Texas Rising March/April 2010

$tay in Texas

Texas’ annual state hotel tax revenue increased more than $100 million from 2003 to 2009.

Year Hotel Tax
2009 $343 million -7.5%
2008 $371 million +8.9%
2007 $341 million +10.6%
2006 $308 million +17.5%
2005 $262 million +9.7%
2004 $239 million +4.8%
2003 $228 million +1.3%

Source: Texas Comptroller of Public Accounts

‘Heads in Beds’ Worth Millions to Texans

Hotel occupancy tax provides revenue, spurs economic growth

By Clint Shields

Tourism is a mighty part of the Texas economy, generating more than $60 billion in direct spending, $2.9 billion in state revenue and employing more than 544,000 Texans in 2008.

The industry helps put “heads in beds,” fueling state hotel occupancy tax collections, which pumped $371 million into the state’s general revenue fund in 2008. Another $548 million was generated in local hotel tax receipts that helped communities promote tourism, build facilities and generate economic development.

State Tax

Since 2000, annual revenues from the state’s 6 percent hotel occupancy tax have increased more than $100 million. After a high of $371 million in fiscal 2008, revenues decreased in fiscal 2009 to about $343 million. Local tax collections, which are dispersed to communities by the Comptroller’s office, also dropped.

“Hotel/motel tax receipts were down in 2009,” says Texas Comptroller Susan Combs. “Part of that was the overall economy, but there were other factors, too.”

In 2008, when fuel prices were high, hotels were booked across West Texas with oil and gas workers. As production slowed, vacancies increased.

Other spots, however, are being re-established as destinations.

The Holland Hotel in Alpine, under new ownership and with a restored Spanish Colonial Revival look, reopened to guests in November 2009 and enjoyed full bookings for the holidays.

“The hotel did really well during the holidays,” says Eileen Rouke, the hotel’s manager. “Christmas was busy with customers staying an average of three days over the period, and we were full New Year’s Eve, too. For only being open a few weeks after the renovation, I think the response was wonderful.”

The hotel features a full-service concierge staff that handles paperwork and phone calls for a variety of Big Bend area excursions and activities, another factor that is vital to the hotel’s long-term viability.

“We have done some extensive advertising to get the word out,” she says. “But in my opinion, word-of-mouth has always been number one as far as good advertising goes. Make sure your customer service is great and the word will spread.”

Hotel Occupancy

Tools That Made a Difference

San Angelo’s historic streets attract a variety of annual visitors.

What qualifies for spending hotel occupancy tax revenue?

A two-step process governs how hotel tax revenues may be used to promote a local area. First, funded projects, whether for convention centers, sporting arenas or drag-boat races, must bring in overnight visitors — the “heads in beds” component. Next, projects must fit into one of six categories:

  • Site acquisition for convention and/or visitor centers;
  • Convention registration;
  • Advertising the city or county;
  • Promotion of the arts;
  • Historical preservation and restoration projects; and
  • Sporting events in a county with a population of less than 1 million.

Rules and regulations for local hotel occupancy taxes are available online at Window on State Government.

Local Tax

A local hotel occupancy tax differs from the state tax because it is collected and spent locally.

“These taxes are popular (among local governments) because the people spending generally do not live there, which provides an outside source of revenue that is, in turn, used to promote the local area,” says Russell Gallahan, a Comptroller’s office Economic Development and Analysis specialist.

Many communities levy a local hotel tax up to 7 percent with certain qualifying criteria (see sidebar). An additional 2 percent in taxes can be levied for qualifying arenas or facility construction, but combined with the 6 percent state tax rate, the hotel tax rate must not exceed 17 percent. In the end, the funds must go toward events, facilities or efforts to promote the area.

“Tourism is without a doubt our major industry,” says Diane Probst, president and CEO of the Rockport-Fulton Chamber of Commerce. The two cities jointly promote the region and have used local hotel tax revenue to refurbish two facilities that host corporate meetings, retreats and receptions.

“We have to ask ourselves with each booking, ‘Does this particular event put heads in beds?’” Probst says.

Rockport-Fulton officials also are planning a $3 million conference center project, funding for which would require local voters to approve a local hotel tax rate increase.

Zapata County’s 7 percent local tax rate, which was increased from 4 percent in 2007, helps the area cash in on professional fishing tournaments at Falcon Lake. It has become a regular stop for multiple professional circuits and is part of the area’s tourism calling card — world-class outdoor recreation. The county’s hotels enjoy an average hotel occupancy rate of about 80 percent, well above the state average. TR

Longhorns Holland Hotel Interior Fly Fishing

Hotel occupancy taxes generated by visitors are used in part to promote Texas and its communities to visitors from across the state and beyond its borders. Texas’ largest state park, the 300,000-acre Big Bend Ranch (top left), is among the attractions that draw guests to the historic Holland Hotel in Alpine (above right.) Bottom left: Rockport-Fulton relies heavily on visiting outdoors enthusiasts to put heads in beds.