Do federal employees have to pay Texas local hotel occupancy tax when they travel for work?

Texas AG Opinion JM-1080: Do Federal Employees Pay Local Hotel Occupancy Tax?

Plain-English summary

A Texas House committee chairman asked whether federal employees traveling on government business are exempt from the local hotel occupancy tax that cities and some counties charge on hotel rooms. The short answer from the Attorney General was no.

The reasoning turns on who legally owes the tax. Chapters 351 and 352 of the Tax Code let cities and certain counties tax the person who pays for the use of a hotel room. When a federal employee on a trip rents a room and pays for it, the employee is the one contracting with the hotel, even if the government later pays the employee back through a per diem or an actual-expenses reimbursement. The tax is imposed on that employee in a private capacity, not on the United States.

That distinction matters because the Supremacy Clause of the U.S. Constitution (article VI, section 2) bars a state from taxing the federal government or its instrumentalities directly. If the federal agency itself signed the contract with the hotel, taxing that transaction would run into the constitutional bar. But when the employee is the one on the hook to the hotel, the legal incidence of the tax is on the employee, and the government's immunity does not travel with the reimbursement. The opinion pointed to a 1959 Attorney General opinion (WW-738) that reached the same conclusion for Federal Reserve Bank employees under the state hotel tax, and to a 1976 U.S. Comptroller General decision holding that Bureau of Indian Affairs employees had to pay a local hotel tax in Anchorage, Alaska, because the government was "in no sense a party" to the room rental.

So a federal worker who rents a hotel room while traveling on official business, and who gets reimbursed, has to pay the local hotel occupancy tax like any other guest, unless a specific state or local statute exempts federal-employee room rentals.

Currency note

This opinion was issued in 1989. 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 chapters cited here have been amended since 1989, and some governments have adopted specific exemptions or direct-billing arrangements for federal travel. The rule described here (that an individually paying, later-reimbursed federal employee owes the tax) reflects the law as the Attorney General read it in 1989. Anyone handling a present-day federal-travel tax question should check the current Tax Code, current local ordinances, and any direct-payment or exemption procedures now in place.

Who this opinion affected (as of 1989)

Federal employees traveling on official business: The opinion concluded they were not exempt from local hotel occupancy tax when they rented and paid for the room themselves and were later reimbursed, whether by per diem or actual expenses.

Cities and counties collecting the tax: The opinion supported charging the local hotel occupancy tax on rooms rented by individual federal travelers, because the tax's legal incidence is on the guest, not the United States.

Hotels and their front desks: The opinion treated the guest who signs for the room as the taxable party, so a federal traveler paying for a room was subject to the tax like any other customer, absent a specific exemption for federal-employee rentals.

Common questions

Are federal employees exempt from Texas local hotel taxes when they travel for work?
Not under this opinion, when the employee rents and pays for the room and is reimbursed afterward. The tax falls on the employee, not on the federal government.

Why doesn't the government's tax immunity cover the employee?
Because the legal incidence of the tax is on the person who contracts for the room. The employee rents the room in a private capacity, so it is the employee, not the United States, who is taxed. Reimbursement afterward does not shift the tax onto the government.

Would the answer change if the federal agency paid the hotel directly?
Yes. The opinion noted that if the federal agency itself contracted directly with the hotel, imposing the tax would run into the Supremacy Clause bar on state taxation of the federal government.

What tax was this about?
The local hotel occupancy tax that cities and certain counties impose under chapters 351 and 352 of the Texas Tax Code, which is separate from the state hotel occupancy tax in chapter 156.

Background and statutory framework

Representative Ralph R. Wallace, III asked whether federal employees traveling on official business are exempt from the local hotel occupancy tax. Chapters 351 and 352 of the Tax Code authorize cities and certain counties to impose the tax on a person who, under a lease, license, contract, or similar arrangement, pays for the use of a hotel room costing $2 or more each day and ordinarily used for sleeping. Tax Code §§ 351.002(a), 352.002(a).

The opinion relied on Attorney General Opinion WW-738 (1959), which concluded that officers and employees of the Federal Reserve Bank traveling on official business were subject to the state hotel occupancy tax (then and now in chapter 156 of the Tax Code). WW-738 reasoned that under either reimbursement method, per diem or actual expenses, an employee who contracts for a hotel room does so in a private capacity, so the tax falls on the employee, not the employer. By contrast, if the federal entity contracted directly with the hotel, imposing the tax would violate the Supremacy Clause of the United States Constitution, article VI, section 2, which forbids state taxation of the federal government or its instrumentalities. See, e.g., Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954); Alabama v. King and Boozer, 314 U.S. 1 (1941); McCulloch v. Maryland, 17 U.S. 316 (1819).

A 1976 U.S. Comptroller General decision reached the same result. 55 Comp. Gen. 1278, 1279 (1976). It held that Department of the Interior, Bureau of Indian Affairs employees were not exempt from a local hotel tax in Anchorage, Alaska, reasoning that a federal employee on official duty ordinarily rents the room directly from the proprietor, the government is "in no sense a party" to that arrangement, and the government's later reimbursement does not affect the employee's liability. The legal incidence of the tax is on the employee, and when the government pays a per diem or actual-expenses allowance it is reimbursing the employee, not paying the tax; the government has agreed only to accept the economic burden of a tax imposed on its employees.

Applying that reasoning, the opinion concluded that a federal employee traveling on official business whose expenses are reimbursable, by per diem or actual expenses, is not exempt from a local hotel occupancy tax under chapters 351 or 352 of the Tax Code when renting hotel accommodations.

Citations

Constitutional and statutory authorities:

• United States Constitution art. VI, § 2 (Supremacy Clause)
• Tax Code § 351.002(a); § 352.002(a) (local hotel occupancy tax on the person paying for a room); ch. 351; ch. 352 (city and county local hotel occupancy tax)
• Tax Code ch. 156 (state hotel occupancy tax)

Cases:

• Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954)
• Alabama v. King and Boozer, 314 U.S. 1 (1941)
• McCulloch v. Maryland, 17 U.S. 316 (1819)

Other authority:

• 55 Comp. Gen. 1278, 1279 (1976) (U.S. Comptroller General decision on a local hotel tax in Anchorage, Alaska)

Attorney General materials referenced:

• Followed: WW-738 (1959)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1080
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1989/jm1080.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor OCR errors may remain; the linked PDF is authoritative. Case names were confirmed by citation lookup (Kern-Limerick, Inc. v. Scurlock; Alabama v. King and Boozer).

August 3, 1989

Honorable Ralph R. Wallace, III
Chairman
Cultural and Historical Resources Committee
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78769

Opinion No. JM-1080

Re: Whether federal employees are subject to the local hotel/motel occupancy tax (RQ-1740)

Dear Representative Wallace:

You ask whether federal employees travelling on official business are exempt from the local hotel occupancy tax. Chapters 351 and 352 of the Tax Code authorize cities and certain counties to impose a local hotel occupancy tax

on a person who, under a lease, concession, permit, right of access, license, contract, or agreement, pays for the use or possession or for the right to the use or possession of a room that is in a hotel, costs $2 or more each day, and is ordinarily used for sleeping.

Tax Code §§ 351.002(a), 352.002(a).

Attorney General Opinion WW-738 (1959) concluded in response to a similar question that officers and employees of the federal reserve bank while travelling on official business are subject to the state hotel occupancy tax now provided for in chapter 156 of the Tax Code. The opinion reasoned that under either of the two methods by which federal employees are reimbursed for their travel expenses -- per diem or actual expenses -- an employee contracting for a hotel room would do so in his private capacity and it would be upon the employee and not his employer, the federal reserve bank, that the hotel tax would be imposed. In contrast, the opinion noted, if the federal reserve bank had contracted directly with the hotel, imposition of the tax would violate the prohibition -- based on the Supremacy Clause of the United States Constitution, article VI, section 2 -- on a state's taxation of the federal government or its instrumentalities. See, e.g., Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954); Alabama v. King and Boozer, 314 U.S. 1 (1941); McCulloch v. Maryland, 17 U.S. 316 (1819).

A 1976 decision of the United States comptroller general accords with the reasoning and result of Attorney General Opinion WW-738. 55 Comp. Gen. 1278, 1279 (1976). That ruling concluded that employees of the United States Department of the Interior, Bureau of Indian Affairs, were not exempt from a local hotel tax in Anchorage, Alaska.

Ordinarily, a Federal employee on official duty rents a hotel or motel room directly from the proprietor. The Government is in no sense a party to this arrangement with the establishment. In the absence of a specific State or local statute exempting room rentals to Federal employees from this tax, that employee is liable to pay it. That the government, via statute and regulations, may be obligated to reimburse that person for expenses incurred while away on official business does not affect that individual's liability for this tax. In this regard it is clear that the legal incidence of the tax is on the employee, and not on the Government, and that when the Government pays a per diem or actual expenses allowance, it is not paying the tax but reimbursing the employee for the employee's total expenses. That is, by statute and regulation the Government has agreed, in effect, to accept the economic burden of a tax imposed not on it but on its employees. We therefore conclude that under such circumstances, Government employees may not assert the Government's exemption from the payment of State and local taxes levied upon motel and hotel rooms.

Accordingly, we conclude that a federal employee travelling on official business whose travel expenses are reimbursable by his employer, either on a per diem or actual expenses basis, is not exempt from a local hotel occupancy tax imposed under chapters 351 or 352 of the Tax Code when he rents hotel accommodations.

SUMMARY

A federal employee travelling on official business whose travel expenses are reimbursable by his employer, either on a per diem or actual expenses basis, is not exempt from a local hotel occupancy tax imposed under chapters 351 or 352 of the Tax Code when he rents hotel accommodations.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General