should qualify. The Attorney General rejected that reading. The tourism-promotion language does not add a sixth, catch-all category. It works the other way: it limits the five listed purposes by requiring that when the tax is spent on one of them, the spending must actually promote tourism and the hotel and convention business. It is a condition on the listed uses, not a license for new ones.

A 1987 legislative change reinforced this. When the legislature reorganized these tax statutes into the Tax Code, a separate bill (Chapter 1125) amended the old law to state plainly that hotel tax revenue may not be used for general revenue or general governmental operations, and that promoting tourism is not a separate category of permitted spending but a limit on the enumerated ones. Even though that amendment touched a statute the recodification had repealed, Government Code section 311.031(c) preserves an amendment made by the same legislature that passed the code, so it was given effect.

The opinion closed two side doors. First, on bonds: a city can pledge hotel tax money to repay revenue bonds, but only bonds issued for one of the section 351.101 purposes. The bond statute is not a way to expand what the tax can fund. Second, on a coastal exception: the Tax Code lets certain Gulf-coast cities use part of a hotel tax for recreation facilities that attract visitors, but that exception is reserved for a home-rule city that borders the Gulf of Mexico and has fewer than 80,000 residents. Rockport told the Attorney General it does not adjoin a Gulf of Mexico beach, so the opinion did not have to decide whether that exception would have helped.

Currency note

This opinion was issued in 1988. 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 municipal hotel occupancy tax statutes have been amended many times since 1988, and the list of permitted uses in the Tax Code is broader today than the five categories described here. The legislature has added authorized uses over the years (for example, sporting-event and other specialized categories for particular cities), and the population thresholds and special provisions for coastal and other municipalities have changed. Anyone deciding today what a Texas city may spend hotel occupancy tax on should read the current municipal hotel occupancy tax provisions of the Tax Code and any local provisions that apply to that specific city, rather than relying on the section numbers and limits as they stood in 1988.

Who this opinion affected (as of 1988)

Texas cities levying a hotel occupancy tax: The opinion confirmed the tax was restricted to the purposes listed in section 351.101 and could not be diverted to run ordinary recreational facilities.

City budget officers and councils: The opinion warned that the legislature's tourism-promotion language was a limit on the enumerated uses, not an open-ended justification for new spending.

Coastal cities: The opinion pointed to the narrow section 351.105 exception for qualifying Gulf-coast municipalities, while noting Rockport did not meet its terms.

Common questions

Could Rockport use hotel tax money to run its beach recreation facilities?
No. In this opinion the Attorney General concluded that general recreational facilities were not among the exclusive purposes listed in section 351.101 of the Tax Code, so the hotel tax could not pay their operating costs.

Doesn't the law say the tax should promote tourism?
Yes, but the Attorney General read that language as a limit rather than a separate spending category. When the tax pays for a listed purpose, the spending must promote tourism and the hotel and convention industry; the tourism goal does not by itself authorize new uses.

Can hotel tax revenue be used to pay off city bonds?
Only for bonds issued under article 1269j-4.1, V.T.C.S., for a purpose listed in section 351.101. The bond provision (section 351.102(a)) does not expand the purposes the tax may fund.

Was there any exception for coastal cities?
Yes. Section 351.105 lets an eligible coastal municipality (a home-rule city bordering the Gulf of Mexico with a population under 80,000) that levies at least a seven percent hotel tax use part of it for certain visitor-attracting recreation facilities. The opinion did not apply it because Rockport stated it does not adjoin a Gulf of Mexico beach.

Background and statutory framework

Section 351.002 of the Tax Code authorizes municipalities to impose a tax on the use or possession of a hotel room, with related definitions in sections 351.001(5) and 156.001. Section 351.101 sets out the permitted uses of the revenue. Subsection (a) lists five categories: (1) acquisition of sites for and the construction, improvement, enlarging, equipping, repairing, operation, and maintenance of convention center facilities; (2) furnishing facilities, personnel, and materials for the registration of convention delegates or registrants; (3) advertising and general promotional and tourist advertising of the municipality and conducting a solicitation and operating a program to attract conventions and visitors; (4) the encouragement, promotion, improvement, and application of the arts; and (5) historical restoration and preservation projects or activities at or near convention center facilities or that would be frequented by tourists and visitors. Subsection (b) states the legislature's intent that revenues be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry.

The opinion concluded that the facilities described at Rockport Beach were used for general recreation rather than any purpose in subsection (a). It rejected the argument that subsection (b) added to the permitted purposes, holding instead that subsection (b) limits subsection (a) by requiring that money spent on a listed purpose be spent in a manner that promotes tourism and the convention and hotel industry.

The language of section 351.101 was adopted by the 70th Legislature as part of a nonsubstantive revision of statutes relating to local taxation (Acts 1987, 70th Leg., ch. 191), recodifying former section 3c of article 1269j-4.1, V.T.C.S. A separate bill, Chapter 1125 (Acts 1987, 70th Leg.), amended subsection (a) of section 3c of article 1269j-4.1 to provide that revenue "may only be used to promote tourism and the convention and hotel industry" with use "limited to the following," and amended subsection (c) to provide that such revenue "shall not be used for the general revenue purposes or general governmental operations." Because the repeal of a statute as part of a recodification does not affect an amendment of the statute by the same legislature that enacted the code, Government Code section 311.031(c) preserved and gave effect to Chapter 1125. The opinion read Chapter 1125 as clarifying rather than changing existing law, so that the promotion of tourism is not a separate, general category for which cities may use the hotel tax; rather, when the tax is used for a purpose listed in section 351.101, that use must also have the effect of promoting tourism and the hotel and convention industry.

On bonds, section 351.102(a) allows a municipality to pledge hotel tax revenue for the payment of bonds issued under article 1269j-4.1, V.T.C.S., only for one or more of the purposes provided by section 351.101. The opinion explained that this does not expand the purposes for which the tax may be used; it merely allows the tax to pay bonds that were issued for section 351.101 purposes, as well as direct expenditures for those purposes.

Finally, the opinion noted that section 351.105 permits an "eligible coastal municipality" that levies a hotel tax of at least seven percent to use a portion of the tax for certain recreation facilities that serve the purpose of attracting visitors and tourists. An eligible coastal municipality is a home-rule municipality that borders on the Gulf of Mexico and has a population of less than 80,000 (Tax Code section 351.001(4)). Because Rockport stated it does not adjoin a Gulf of Mexico beach, the opinion did not consider whether section 351.105 would permit the use of the tax for the facilities in question.

Citations

Statutory authority:

• Section 351.101, Tax Code (exclusive purposes for which the municipal hotel occupancy tax may be used)
• Section 351.102, Tax Code (pledge of hotel tax revenue to pay bonds issued for section 351.101 purposes)
• Section 351.105, Tax Code (eligible coastal municipality exception for certain recreation facilities)
• Section 351.001, Tax Code (definitions, including eligible coastal municipality)
• Section 311.031, Government Code (effect of recodification on an amendment by the same legislature)
• Article 1269j-4.1, V.T.C.S. (city revenue bonds for public improvements)

Cases: none cited.

Prior Attorney General opinions referenced: JM-690 (1987).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-965
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0965.pdf

Original opinion text

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

October 18, 1988

Honorable James L. Anderson, Jr.
Aransas County Attorney
Aransas County Courthouse
301 N. Live Oak
Rockport, Texas 78382

Opinion No. JM-965

Re: Whether a municipality may utilize a portion of the hotel-motel tax for supplementing the operations budget for certain recreational facilities and related questions (RQ-1438)

Dear Mr. Anderson:

You ask whether the city of Rockport may use a portion of its hotel tax for supplementing the operations budget for city recreational facilities at Rockport Beach.

Section 351.002 of the Tax Code authorizes municipalities to impose a tax on the use or possession of a hotel room. See Tax Code sections 351.001(5); 156.001 (defining "hotel" for purposes of section 351.002). Section 351.101 of the Tax Code provides:

(a) Revenue from the municipal hotel occupancy tax may be used only for:

(1) the acquisition of sites for and the construction, improvement, enlarging, equipping, repairing, operation, and maintenance of convention center facilities;

(2) the furnishing of facilities, personnel, and materials for the registration of convention delegates or registrants;

(3) advertising for general promotional and tourist advertising of the municipality and its vicinity and conducting a solicitation and operating a program to attract conventions and visitors either by the municipality or through contracts with persons or organizations selected by the municipality;

(4) the encouragement, promotion, improvement, and application of the arts, including instrumental and vocal music, dance, drama, folk art, creative writing, architecture, design and allied fields, painting, sculpture, photography, graphic and craft arts, motion pictures, radio, television, tape and sound recording, and other arts related to the presentation, performance, execution, and exhibition of these major art forms; and

(5) historical restoration and preservation projects or activities:

(A) at or in the immediate vicinity of convention center facilities; or

(B) that would be frequented by tourists and visitors to the municipality.

(b) It is the intent of the legislature that revenues derived from the tax authorized by this chapter are to be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry.

Although you do not describe in detail the facilities at Rockport Beach or their operation, the information you provide suggests that the facilities are used for general recreation rather than for any of the purposes set out in section (a) of article 351.101.

It has been suggested that subdivision (b) of article 351.101, which provides that it is the intent of the legislature that the hotel tax be used to promote tourism and the convention and hotel industry, adds to the purposes for which the hotel tax may be used. We conclude, however, that section (b) does not add to section (a). Rather, it limits it by providing that when money is spent for one of the purposes listed in subsection (a), it should be done so in a manner that promotes tourism and the convention and hotel industry.

The language of section 351.101 set out in the text of this opinion was adopted by the 70th Legislature as part of a nonsubstantive revision of statutes relating to local taxation. Acts 1987, 70th Leg., ch. 191, p. 1410 (hereinafter "Chapter 191"). Section 351.101 was a recodification of former section 3c of article 1269j-4.1, V.T.C.S.

Another bill adopted by the 70th Legislature purported to amend subsection (a) of section 3c of article 1269j-4.1, which Chapter 191 expressly repealed. Acts 1987, 70th Leg., ch. 1125, p. 3856 (hereinafter "Chapter 1125"). That bill purported to amend subsection (a) of section 3c of article 1269j-4.1 to provide that "[t]he revenue derived from any occupancy tax authorized or validated by this Act may only be used to promote tourism and the convention and hotel industry, and such use is limited to the following," followed by a list of purposes substantially the same as those now in section 351.101.

Chapter 1125 amended subsection (c) of section 3c to provide: "Revenue . . . derived from the tax authorized by this Act is to be expended solely in a manner directly enhancing and promoting tourism and the convention and hotel industry as permitted in Subsection (a) of this section. Such revenue shall not be used for the general revenue purposes or general governmental operations . . . ."

The repeal of a statute as part of a recodification does not affect an amendment of the statute by the same legislature that enacted the code. The amendment is preserved and given effect as part of the code provision. Gov't Code section 311.031(c). Therefore, the substance of Chapter 1125 is to be given effect. We think that Chapter 1125 was intended to clarify, rather than change, the existing law, in regard to the purposes for which the city hotel tax may be spent. See Bill Analysis, S.B. No. 1532, 70th Leg. (prepared for House Committee on Ways and Means); see also Attorney General Opinion JM-690 (1987). In any case, no matter how the prior law was interpreted, Chapter 1125 provides unequivocally that the promotion of tourism and the convention and hotel industry is not a separate, general category for which cities may use the hotel tax. Rather, the law requires that when a hotel tax is used for one of the purposes set out in section (a) of article 351.101, it must also have the effect of promoting tourism and the hotel and convention industry.

You also ask whether the hotel tax may be used to reduce the debt on bonds issued under article 1269j-4.1, V.T.C.S. Article 1269j-4.1 authorizes cities to issue revenue bonds for the "establishment, acquisition, purchase, construction, improvement, enlargement, equipment or repair" of a variety of public improvements. Section 351.102(a) of the Tax Code provides:

Subject to the limitations provided by this subchapter, a municipality may pledge the revenue derived from the tax imposed under this chapter [the hotel tax] for the payment of bonds that are issued under Section 3, Chapter 63, Acts of the 59th Legislature, Regular Session, 1965 (Article 1269j-4.1, Vernon's Texas Civil Statutes), for one or more of the purposes provided by Section 351.101. (Emphasis added.)

That provision allows the hotel tax to be used for payment of bonds issued under article 1269j-4.1 only if the bonds were issued for one of the purposes set out in section 351.101 of the Tax Code. In other words, section 351.102(a) does not expand the purposes for which the hotel tax may be used. Rather, it merely provides that the tax may be used for payment of bonds that were issued for purposes listed in section 351.101 as well as for direct expenditures for purposes listed in section 351.101.

We do note that section 351.105 does permit an "eligible coastal municipality" that levies a hotel tax of at least seven percent to use a portion of the tax for certain recreation facilities that "serve the purpose of attracting visitors and tourists to the municipality." An eligible coastal municipality is "a home-rule municipality that borders on the Gulf of Mexico and has a population of less than 80,000." Tax Code section 351.001(4). Because you state that Rockport "does not adjoin a Gulf of Mexico beach," we need not consider whether section 351.105 would permit the use of the tax for operation of the type of facilities you ask about.

SUMMARY

Section 351.101 of the Tax Code sets out the exclusive purposes for which the municipal hotel tax may be used. The tax may not be used for the operation of general recreational facilities.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Sarah Woelk
Assistant Attorney General