Can county hotel occupancy tax money pay for key-man insurance as an administrative cost?

TX AG Opinion GA-0682: Can hotel tax money pay for key-person insurance?

Plain-English summary

A House committee chair asked whether the administrative costs a county may pay from its hotel occupancy tax revenue under Tax Code section 352.1015(c) can include premiums for "key man" or "key person" life insurance. The chair described key-person insurance as an arrangement where an entity buys a life insurance contract on a key individual and keeps all the rights and benefits, including death benefits and cash value. The request did not specify the kind of entity that would be funded by the tax or which positions might be insured.

The Attorney General read the statute as a whole. Tax Code chapter 352 lets certain counties impose a hotel occupancy tax primarily to enhance and promote tourism and the convention and hotel industry, with each county's permitted uses set by the statutes that apply to it. Section 352.1015(c) allows spending tax revenue on day-to-day operations, supplies, salaries, office rental, travel, and other administrative costs only if those costs are incurred directly in the promotion and servicing expenditures authorized for that county, and it caps the administrative-cost share when an entity also conducts unauthorized activities. Section 352.1015(e) bars using the revenue for a county's general revenue purposes or general governmental operations.

The statute does not define "administrative costs." But the opinion concluded that even assuming key-person insurance is an administrative cost, the controlling question is whether the premium is "incurred directly in the promotion and servicing expenditures" the statute authorizes, and that is generally a question of fact depending on the specific circumstances. So the Attorney General could not say as a matter of law whether tax revenue could fund key-person insurance. That call is for the commissioners court, which approves the budget of the authorized program or activity, to make in the first instance, subject to judicial review, and the expenditure must be consistent with all chapter 352 provisions that apply to the particular county.

Currency note

This opinion was issued in 2008. 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.

The Tax Code chapter 352 provisions on county hotel occupancy taxes have been amended over time. Confirm the current statutes before relying on this analysis.

Who this opinion affected (as of 2008)

County commissioners courts: The opinion concluded they must decide in the first instance, subject to judicial review, whether a particular administrative cost like key-person insurance is incurred directly in authorized promotion and servicing.

Tourism entities funded by hotel tax revenue: The opinion explained that their administrative costs are payable from the tax only to the extent incurred directly in authorized activities, with a cap when they also run unauthorized activities.

The public and taxpayers: The opinion reaffirmed that hotel occupancy tax revenue must directly enhance and promote tourism and the hotel industry and may not fund general governmental operations.

Common questions

Can hotel tax revenue pay key-person insurance premiums?
The opinion did not decide as a matter of law. Whether the premium is an administrative cost incurred directly in authorized promotion and servicing is a fact question for the commissioners court.

Who decides whether a cost qualifies?
The commissioners court, which approves the funded program's budget, decides in the first instance, subject to judicial review.

What limits apply to administrative costs?
They must be incurred directly in authorized promotion and servicing, the administrative-cost share cannot exceed the portion tied to authorized activities, and the revenue cannot fund general governmental operations.

Background and statutory framework

Chapter 352 lets certain counties impose a hotel occupancy tax (Tex. Tax Code Ann. § 352.002 (Vernon 2008)), primarily to promote tourism and the convention and hotel industry, with uses set per county (id. §§ 352.101-.109, 352.1015(e)). Section 352.1015(a) lets a commissioners court delegate management of funded programs and approve the delegatee's budget, and section 352.1015(c) allows administrative costs only if incurred directly in authorized promotion and servicing, capping the share when unauthorized activities are also conducted (id. § 352.1015(a), (c)). Courts read a statute as a whole consistent with its other provisions (Sultan v. Mathew, 178 S.W.3d 747, 749 (Tex. 2005)), and whether a particular expenditure is a legitimate administrative cost is a fact question (Tex. Att'y Gen. Op. No. JC-0348 (2001) at 2). A limited exception lets certain border counties with a national recreation area use part of the revenue for general purposes (id. § 352.108(2)).

Citations

Statutes:

• Tex. Tax Code Ann. § 352.002 (Vernon 2008)
• Tex. Tax Code Ann. § 352.1015(a), (c), (e)
• Tex. Tax Code Ann. §§ 352.101-.109
• Tex. Tax Code Ann. § 352.108(2) (Vernon 2008)

Cases:

• Sultan v. Mathew, 178 S.W.3d 747, 749 (Tex. 2005)
• Tex. Att'y Gen. Op. No. JC-0348 (2001)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/greg-abbott/ga-0682
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2008/ga0682.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

ATTORNEY GENERAL OF TEXAS

GREG ABBOTT

November 13, 2008

The Honorable Beverly Woolley
Chair, Committee on Calendars
Texas House of Representatives
Post Office Box 2910
Austin, Texas 78768-2910

Opinion No. GA-0682

Re: Meaning of "administrative costs" for purposes of section 352.1015(c), Tax Code, relating to the expenditures of revenue from the hotel occupancy tax (RQ-0714-GA)

Dear Representative Woolley:

Tax Code chapter 352 authorizes the commissioners courts of certain counties, by order or resolution, to impose a county hotel occupancy tax. TEX. TAX CODE ANN. § 352.002 (Vernon 2008) (listing categories of counties that may impose the tax). The tax is primarily for "enhancing and promoting tourism and the convention and hotel industry," although a county's authority to expend revenue from the tax depends on the statutes specifically applicable to the county. Id. § 352.1015(e); see generally id. §§ 352.101-.109 (subchapter B, designating uses of revenue for different categories of counties). Applicable to all counties imposing the tax, section 352.1015(c) allows a county to spend its hotel occupancy tax revenue for "administrative costs . . . incurred directly in the promotion and servicing expenditures authorized by the applicable provisions of [subchapter B] governing the use of revenue by that particular county." Id. § 352.1015(c).

You ask if expenditures for administrative costs authorized in section 352.1015(c) may include the payment of premiums for an insurance policy known as "key man" or "key person" insurance.[1] You explain "that a key-man life insurance policy is a life insurance arrangement under which an entity purchases a life insurance contract to insure the life of a 'key' person. The entity retains all the rights and benefits of the life insurance contract, including the rights to all death benefits and cash value." Request Letter, supra note 1, at 1 (citing Split-Dollar Life Insurance Arrangements, T.D. 9092, 2003-2 C.B. 1055). Your request does not specify a particular kind of entity that may be funded in part by the tax, or the particular positions that might be insured. Id. at 2.

To determine legislative intent, we "consider a statute as a whole and give meaning to the language that is consistent with its other provisions." Sultan v. Mathew, 178 S.W.3d 747, 749 (Tex. 2005). Section 352.1015 requires a county to expend hotel occupancy tax revenue as authorized by the statutes specifically applicable to the particular county and, with certain exceptions, prohibits using revenue from the tax "for the general revenue purposes or general governmental operations of a county." TEX. TAX CODE ANN. § 352.1015(e) (Vernon 2008).[2] Section 352.1015(a) authorizes a county commissioners court to contractually delegate "the management or supervision of programs and activities funded with revenue" from an authorized tax "to a person, including another governmental entity or a private organization." Id. § 352.1015(a). The commissioners court is responsible for approving such a delegatee's annual budget derived from the hotel occupancy tax revenue, and by contract, the delegatee is a fiduciary for the funds budgeted. Id. The provision you mention, subsection 352.1015(c), states that:

Hotel occupancy tax revenue spent for a purpose authorized by this section may be spent for day-to-day operations, supplies, salaries, office rental, travel expenses, and other administrative costs only if those administrative costs are incurred directly in the promotion and servicing expenditures authorized by the applicable provisions of this subchapter governing the use of revenue by that particular county. If a county or other public or private entity that conducts an activity authorized by the applicable provisions of this subchapter governing the use of revenue by that particular county conducts other activities that are not authorized, the portion of the total administrative costs of the entity for which hotel occupancy tax revenue may be used may not exceed the portion of those administrative costs actually incurred in conducting the authorized activities.

Id. § 352.1015(c) (emphasis added).

The statute does not define the term "administrative costs." Id. But even assuming for purposes of this opinion that key person insurance is an administrative cost, the question here is whether this cost would be "incurred directly in the promotion and servicing expenditures authorized by the applicable provisions of [chapter 352, subchapter B]." Id. Whether a particular expenditure is "incurred directly in the promotion and servicing expenditures" as authorized generally will be a question of fact, and will depend on the specific facts and circumstances concerning the expenditure. See Tex. Att'y Gen. Op. No. JC-0348 (2001) at 2 (advising that whether, and to what extent, a particular expenditure is a legitimate administrative cost is a question of fact). Thus, we cannot say as a matter of law whether the use of tax revenues for key person insurance could be authorized as an administrative cost "incurred directly in the promotion and servicing expenditures" under section 352.1015(c). Rather, that issue is for the commissioners court, which approves the budget of the authorized program or activity, to determine in the first instance, subject to judicial review. TEX. TAX CODE ANN. § 352.1015(a), (c) (Vernon 2008). And in determining whether tax revenue may be expended on a key person insurance policy, the commissioners court must consider whether such an expenditure would be consistent with all provisions of chapter 352 that are applicable to the particular county. See, e.g., id. § 352.1015(c) (expenditure of tax revenue for administrative costs of an entity must not exceed the actual administrative costs of the authorized activity); id. § 352.1015(e) (tax revenue must directly enhance and promote tourism and the convention and hotel industry and may not be used for general governmental operations). See generally id. §§ 352.101-.109 (subchapter B, uses of revenue for different categories of counties).

[Footnote 2: But see TEX. TAX CODE ANN. § 352.108(2) (Vernon 2008) (authorizing certain counties that border Mexico and contain a national recreation area to utilize "25 percent of the revenue for the general revenue purposes or general governmental operations of the county").]

SUMMARY

Tax Code section 352.1015(c) allows hotel occupancy tax revenue to be expended for administrative costs only if they are incurred directly for the promotion and servicing expenditures authorized by the provision applicable to the particular county, and the expenditure is otherwise consistent with chapter 352 of the Code. Whether expenditures for "key person insurance" premiums constitute an authorized administrative cost is for the commissioners court to determine in the first instance, subject to judicial review.

KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

William A. Hill
Assistant Attorney General, Opinion Committee