Does the City of Round Rock qualify for the state's hotel-project tax rebate under Tax Code Section 351.102(b), even though it isn't a 'qualified hotel project' city like Houston?

Plain-English summary

The Texas Comptroller ruled that the City of Round Rock qualifies for the state's hotel-project tax rebate program under Tax Code Section 351.102(b) — a route separate from, and broader than, the "qualified hotel project" definition that (as the ruling notes) currently applies only to the City of Houston.

Round Rock asked whether it could get the benefit of Government Code Section 2303.5055 (refund/rebate/payment of tax proceeds to a qualified hotel project) even though it isn't Houston-sized. The Comptroller agreed, but on different legal footing: a 2015 amendment to Tax Code Section 351.102(b) extended the same tax-rebate benefit to municipalities of 96,000+ population located in a county that borders Lake Palestine or contains the headwaters of the San Gabriel River. Round Rock's population exceeded 96,000 (112,774 per the 2014 Census estimate), and the San Gabriel River's headwaters — the confluence of its North and South Forks — sit in Georgetown, Texas, which is in the same county (Williamson) as Round Rock. "Headwaters" isn't statutorily defined, so the Comptroller applied its ordinary meaning (the river's source/starting point).

The upshot: once a hotel project meeting Section 351.102(b)'s physical-proximity requirements (within 1,000 feet of a city-owned convention center, city-owned or city-affiliated ownership, ancillary facilities within 1,000 feet) opens for initial occupancy, the Comptroller will approve it for rebates of hotel occupancy tax proceeds under either Tax Code Section 151.429(h) or Government Code Section 2303.5055.

What this means for you

Municipalities and economic development officials

If your city isn't large enough to qualify as a "qualified hotel project" city (population 1,500,000+, which as of this ruling is only Houston), check Tax Code Section 351.102(b) for a separate, lower population threshold (96,000+) tied to specific geographic criteria (bordering Lake Palestine, or containing/sharing a county with the San Gabriel River headwaters). The Legislature amends these qualifying-city lists periodically, so confirm the current statutory text applies to your city and county before relying on this analysis.

Hotel developers and convention-center partners

The rebate hinges on strict proximity and ownership requirements: the hotel (and any ancillary facilities like meeting space, restaurants, or parking) must be within 1,000 feet of the qualifying convention center, and must be owned by (or on land owned by) the municipality or, for an eligible central municipality, a nonprofit corporation acting on the municipality's behalf. Structure ownership and site plans with these thresholds in mind from the start.

Accountants and tax professionals

This ruling is a useful illustration that "qualified hotel project" (Gov't Code § 2303.003(8)) and the Tax Code § 351.102(b) city-list route are two distinct paths to the same rebate benefits — don't assume a city must meet the 1.5-million population "qualified hotel project" threshold if a smaller-city carve-out in § 351.102(b) might apply instead.

Common questions

Q: Does every Texas city with a hotel near a convention center get this rebate?
A: No. The rebate under Tax Code Section 351.102(b) is limited to municipalities meeting specific population and geographic criteria set by the Legislature (here, 96,000+ population in a county bordering Lake Palestine or containing the San Gabriel River headwaters), and the hotel project itself must meet ownership and proximity requirements.

Q: What does "headwaters" mean for this rule?
A: The statute doesn't define it, so the Comptroller applied the common meaning — the source or starting point of the river, here the confluence of the North and South Forks of the San Gabriel River in Georgetown, Texas (Williamson County).

Q: When does the rebate actually start flowing?
A: The Comptroller approves a hotel project for tax rebates once the project opens for initial occupancy — not before.

Q: Can another city rely on this ruling?
A: No. This is a private letter ruling binding only on the Comptroller as to the City of Round Rock and the specific facts presented. Another city with a similar but not identical fact pattern would need its own ruling request.

Citations and references

Statutes and rules:

• Tex. Tax Code § 351.102(b), (c) (pledge of hotel-project tax proceeds to qualifying municipalities)
• Tex. Tax Code § 151.429(h) (state hotel-project tax rebate)
• Tex. Gov't Code § 2303.5055 (refund, rebate, or payment of tax proceeds to qualified hotel project)
• Tex. Gov't Code § 2303.003(8) (definition of "qualified hotel project," currently Houston-only by population threshold)
• 34 Tex. Admin. Code Rule 3.1 (Private Letter Rulings and General Information Letters)
• 34 Tex. Admin. Code Rule 3.10 (Taxpayer Bill of Rights; detrimental reliance)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201606833L

Original ruling text

This document is also available as a hotel tax document at STAR 201606832L

June 7, 2016

*****, City Attorney
City of Round Rock, Texas

Round Rock, Texas 78664-5246

Re: Private Letter Ruling #160610180
Hotel Tax and Municipally Owned Convention Center

Dear *****:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter
Rulings and General Information Letters, [ENDNOTE 1] in response to your
February 25, 2016 request. Detrimental reliance relief is provided in
accordance with Rule 3.10, the Taxpayer Bill of Rights.

Requested Ruling:

The City is entitled to the benefits of Government Code Section 2303.5055,
Refund, Rebate, Or Payment Of Tax Proceeds To Qualified Hotel Project, for a
qualified hotel project meeting the requirements of the Government Code as it
is a municipality with a population of 96,000 or more and is located in a
county that contains the headwaters of the San Gabriel River.

Relevant Facts:

The City of Round Rock (City) is located in Williamson County.

The San Gabriel River forms in Georgetown, Texas, at the confluence of the
North and South Forks of the river. Georgetown, Texas is also located in
Williamson County.

The United States Census Bureau estimates that the City’s population was
112,774 in 2014. The City's Planning Department estimates its population to be
106,360 in 2016.

Analysis:

The analysis below discusses a “hotel project” rather than a “qualified hotel
project.” The term “qualified hotel project” is defined in Government Code
Section 2303.003(8) and applies to a project located in “a municipality with a
population of 1,500,000 or more,” which is currently only the City of Houston.

In 2015, the 84th Legislature amended Tax Code Section 351.102(b), Pledge for
Bonds, to add “a municipality with a population of 96,000 or more that is
located in a county that borders Lake Palestine or contains the headwaters of
the San Gabriel River…”

The term “headwaters” is not defined by statute. In common usage, the term
refers to the source or starting point of a river. In interpreting Section 351.102,
therefore, we applied the common usage of the term and determined that
“the headwaters of the San Gabriel River” means the confluence of the North and
South Forks of the San Gabriel River in Georgetown, Texas.

The headwaters of the San Gabriel River are located in Williamson County, as is
the City. In addition, the City’s population exceeds 96,000. The City therefore
qualifies as a municipality to which Section 351.102(b) applies.

Pursuant to Section 351.102(c), a municipality to which subsection (b) applies
“is entitled to receive all funds from a project described by this section that
an owner of a project may receive under Section 151.429(h) of this code, or
Section 2303.5055, Government Code.”

Section 351.102(b) describes a hotel project as follows:

• a hotel located within 1,000 feet of an operational convention center that is
  owned by a municipality described in Section 351.102(b);

• the hotel must be owned by or located on land owned by the municipality or,
  for an eligible central municipality, a nonprofit corporation acting on its
  behalf;

• any facilities ancillary to the hotel must be owned by or located on land
  owned by the municipality or, for an eligible central municipality, a nonprofit
  corporation acting on its behalf; [ENDNOTE 2] and

• the facilities ancillary to the hotel must be located within 1,000 feet of the
  hotel or convention center facility.

Conclusion:

The City is a municipality described in Section 351.102(b), and is entitled to
the benefits under Tax Code Section 151.429(h) or Government Code Section
2303.5055, as they relate to a hotel project under Section 351.102(b),
described above. The Comptroller will approve a hotel project for tax rebates
once the project is open for initial occupancy.

If you have questions about this private letter ruling, please email us at
[email protected] and reference Private Letter Ruling #160610180.

Sincerely,

Tax Policy Division – Indirect Taxes

ENDNOTES:

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

2. Facilities ancillary to the hotel include “convention center entertainment-related
   facilities, meeting spaces, restaurants, shops, street and water and sewer infrastructure
   necessary for the operation of the hotel or ancillary facilities, and parking facilities within
   1,000 feet of the hotel or convention center facility.”