Hotel Occupancy Tax (HOT) Funds
The Harris County Commissioners Court voted to approve Harris County’s $2.4 billion budget for Fiscal Year (FY) 2024 this month, which included allocation of $3 million in hotel occupancy tax (HOT) funds to eligible County operations. These HOT funds are an additional source of revenue counties have to attract tourism to the area by getting “heads in beds” for the hotel industry.
The way HOT funds work is that counties receive a portion of the taxes collected by hotel owners, operators, or managers of any facility that rents sleeping rooms with a cost of more than $2 per day. This tax applies to any hotel, motel, bed and breakfast, as well as any condominium, apartment, or house that is rented for less than 30 consecutive days. Counties must use HOT revenues for promoting tourism and the convention and hotel industries in accordance with the specific categories assigned by state law.
During budget discussions, Harris County approved $1 million in HOT funds to the Harris County Sheriff’s Office (HCSO) for staffing of special events, such as the annual Houston Rodeo and Livestock Show at NRG Park. The Commissioners Court also approved allocation of $500,000 in HOT funds to each Harris County Commissioners Court member office for spending on public art. All in the hopes of bringing in additional tourism into the region.
HOT Funds in Harris County
Texas law states that a county with a population of more than 3.3 million (Harris County) may impose a maximum tax rate of 7% of the price paid for a sleeping room in a hotel, while the tax rate for a hotel in a municipality of more than 1.9 million within a county (City of Houston) with a population that exceeds 3.3 million may not exceed 2%.
State law allows counties less populated than Harris County to spend their HOT funds in up to seven designated categories, while Harris County can spend its HOT funds in the following three categories:
- Constructing and maintaining sports and convention centers;
- Supplying of facilities, personnel, and materials for convention participants; and,
- Promoting a county and its vicinity in general and tourism advertising.[1]
Harris County is required by law to spend at least 15% of its HOT revenue annually on the third category on promoting a county and its vicinity and tourism advertising. These funds are called restricted HOT funds.
Figure 1 shows total HOT fund revenue collected in dollars and percent, including expenditures, and amount of remaining HOT funds from Fiscal Year (FY) 2018 through Short Fiscal Year (SFY) 2022 in Harris County. Total HOT fund revenue from FY2018 to SFY2022 was $207.2 million, with $186.5 million total expenditures, and $20.7 million total remaining funds (10.0% of total HOT funds). FY2020 had the highest amount of HOT fund revenue with $42.7 million and FY2019 had the highest expenditures of HOT funds with $36.9 million. FY2021 was the only fiscal year where expenditures exceeded revenue, with $34.5 million in expenditures and $23.1 million in revenue.
[1] For a full description of the three categories Harris County is designated for use of hotel occupancy tax fund revenue, see Chapter 352 of the Texas Tax Code, subchapter B.
Figure 2 shows the restricted HOT fund revenue collected in dollars and percent including expenditures and amount of remaining restricted HOT funds from FY2018 through SFY2022.
From FY2018 to SFY2022, Harris County collected $11.9 million in restricted hotel tax revenue. At the end of SFY2022, Harris County had $11.7 million (98.6%) of its restricted HOT funds remaining from FY2018 to SFY2022. In all years analyzed, Harris County did not meet the requirement of spending at least 15% of its restricted HOT fund revenue annually on the criteria as stated in state law.
According to the Office of Management and Budget (OMB), each of the offices of the Commissioners Court receive $10,000 per fiscal year from the overall hotel occupancy tax funds collected by the County for that fiscal year. Each court office may keep unspent funds from the prior year. Unspent funds among the five Commissioners Court offices totaled almost $3 million from FY2018 through SFY2022.
As the Harris County Commissioners Court considers its unspent HOT funds and budget for the upcoming fiscal year, Harris County can use HOT funds in other categories, which can make General Fund resources available for spending on other County services and operations.
Eligible expenses Harris County may consider include allocating HOT funds towards deferred maintenance of NRG Park ahead of the much-anticipated FIFA World Cup 2026, which officials estimate will bring in over $1.3 billion in economic benefits to the region.
To read the full memo about hotel occupancy tax funds and learn more about Harris County and other Texas counties uses of HOT funds, click here.