Can a PRIVATELY owned hotel next to Houston's George R. Brown Convention Center still qualify as a 'qualified hotel project' entitled to a 100% state tax rebate for 10 years, even though a private company (not the city) owns the hotel itself?

Plain-English summary

This document is also filed as a companion hotel-tax document at STAR 201402845L, and carries an unrelated 2023 legislative alert about the "qualified employee" definition — see the disclaimer for details.

The City of Houston, through its nonprofit development arm Houston First Corporation, selected a private LLC to build a new hotel next to the George R. Brown Convention Center, connected by sky bridges to a parking garage Houston First itself would build and own. The taxpayer's central question: does the fact that a PRIVATE company (not the City) owns the hotel disqualify the project from the "qualified hotel project" tax-rebate program?

The Comptroller said no, adopting an existing Texas Attorney General opinion (No. 95-085) that had already concluded Government Code § 2303.003(8)(A)'s "qualified hotel project" definition covers a privately owned hotel — not just one owned outright by the municipality. The Comptroller confirmed it would apply that same analysis to this project and to any future hotel project seeking the same benefit. Houston qualifies as the type of municipality the statute requires (population over 1.5 million, per the 2010 Census), and Houston First Corporation is exactly the kind of nonprofit municipal development corporation (created under the Texas Transportation Corporation Act) contemplated by the statute to hold land and sponsor the project on the City's behalf.

So the structure works: the City/Houston First owns (or will own) the land and the convention-center-adjacent facilities, while a private company owns and operates the actual hotel building — and that's still a "qualified hotel project" eligible for the 10-year, 100% state sales/use and hotel occupancy tax rebate under § 151.429(h). As in related rulings, the Comptroller can't formally approve the project for benefits until it's built and a verified refund application is filed; ancillary restaurants/businesses must sit within 1,000 feet of the convention center and sign a confidentiality waiver; and each business's 10-year rebate clock runs from the hotel's own opening date, not the business's.

What this means for you

Private developers partnering with a city on a convention-center hotel

Private ownership of the hotel building itself doesn't disqualify a project from qualified-hotel-project tax rebates — what matters is that the underlying LAND is owned by the municipality (or its qualifying nonprofit development corporation) and the site meets the proximity and population requirements.

Cities structuring hotel deals through a nonprofit development corporation

Using a Chapter 431 Texas Transportation Corporation Act nonprofit (like Houston First Corporation here) to hold land and sponsor the project on the city's behalf is an approved structure for accessing this rebate program, even when a private company owns and runs the hotel itself.

Ancillary restaurants and businesses near the hotel

The same rules seen in companion rulings apply: you must be within 1,000 feet of the convention center facility (not necessarily the hotel building itself), sign a confidentiality waiver, and your own 10-year rebate window is tied to the hotel's opening date, not your own.

Common questions

Q: Does a hotel need to be owned by the city itself to qualify for the tax rebate program?
A: No, per this ruling — a privately owned hotel can qualify as a "qualified hotel project," as long as the underlying land is owned by the municipality or its qualifying nonprofit development corporation and the other statutory requirements are met.

Q: What population does a city need to access this specific rebate provision?
A: Per this ruling, the city must have a population of 1,500,000 or more under Government Code § 2303.003(8)(A) — Houston qualified with a 2010 Census population of 2,099,451.

Citations and references

Statutes:

• Tex. Tax Code § 151.429(e), (h) (qualified hotel project rebate)
• Tex. Tax Code § 151.027 (sales tax confidentiality, waived via agreement)
• Tex. Gov't Code § 2303.003(8)(A) (qualified hotel project definition)
• Tex. Transportation Code, Chapter 431 (Texas Transportation Corporation Act)

Cited prior guidance:

• Texas Attorney General Opinion No. 95-085 — holds that a "qualified hotel project" can be privately owned

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201402923L

Original ruling text

This document is also available as a hotel tax document at STAR 201402845L

ALERT: House Bill 1515, 88th Legislative Session amended 2303.003, Government Code, to revise the definition of a qualified employee. It adds the requirement that the employee be a Texas resident and allows the employee to qualify if they engage in services off-site and reside within 25 miles of the qualified business site. Effective 09/01/2023.

February 6, 2014

Re: Private Letter Ruling #13339747

Dear **

We received your request for a private letter ruling, dated July 31, 2013, with
the ** (LLC)and Houston First Corporation’s “application for
designation of a hotel in Houston as a qualified hotel project for purposes of
Section 151.429(h) of the Texas Tax Code.” According to the information
provided in the request, the City of Houston (“the City”) adopted Ordinance No.
2012-1049 relating to the development of a new convention center hotel. The
ordinance, in addition to other items, authorized and approved economic
development and tax rebate agreements between the City and LLC, a private
corporation and owner of the proposed hotel.

You also submitted a letter from Houston First Corporation, a local government
corporation sponsored by and charged by the City to act on the City’s behalf
with regard to development of the hotel project, that summarizes the hotel
project, describes the distance of the hotel project from the George R. Brown
Convention Center (with map enclosed) and provides the current estimated
population of the City. The hotel project includes a parking garage to be
constructed, owned and operated by Houston First Corporation on land owned by
it (or to be conveyed to it by the City) that is immediately adjacent to the
George R. Brown Convention Center. Sky bridges, also to be constructed, owned
and operated by Houston First Corporation, will connect the parking garage to
the hotel and the convention center.

After initial review of the information you provided, we asked whether the
project would qualify for any tax benefits based on the private ownership of
the proposed hotel. You directed us to Attorney General Opinion No. 95-085,
which concludes that the definition of a “qualified hotel project” in
Government Code Section 2303.003(8)(A) includes a privately owned hotel. We
accept the analysis of AG Opinion No. 95-085 for purposes of the City’s
proposal and any other hotel projects that might seek tax benefits under Tax
Code Section 151.429(h).

LLC and Houston First Corporation request that the Comptroller formally approve
LLC’s qualification for tax rebates under Tax Code Section 151.429(h).

In response, we issue a private letter ruling under Rule 3.1 on which you may
rely for purposes of detrimental reliance according to Rule 3.10, and intend
that it cover the issues and questions presented for the LLC project. Please
disregard the previous letters sent to you in response to the July 31, 2013,
private letter ruling request.

We rely on statutory provisions in effect as of the date of this letter ruling,
which are as follows.

Tax Code Chapter 151 – Limited Sales, Excise, and Use Tax

Tax Code Section 151.429. TAX REFUNDS FOR ENTERPRISE PROJECTS.

(e) In this section:

(2) "Qualified employee" and "qualified hotel project" have the meanings
assigned to those terms by Section 2303.003, Government Code.

(h) This subsection does not apply to a qualified hotel project described by
Section 2303.003(8)(B), Government Code. Notwithstanding the other provisions
of this section, the owner of a qualified hotel project shall receive a rebate,
refund, or payment of 100 percent of the sales and use taxes paid or collected
by the qualified hotel project or businesses located in the qualified hotel
project pursuant to this chapter and 100 percent of the hotel occupancy taxes
paid by persons for the use or possession of or for the right to the use or
possession of a room or space at the qualified hotel project pursuant to the
provisions of Chapter 156 during the first 10 years after such qualified hotel
project is open for initial occupancy. The comptroller shall deposit the taxes
in trust in a separate suspense account of the qualified hotel project. A
suspense account is outside the state treasury, and the comptroller may make a
rebate, refund, or payment authorized by this section without the necessity of
an appropriation. The comptroller shall rebate, refund, or pay to each
qualified hotel project eligible taxable proceeds to which the project is
entitled under this section at least monthly.

Government Code Chapter 2303 – Enterprise Zones

Government Code Section 2303.003. DEFINITIONS.

(8) "Qualified hotel project" means:

(A) a hotel proposed to be constructed by a municipality or a nonprofit
municipally sponsored local government corporation created under the Texas
Transportation Corporation Act, Chapter 431, Transportation Code, that is
within 1,000 feet of a convention center owned by a municipality having a
population of 1,500,000 or more, including shops, parking facilities, and any
other facilities ancillary to the hotel.

Based on the above authorities, we conclude that the City qualifies as a
municipality described in Government Code Section 2303.003(8)(A), concerning
qualified hotel projects, because it has a population of 2,099,451 in the 2010
Census, which is a population of 1,500,000 or more.

Furthermore, per Attorney General Opinion No. 95-085, the City can select a
private entity to construct a hotel on land owned by the City or the City’s
nonprofit municipally sponsored local government corporation created under the
Texas Transportation Corporation Act, Transportation Code Chapter 431, that is
within 1,000 feet of a convention center owned by the City, including shops,
parking facilities and any other facilities ancillary to the hotel.

We conclude that Houston First Corporation is the nonprofit municipally
sponsored local government corporation created to act on the City’s behalf in
development of the hotel project. LLC is the private entity that owns the
qualified hotel project the City selected to be eligible to receive tax
rebates.

The Comptroller does not have statutory authority to approve a qualified hotel
project for any benefits until the project has been completed and an
application for benefits has been submitted and verified. Therefore, although
the Comptroller at this time does not find anything that would preclude the LLC
from being eligible to request a refund as a qualified hotel project under the
applicable statutory provisions, the Comptroller will have to verify all
relevant facts after receiving a request for refund of the taxes described in
Tax Code Section 151.429(h), including whether the hotel is within 1,000 feet
of a convention center owned by the City, including shops, parking facilities
and any other facilities ancillary to the hotel.

In order for a hotel project to receive a rebate of state sales and use tax
from restaurants or other businesses under Tax Code Section 151.429(h),
restaurants or other businesses must be located within 1,000 feet of the
convention center facility owned by the City and have a confidentiality
agreement with the hotel project that permits the Comptroller to disclose the
restaurants’ or other businesses’ sales tax information, which is otherwise
confidential under Tax Code Section 151.027. Restaurants or other businesses
do not have to be located in the hotel building itself to qualify, but they
must be within 1,000 feet of the convention center facility.

Regarding the 10-year period during which state taxes under Tax Code Section
151.429(h) may be rebated, the period begins the date the hotel opened for
initial occupancy, not ten years from the date the restaurant or business
opened. For example, assume a hotel project opened for initial occupancy five
years ago. Then a new business opens within 1,000 feet of the City-owned
convention center and enters into an agreement with the hotel project. The
rebate period remaining for tax receipts from that business is five years.

Below are the current agency requirements to initiate a request for rebate,
refund or payment of taxes. LLC should submit a written request to the
Comptroller’s Audit Division along with the required information. After
review, the Comptroller will give the hotel project written notice as to the
results of that review and will initiate the refund process as appropriate.

1. Copy of the Certificate of Formation (formerly Articles of Incorporation)
   for the Convention Center Hotel Corporation;

2. Copy of the City’s Capital Improvement Plan;

3. Copy of the ordinance from the City approving the tax rebate agreement
   between the Corporation and the City;

4. Copy of the venue plan for the hotel project;

5. A map that shows the hotel project is within 1,000 feet of the convention
   center;

6. Name and address of the hotel along with the taxpayer identification and
   location (outlet) number that the hotel is using to report state sales and
   hotel taxes;

7. Name, taxpayer identification and location (outlet) numbers for all vendors
   under agreement with the hotel project;

8. Waiver of confidentiality forms signed by the authorized officer or director
   from each vendor under agreement with the hotel project. These forms allow the
   Comptroller’s office to release the sales tax information to the City and/or
   the Corporation;

9. Name and phone numbers of the contact person with the City and the
   Corporation; and

10. Completed direct deposit authorization form from the City.

Under current agency practice, the Comptroller makes monthly payments of both
state sales and hotel taxes under Tax Code Section 151.429(h).

If you have questions about this private letter ruling, please email us at
[email protected] and reference Private Letter Ruling #13339747.

Sincerely,

Tax Policy Division