How can a Texas hotel pass tourism public improvement district (TPID) assessment costs on to guests as a separately stated fee without triggering trust-tax liability under Section 111.016 — and is that fee subject to hotel occupancy tax?

Plain-English summary

Some Texas cities create tourism public improvement districts (TPIDs) — under Local Government Code Chapter 372 — funded by assessments on qualifying hotels. Hotels typically pass those assessment costs on to guests as a separately stated line item. A hotel group asked how to word and place that line item so it doesn't create liability under Tax Code § 111.016, which makes anyone who collects a tax (or money represented to be a tax) hold it in trust for the State.

The ruling: A hotel's charge to recover TPID costs — a "tourism public improvement district recovery fee" — will not trigger § 111.016 liability if the charge is:

1. separately stated on the bill,
2. not represented, directly or by labeling, to be a tax or government fee that the State of Texas obligates customers to pay, and
3. clearly separated from — and not included in — any section of the bill relating to taxes or government fees.

But hotel occupancy tax must still be collected on the charge. (There was no dispute that a TPID pass-through is part of the taxable room charge.)

Why it isn't "trust" money: § 111.016 sits in Title 2 (State Taxation), and § 101.003(13) defines a "tax" there as an amount the Comptroller is authorized to administer. A hotel's charge to recover its own TPID assessment costs is not such an amount — so it isn't a "tax" for § 111.016 purposes and isn't held in trust for the state.

The taxpayer's example bill failed the test. It labeled the line a "tourism public improvement district fee" and did not clearly separate it from the taxes and government fees — so that bill would not avoid § 111.016 liability.

A change in guidance. An older letter (STAR 201111277L, Nov. 8, 2011) had told hotels to call this a "Reimbursement" and to avoid the words "recovery" or "fee." This ruling supersedes that letter and brings hotel pass-throughs in line with the Comptroller's treatment of other cost-recovery charges (e.g., the "State Cost Recovery Fee" allowed for franchise-tax pass-throughs in STAR 201107209L and 201008847L). The ruling also says the rules will be amended to reflect this.

What this means for you

Hotels in a tourism public improvement district

You can recover your TPID assessment from guests as a separately stated "recovery fee" — but the wording and placement matter. Keep it out of the "taxes and government fees" area of the folio, don't label or describe it as a tax the state requires, and be prepared to disclose it's not a government-required tax. And remember: the recovery fee is part of the taxable room charge, so collect hotel occupancy tax on it.

Any business passing through a state-cost charge

The same principle runs through the Comptroller's cost-recovery guidance: you may pass on your own tax/assessment costs, but the moment a line item looks like a state-mandated tax, § 111.016 can treat the money as held in trust for the state and expose you to liability for the full amount plus penalties and interest.

Common questions

Q: Can a hotel charge guests for TPID costs?
A: Yes, as a separately stated "tourism public improvement district recovery fee," provided it isn't presented as a tax or government fee and is kept out of the tax/government-fee part of the bill.

Q: Is the recovery fee subject to hotel occupancy tax?
A: Yes. The ruling says hotel occupancy tax must be collected on the charge.

Q: What wording should a hotel avoid?
A: Don't label it a "tax" or "government fee," and don't place it among the taxes and government fees. The taxpayer's "tourism public improvement district fee" example, grouped with the taxes, failed the test. This ruling supersedes older guidance that had told hotels to call it a "Reimbursement" and avoid "recovery"/"fee."

Q: What is Section 111.016?
A: It provides that anyone who collects a tax — or money represented to be a tax — holds it in trust for the state and is liable for the full amount plus penalties and interest. A proper recovery fee isn't such "tax" money.

Q: Can another hotel rely on this ruling?
A: The Comptroller extended detrimental-reliance relief to the requesting taxpayer and its member hotels with identical facts. As a private letter ruling it doesn't bind the Comptroller for any other taxpayer, and it notes rules would be amended — so confirm current law before relying on it.

Citations and references

• Tex. Tax Code § 111.016 — money collected as a tax (or represented to be a tax) is held in trust for the state; the liability the hotel sought to avoid.
• Tex. Tax Code § 101.003(13) — defines "tax" in Title 2 as an amount the Comptroller is authorized to administer; a TPID recovery fee is not such an amount.
• 34 Tex. Admin. Code Rules 3.1 and 3.10 — authority for the private letter ruling and the detrimental-reliance relief.
• Local Government Code Chapter 372 — authorizes municipalities/counties to create the public improvement districts (TPIDs) funded by hotel assessments.
• STAR 201111277L (Nov. 8, 2011) — prior letter, superseded by this ruling, that had recommended the "Reimbursement" label.
• STAR 201107209L (July 1, 2011) and 201008847L (Aug. 6, 2010) — cost-recovery ("State Cost Recovery Fee") guidance the ruling harmonizes with.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=HOT
• Opinion: https://star.comptroller.texas.gov/view/202003037L

Original ruling text

March 13, 2020

RE: Private Letter Ruling No. 20191115092757

Dear ****:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters.[ENDNOTE: (1)] We are responding to your request dated Nov. 14, 2019, and supplemental correspondence dated Dec. 4, 2019. In accordance with Rule 3.10, Taxpayer Bill of Rights, the Comptroller will give detrimental reliance relief to **** (Taxpayer) and those member hotels with identical facts.

You requested guidance on how hotels can pass through certain charges to their guests without triggering liability under Section 111.016 (Payment to the State of Tax Collections).

Facts Presented

Local Government Code, Chapter 372 (Improvement Districts in Municipalities and Counties) allows certain municipalities to establish public improvement districts composed of qualifying hotels to pay for specified improvements. These districts sometimes are referred to as “tourism public improvement districts” (TPIDs).

TPIDs are funded by assessments on qualifying hotels. Hotels generally pass the costs of these assessments on to guests as a separately stated “tourism public improvement district fee.” Taxpayer has provided the following example of a typical hotel bill with such a charge:

Hotel Room Night Charge: $100.00

Tourism Public Improvement District Fee (2%): $2.00

Texas Hotel Occupancy Tax (6%): $6.12

City Hotel Occupancy Tax (7%): $7.14 Total: $115.26

There is no dispute that a “tourism public improvement district fee” is subject to hotel occupancy tax.

Question, Ruling, and Analysis

Our restatement of your question is shown below, followed by our response and analysis.

Question: Would a hotel’s charge to guests of a “tourism public improvement district fee” or a “tourism public improvement district recovery fee” to recover the costs of TPID assessments trigger liability under Section 111.016?

Ruling: A hotel’s charge to guests of a “tourism public improvement district recovery fee” to recover the costs of TPID assessments would not trigger liability under Section 111.016 if the charge is separately stated on the hotel’s bill, not represented either directly or by labelling to be a tax or government fee that the state of Texas obligates customers to pay, and clearly separated from and not included in any section of the bill relating to such taxes or government fees. Hotel occupancy tax must be collected on this charge.

Analysis: Section 111.016(a) provides that “[a]ny person who receives or collects a tax or any money represented to be a tax from another person holds the amount so collected in trust for the benefit of the state and is liable to the state for the full amount collected plus any accrued penalties and interest on the amount collected.”

Section 111.016 is found in Title 2 (State Taxation). Section 101.003(13) (Definitions) provides that in Title 2, a “tax” is defined as “a tax, fee, assessment, charge, or other amount that the comptroller is authorized to administer.”

A hotel’s charge to guests to recover the costs of TPID assessments is not a tax, fee, assessment, charge, or other amount that the Comptroller is authorized to administer. Therefore, the charge is not a tax for purposes of Section 111.016.

In STAR Accession No. 201111277L (Nov. 8, 2011), the Comptroller recommended that a hotel’s charge to guests to recover the costs of TPID assessments should be called a “Tourism Public Improvement District Reimbursement” and that “[a] hotel should avoid using the words ‘recovery’ or ‘fee,’ as this would appear to be a charge imposed on the guest and may result in an audit assessment.”

Comptroller guidance with respect to other pass-through charges has recommended and discouraged the use of differing language to avoid triggering liability under Section 111.016. See, e.g., STAR Accession Nos. 201107209L (July 1, 2011) (allowing hotels to charge a “State Cost Recovery Fee” to pass on to guests the costs of the franchise tax and discouraging the use of the term “reimbursement” with respect to that charge) and 201008847L (Aug. 6, 2010) (allowing a phone company to charge a “State Cost Recovery Fee” for the same purpose with similar restrictions). However, such guidance has been consistent in its concern that such charges not in any way be represented to be a tax that the state of Texas requires customers to pay.

For example, STAR Accession No. 201008847L found that a charge to customers of a “State Cost Recovery Fee” to recover franchise tax would not trigger liability under Section 111.016 provided that the charge did not appear in the section of the customer’s bill entitled “Government Fees and Taxes,” the charge was not represented either directly or by labelling to be a tax or government fee that the state of Texas obligated consumers to pay, and the business disclosed to customers that the charge was not a tax or government fee that the business was required to collect from customers by law.

Therefore, a hotel’s charge to guests of a “tourism public improvement district recovery fee” to recover the costs of TPID assessments would not trigger liability under Section 111.016 if the charge is separately stated on the hotel’s bill, not represented either directly or by labelling to be a tax or government fee that the state of Texas obligates customers to pay, and clearly separated from and not included in any section of the bill relating to such taxes or government fees. Hotel occupancy tax must be collected on this charge.

The example bill that Taxpayer has provided contains a charge that is inappropriately labelled a “tourism public improvement district fee” and that is not clearly separated from taxes and governmental fees. Thus, the example bill would not be sufficient to avoid triggering liability under Section 111.016.

STAR Accession No. 201111277L will be superseded because our guidance is now consistent with the recommendations that we have provided for other pass-through charges. Our rules also will be amended to reflect this determination.

Comptroller’s Decisions and STAR documents cited can be found on the Comptroller’s State Tax Automated Research (STAR) system. The Texas Tax Code, Texas Administrative Code, and the STAR system are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20191115092757.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

1. Unless otherwise indicated, all references to “Section” and “Title” are to the Texas Tax Code, and all references to “Rule” are to Title 34 of the Texas Administrative Code.