Can a Texas city spend hotel occupancy tax money on a visitor center owned by a chamber of commerce?

Plain-English summary

Texas cities can levy a hotel occupancy tax, the tax added to a hotel bill, and the money can only be spent on specific tourism-related uses set out in chapter 351 of the Tax Code. A district attorney asked the AG about a real dispute: the City of Big Lake spent roughly $65,000 to repair and improve the offices of the local chamber of commerce, on the theory that the chamber owns and operates the City's visitor information center, and that hotel tax money can pay for visitor information centers. The DA questioned both whether the law allows spending on a center the City does not own or lease, and whether funding a private membership organization that promotes its members' businesses fits the requirement that the money "promote tourism and the convention and hotel industry."

The AG started by declining to judge the specific $65,000 expenditure. Whether a particular hotel-tax expenditure is proper depends on fact questions, and the AG does not find facts in the opinion process. That call belongs to the City's governing body in the first instance, subject to review by a court. So the AG answered only the general legal questions.

On the ownership question, the AG read the statute against the DA's interpretation. Subsection 351.101(a)(1) lists a string of authorized actions, "the acquisition of sites for and the construction, improvement, enlarging, equipping, repairing, operation, and maintenance of convention center facilities or visitor information centers, or both," joined by "and." Read strictly, "and" would mean a city has to do every action on the list (acquire a site and construct and improve and repair, and so on) rather than just one, which would make a simple repair of an existing building impossible. The AG concluded the Legislature could not have meant that, so in this context "and" should be read as "or," letting a city perform any single listed action, including just a repair.

On whether the center has to be city-owned, the AG pointed to the definitions. A "visitor information center" is defined simply as "a building or a portion of a building used to distribute or disseminate information to tourists," with no ownership requirement. By contrast, the Legislature defined "convention center facilities" to require municipal ownership or management. Because the visitor-information-center definition omits any ownership condition, the AG concluded a court would likely hold that hotel tax money for visitor information centers is not limited to centers the city owns or leases. A chamber-owned center can qualify. (The AG flagged one thing it was not deciding: whether ownership or a long-term lease would be required if the city wanted to issue bonds backed by hotel taxes to build or make capital improvements to the center.)

That does not make any spending automatic. The AG stressed the limit in subsection 351.101(b): the money must be "expended in a manner directly enhancing and promoting tourism and the convention and hotel industry," and "directly" means with nothing in between. So a repair to a chamber-owned visitor center has to directly benefit the building, or the portion of it, actually used to give information to tourists. The AG also walked through the constitutional backdrop: article III, section 52(a) bars cities from giving public money as a gratuity to a private organization, but an expenditure for a legitimate public purpose with a clear public benefit is allowed if it meets a three-part test (public purpose, retained public control, and a return benefit), which is again for the governing body to apply.

Currency note

This opinion was issued in 2020. 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.

What the opinion meant for those who asked

For a city council weighing hotel-tax spending, the opinion described two doors that were open and one gate that stayed shut. The statute did not bar spending on a visitor information center merely because the city did not own it, and it did not require bundling every listed action together, so a stand-alone repair could qualify. But the spending still had to directly benefit the part of the building used to inform tourists, and a payment to a private chamber had to clear the constitutional public-purpose test, with the governing body making that call subject to court review. For the district attorney who raised the complaint, the opinion's significance was that the legal theory behind the City's expenditure was not facially invalid; whether the actual $65,000 outlay met the "directly enhancing" standard and the public-purpose test remained a fact question for the City and, if challenged, a court. The opinion neither blessed nor condemned the specific payment.

Common questions

Q: Can a Texas city use hotel occupancy tax money on a visitor center it does not own?
A: The AG concluded yes, generally. The statutory definition of "visitor information center" has no ownership requirement, so the funds are not limited to city-owned or city-leased centers.

Q: Does the city have to acquire a site and build a center to use this money?
A: No. Although the statute lists those actions joined by "and," the AG read "and" as "or," so a city can do any single listed action, such as repairing an existing building.

Q: Are there limits on what the repair money can do?
A: Yes. Under subsection 351.101(b), the spending must directly enhance and promote tourism and the convention and hotel industry, so a repair has to directly benefit the part of the building used to give information to tourists.

Q: Can a city just hand hotel-tax money to a private chamber of commerce?
A: Not as a gift. The Texas Constitution bars gratuitous grants of public money, but an expenditure for a legitimate public purpose is allowed if it meets a three-part test (public purpose, public control, and a return benefit), which the governing body must determine.

Q: Did the AG decide whether Big Lake's $65,000 expenditure was legal?
A: No. The AG said that depends on fact questions for the City's governing body to decide first, subject to judicial review.

Background and statutory framework

Chapter 351 of the Tax Code governs municipal hotel occupancy taxes (sections 351.001-.360). Section 351.002(a) authorizes the tax, and section 351.101(a) limits the revenue to promoting tourism and the convention and hotel industry through specifically listed uses. Subsection 351.101(a)(1) authorizes acquisition, construction, improvement, enlarging, equipping, repairing, operation, and maintenance of convention center facilities or visitor information centers. A "visitor information center" is "a building or a portion of a building used to distribute or disseminate information to tourists" (section 351.001(8)), a definition with no ownership requirement, in contrast to "convention center facilities," defined to require municipal ownership or management (section 351.001(2)). Subsection 351.101(b) additionally requires that the revenue "be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry." The AG read the "and" in subsection 351.101(a)(1) as "or" under State v. Gammill, 442 S.W.3d 538 (Tex. App.-Dallas 2014, pet. ref'd), and read "directly" per Tex. Att'y Gen. Op. No. KP-0131 (2017). On the public-money question, it applied Texas Constitution article III, section 52(a), the public-purpose principle of Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717 (Tex. 1995), and the three-part test of Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377 (Tex. 2002), noting under Tex. Att'y Gen. Op. Nos. GA-0542 (2007) and KP-0208 (2018) that the governing body makes the determination in the first instance, subject to judicial review.

Citations and references

Statutory provisions:

• Tex. Tax Code § 351.001; § 351.002; § 351.101
• Tex. Const. art. III, § 52(a)

Cases:

• Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995)
• Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002)
• State v. Gammill, 442 S.W.3d 538, 541 (Tex. App.-Dallas 2014, pet. ref'd)

Attorney General opinions:

• Tex. Att'y Gen. Op. No. GA-0542 (2007)
• Tex. Att'y Gen. Op. No. KP-0131 (2017)
• Tex. Att'y Gen. Op. No. KP-0208 (2018)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0281
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2020/kp-0281.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

January 2, 2020

The Honorable Laurie K. English
112th Judicial District Attorney
400 South Nelson
Fort Stockton, Texas 79735

Opinion No. KP-0281

Re: Whether a municipality may use tax revenue for a visitor information center owned and operated by a chamber of commerce (RQ-0296-KP)

Dear Ms. English:

You ask about a municipality's use of local hotel occupancy tax revenue for a visitor information center owned and operated by a local chamber of commerce.[1] According to a complaint received by your office, the City of Big Lake (the "City") expended approximately $65,000 to repair and improve the chamber's offices. Request Letter at 1. The City contends that the chamber of commerce owns and operates the City's visitor information center in addition to its other functions and that state law permits the use of municipal hotel occupancy tax revenue for visitor information centers. Id. You believe the law limits authorized expenditures to instances in which the municipality actually owns or leases the visitor center, and additionally that the use of funds for a private organization that promotes "all the private businesses of its members" would violate the statutory requirement that the funds only "promote tourism and the convention and hotel industry." Id. at 1-2. Whether the City's expenditure was permissible as a matter of law depends on fact issues this office cannot determine in the opinion process. See Tex. Att'y Gen. Op. No. GA-0542 (2007) at 5 ("This office does not find facts or resolve fact questions in the opinion process."). The City's governing body must make the determination regarding the propriety of a hotel occupancy tax expenditure in the first instance, subject to judicial review. See Tex. Att'y Gen. Op. No. KP-0131 (2017) at 2. Thus, we advise you only generally.

As a preliminary matter, we address the use of public money for a private organization. Article III, section 52(a) of the Texas Constitution prohibits the Legislature from authorizing a city "to lend its credit or to grant public money or thing of value in aid of, or to any individual, association or corporation whatsoever." TEX. CONST. art. III, § 52(a). However, an expenditure of public funds for a legitimate public purpose to obtain a clear public benefit is not a gratuitous grant of public funds. See Edgewood Indep. Sch. Dist. v. Meno, 917 S.W.2d 717, 740 (Tex. 1995). The Texas Supreme Court articulated a three-part test to determine whether an expenditure of public funds is constitutional. See Tex. Mun. League Intergov'tl Risk Pool v. Tex. Workers' Comp. Comm'n, 74 S.W.3d 377, 384 (Tex. 2002). A governmental entity considering a public expenditure must (1) ensure that the expenditure is to "accomplish a public purpose, not to benefit private parties; (2) retain public control over the funds to ensure that the public purpose is accomplished and to protect the public's investment; and (3) ensure that the political subdivision receives a return benefit." Id. It is for the governing body of the governmental entity to determine whether an expenditure satisfies the three-part test. See Tex. Att'y Gen. Op. No. KP-0208 (2018) at 2-3 ("The determination whether a particular expenditure satisfies the three-part test is for the [governmental entity] to make in the first instance, subject to judicial review for abuse of discretion.").

Turning to your specific questions, the statutory provisions to which you refer come from chapter 351 of the Tax Code, which governs municipal hotel occupancy taxes. See generally TEX. TAX CODE §§ 351.001-.360. Section 351.002(a) allows a municipality to impose a tax on the use or possession of a hotel room. See id. § 351.002(a). Expenditures of revenue from that tax must adhere to certain limitations set forth in chapter 351. First, the municipality may use the revenue only to promote tourism and the convention and hotel industry, and then only as specifically limited by statute. Relevant here, subsection 351.101(a)(1) provides:

(a) Revenue from the municipal hotel occupancy tax may be used only to promote tourism and the convention and hotel industry, and that use is limited to the following:

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

Id. § 351.101(a)(1) (emphasis added). You state your belief that because subsection 351.101(a)(1) begins with the phrase, "the acquisition of sites," this provision in the context of visitor information centers applies only when the municipality owns or leases the center. See Request Letter at 1.

The authorized purpose articulated in subsection 351.101(a)(1) contains a series of actions, beginning with the phrase "the acquisition of sites for," which are joined in two places by the conjunctive word "and." See TEX. TAX CODE § 351.101(a)(1). Ordinarily, the term "and" is not synonymous with the term "or," such that a court would construe a list of actions joined by the word "and" to require the fulfillment of every listed action, as opposed to allowing for a selection among various options. See State v. Gammill, 442 S.W.3d 538, 541 (Tex. App.-Dallas 2014, pet. ref'd) (stating that "the terms 'and' and 'or' are not interchangeable in general"). But the terms "may be interpreted as synonymous when necessary to effectuate the legislature's intent or to prevent ambiguity, absurdity, or mistake." Id. Here, the list of actions in subsection 351.101(a)(1) construed in strict grammatical fashion would compel the acquisition of sites as well as the construction, improvement, enlarging, equipping, repairing, operation, and maintenance of either a convention center facility or a visitor information center, or both, but not the exercise of a singular action, such as a repair on an existing building. The Legislature could not reasonably have intended this result. Instead, the context requires construing subsection 351.101(a)(1) as listing alternative authorized uses of the tax revenue.

Furthermore, construing subsection 351.101(a)(1) to apply in the context of visitor information centers only when a municipality owns or leases them would add an ownership requirement to the Legislature's definition of "visitor information center" where it does not exist. A visitor information center "means a building or a portion of a building used to distribute or disseminate information to tourists." TEX. TAX CODE § 351.001(8) (defining visitor information center). The definition makes no reference to the center's ownership. In contrast, the Legislature defined "convention center facilities" specifically to include a municipal ownership or management requirement. See id. § 351.001(2) (defining convention center facilities as "civic centers, civic center buildings, auditoriums, exhibition halls, and coliseums that are owned by the municipality . . . or that are managed in whole or part by the municipality" (emphasis added)). Thus, a court would likely conclude that the term "and" in subsection 351.101(a)(1) is synonymous with "or," such that the authorized purpose can include any action listed therein individually. As such, subsection 351.101(a)(1) does not limit the use of tax proceeds in the context of visitor information centers to only those owned or leased by a municipality.[2]

Chapter 351 also requires that municipal hotel occupancy tax revenue "be expended in a manner directly enhancing and promoting tourism and the convention and hotel industry as permitted by" subsection 351.101(a). Id. § 351.101(b) (emphasis added); see also Tex. Att'y Gen. Op. No. KP-0131 (2017) at 1-2 (noting that "directly" means "with nothing or no one in between"). Thus, an expenditure of municipal hotel occupancy tax revenue pursuant to subsection 351.101(a) to repair a visitor information center must directly benefit the building or portion of the building used to distribute or disseminate information to tourists in order to satisfy subsection 351.101(b)'s requirement that the expenditure directly enhance and promote tourism and the convention and hotel industry.

SUMMARY

A court would likely conclude that subsection 351.101(a)(1) of the Tax Code does not limit the use of hotel occupancy tax revenue in the context of visitor information centers to only those owned or leased by a municipality. An expenditure of municipal hotel occupancy tax revenue pursuant to subsection 351.101(a) to repair a visitor information center must directly benefit the building or portion of the building used to distribute or disseminate information to tourists in order to satisfy subsection 351.101(b)'s requirement that the expenditure directly enhance and promote tourism and the convention and hotel industry.

Very truly yours,

KEN PAXTON
Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

RYAN L. BANGERT
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

BECKY P. CASARES
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Laurie K. English, Dist. Att'y, 112th Jud. Dist., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (July 8, 2019), http://www2.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] We do not address whether some form of ownership or long-term lease would be required by the municipality for the visitor information center if the municipality sought to issue bonds payable from hotel occupancy taxes to finance the construction of or make capital improvements to the center.