Can a city split ownership of a qualified hotel project — city owns the convention center, a local government corporation owns the hotel — and still qualify for the Chapter 351 tax rebate, and what exactly does a city need to submit to actually collect the rebate?

Plain-English summary

A mid-size city (population between 110,000 and 135,000, spanning two smaller counties) planned a "destination convention center hotel" across the street from its existing convention center: a 206-key hotel plus about 18,000 square feet of new meeting space, all one integrated building. The financing was layered — the city would own the new convention center directly, financed by certificates of obligation secured by ad valorem and hotel occupancy taxes, while the hotel would be owned by a local government corporation (LGC) the city created under Transportation Code Chapter 431, which would issue its own hotel revenue bonds. The city walked through nineteen detailed questions to confirm the whole arrangement — including the fact that it already had an unrelated existing convention center elsewhere — still qualified for the Chapter 351 tax rebate, and how to actually collect it.

The Comptroller confirmed the project qualified at every step. The city met its population-based eligibility category, and having a separate existing convention center didn't disqualify the new one — a municipality can only finance one qualified project at a time, and the city simply designated the new project (not the old facility) as its one qualified project. The split ownership (city owns the convention center, LGC owns the hotel) was fine, because each definition only requires that specific facility's ownership condition to be met independently. A ground lease or facilities lease to a private operator doesn't disqualify either facility, as long as the underlying ownership and connection requirements stay satisfied — even restaurants, bars, and retail spaces leased out to unrelated third parties still generate rebatable revenue for the city. There are no minimum capital expenditure requirements, no minimum/maximum room count, and no minimum/maximum building size beyond the convention center's 10,000-square-foot meeting-space floor — flexibility the Comptroller confirmed point-blank across several of the nineteen questions. The most practically useful part of the ruling is the refund-request checklist: before the city can collect a dime, it must submit to the Comptroller's Audit Division a package including the city's approving ordinance, architect's plans, a distance map, ownership documentation, hotel-opening records (guest folios, press releases), taxpayer ID and location numbers for the hotel and every restaurant/bar/retail tenant, and signed confidentiality waivers (renewed annually, or up to three years if the waiver says so) — and none of it can be submitted until the project is actually complete.

What this means for you

Cities structuring a qualified hotel project through a local government corporation

Splitting ownership between the city (convention center) and an LGC (hotel) doesn't break eligibility — the Comptroller evaluates each facility's ownership requirement independently. If you already have an unrelated existing convention center, that alone doesn't block a new project from qualifying, but remember the one-project-per-municipality limit means you're choosing which project gets the rebate.

Cities preparing to actually request the rebate

Start assembling the refund package well before the hotel opens — it's a substantial documentation checklist (ordinance, architect's plans, distance map, ownership records, opening-date proof, taxpayer ID numbers for every rebate-eligible tenant, and signed confidentiality waivers), and the Comptroller won't even begin review until the project is complete and the application is submitted and verified.

Accountants and tax professionals

This ruling is a useful companion to other STAR rulings analyzing Chapter 351 qualified hotel projects with different ownership and financing structures issued around the same period — read together, they map the range of structures (single entity, PFC/MDD, city/LGC split, determinable-fee) the Comptroller has evaluated and which specific structural features (genuine fee ownership, no automatic reversion, proper designation of the one qualified project) matter most.

Common questions

Q: Does an existing, unrelated convention center in the same city block a new qualified hotel project?
A: No — a municipality may only finance one qualified project at a time, and here the city simply designated the new project (not the pre-existing facility) as that one qualified project.

Q: Can the convention center and the hotel be owned by two different entities (city vs. an LGC)?
A: Yes, as this ruling confirms — each facility's ownership requirement (the convention center wholly owned by the municipality; the hotel on land owned by the designating municipality) is evaluated independently.

Q: Are there minimum size, room count, or capital expenditure requirements for a qualified hotel project?
A: No minimum/maximum room count and no capital expenditure minimum. The only size requirement is that the convention center facility have at least 10,000 square feet of continuous meeting space.

Q: What does a city need to submit to actually collect the rebate?
A: A written request to the Comptroller's Audit Division after the project is complete, including the approving ordinance, architect's plans, a distance map, ownership documentation, records proving the opening date, taxpayer ID/location numbers for the hotel and each restaurant/bar/retail tenant, and signed (and periodically renewed) confidentiality waivers.

Q: Can another city rely on this ruling for its own project?
A: No. It binds the Comptroller only for the taxpayer and facts presented; a different ownership or financing structure could be analyzed differently.

Citations and references

Statutes and rules:

• Tex. Tax Code § 351.152(12) (municipal eligibility); § 351.151(2)-(4) (qualified convention center facility, hotel, project definitions)
• Tex. Tax Code § 351.155(a)-(c), (e) (pledge/commitment of tax revenue; one-project-per-municipality limit); § 351.156, § 351.157 (entitlement to revenue); § 351.158 (10-year period of entitlement)
• Tex. Tax Code § 183.051 (mixed beverage tax clearance fund)
• Tex. Transp. Code Ch. 431 (local government corporations — hotel revenue bond authority)

Note: This document is also indexed on STAR as a hotel tax document under Accession No. 201910007L.

Source

• Landing page (STAR search): https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/201910008L

Original ruling text

NOTE: This document is also indexed as a hotel tax document under STAR 201910007L.

October 4, 2019

RE: Private Letter Ruling No. PLR20190311135245

**, Texas, Taxpayer No. **

Dear **:

We issue this private letter ruling in accordance with Rule 3.1, Private Letter Rulings and General Information Letters. [ENDNOTE: (1)] We are responding to your request dated March 18, 2019, supplemental correspondence on April 12, 2019, revised request dated July 12, 2019, and supplemental correspondence on Sept. 25, 2019. Detrimental reliance relief is provided in accordance with Rule 3.10, Taxpayer Bill of Rights.

You requested guidance on the proposed development and construction of a municipal hotel and convention center project.

Facts Presented

CITY is located in COUNTY A and COUNTY B, which had a 2010 census population of 131,506 and 20,202, respectively. The population for both COUNTY B and COUNTY A is less than 135,000. At the time of the 2010 census, the City had a population of 117,063, which is greater than 110,000 and less than 135,000.

The City is in negotiation with a Developer to bring a destination convention center hotel to the City (Project), which will be constructed directly across the street from the City owned Existing Convention Center on three parcels of land owned by the City (Property). The Project will be a fully integrated facility contained in a single building structure.

The Project will consist of a 206-key hotel (Hotel Facilities), a convention center facility comprised of a new convention center and meeting facilities providing approximately 18,000 square feet of continuous configurable meeting space connected to the hotel (New Convention Center Facilities), approximately 250 surface parking spaces, food and beverage service facilities, laundry and other ancillary facilities required to support a full- service convention center headquarters hotel.

The Project will include a retail gift shop, food and beverage outlets including coffee shops, restaurants, and bars which will be located within the Hotel Facilities. Additionally, parking facilities with a property line located not more than 1,000 feet from the nearest property line of the qualified convention center facility and qualified hotel will be constructed for the Hotel Facilities and the New Convention Center Facilities. There are no additional facilities within the Project or in the immediate vicinity of the Project or located on the Property for which the City will seek to receive the available revenues under Chapter 351.

While the Hotel Facilities and the New Convention Center Facilities are under the same roof or conditioned air space, there will be a common stud wall between the two facilities in some areas. The ownership documents will clearly illustrate that the New Convention Center Facilities are owned by the City and the Hotel Facilities are owned by the local government corporation (LGC).

The Hotel Facilities will be constructed on land owned by the City. The Hotel Facilities will be owned by a LGC created by the City pursuant to Section 431.101(a) of the Transportation Code. The LGC will issue hotel revenue bonds (Hotel Revenue Bonds) in one or more series for the construction of the Hotel Facilities. The Hotel Revenue Bonds will be issued by the LGC, for and on behalf of the City, pursuant to and in accordance with authority granted under Transportation Code Chapter 431. The Hotel Revenue Bonds will not be secured by any revenues available under Chapter 351.

The New Convention Center Facilities will be owned by the City and located on land owned by the City. The New Convention Center Facilities will be financed by the City’s issuance of combination tax and revenue certificates of obligation (COs) secured by a pledge of ad valorem taxes and local hotel occupancy taxes authorized to be pledged under Chapter 351. The COs will be authorized and issued after Sept. 1, 2019.

The City will enter into a ground lease with the LGC conveying a ground leasehold interest to the LGC in the Property. The LGC and City will cause the Project to be constructed on the Property. A private entity will be engaged to manage, operate and maintain the Project pursuant to a qualified management agreement at standards set by a hotel brand pursuant to a franchise agreement. It is anticipated that the initial occupancy of the Project will be June 25, 2021.

Questions, Rulings, and Analysis

Our restatement of your questions is shown below, followed by our responses and analysis.

Question One: Does the City qualify as a city described in 351.152(12)?

Ruling One: Yes, the City qualifies as a city described in 351.152(12).

Analysis for Ruling One: At the time of the 2010 census, the City had a population of 117,063, which is greater than 110,000 and less than 135,000. A portion of the City is within COUNTY A, which had a 2010 census population of 131,506 and is also within COUNTY B which had a 2010 census population of 20,202. The 2010 census population for both COUNTY B and COUNTY A is less than 135,000.

Question Two: Do the Hotel Facilities meet the requirements of a “qualified hotel” under Section 351.151(3)?

Ruling Two: Yes, the Hotel Facilities meet the requirements of a “qualified hotel,” provided the City designates the Hotel Facilities as the hotel that is part of a qualified project. The Hotel Facilities will be constructed on the Property owned by the City and will be connected to the New Convention Center Facilities.

Analysis for Ruling Two: A qualified hotel must be designated by a municipality and located on land that is owned by the designating municipality and connected to a qualified convention center facility or be located within 1,000 feet of a qualified convention center facility, as measured by the closest exterior wall of the qualified hotel and the closest exterior wall of the qualified convention center facility. Section 351.151(3). The proposed Hotel Facilities will be located on land owned by the City and connected to the New Convention Center Facilities.

Question Three (revised per email received on Sept. 25, 2019): Will the Existing Convention Center Facility limit or preclude the Hotel Facilities and the New Convention Center Facilities from being the City's qualified project?

Ruling Three: No, the Existing Convention Center Facility will not limit or preclude the New Convention Center Facilities and the Hotel Facilities from being the City’s qualified project.

Analysis for Ruling Three: The statute provides that the City may only finance one qualified project. See Section 351.155(c). The City has indicated the qualified project it wishes to finance is the New Convention Center Facilities and the Hotel Facilities, and not the Existing Convention Center Facility.

Enhancements to the Existing Convention Center Facility are not part of the qualified project and may not be a subsequent qualified project.

Question Four: Does the construction of the New Convention Center Facilities and the construction of the Hotel Facilities qualify as a “qualified project” under Section 351.151(4)?

Ruling Four: Yes, a “qualified project” is satisfied with the construction of a qualified convention center and the construction of a qualified hotel.

Analysis for Ruling Four: A “qualified project” means a project to construct a qualified convention center facility and a qualified hotel. See Section 351.151(4).

A qualified convention center facility is a facility that has been or will be constructed, and is primarily used to host conventions or meetings with at least 10,000 square feet of continuous meeting space and be configurable to simultaneously accommodate multiple events. A qualified convention center must be wholly owned by a municipality and none of which is or may be owned through an undivided common interest, and must be connected to a qualified hotel or contain an exterior wall that is located not more than 1,000 feet from the nearest exterior wall of a qualified hotel, but cannot be located within a hotel. See Section 351.151(2).

A qualified hotel must be designated by the municipality and located on land owned by the designating municipality and be connected to a qualified convention center facility. See Section 351.151(3). The Hotel Facilities are being constructed on land owned by the City and will be connected to the New Convention Center Facilities, therefore the Hotel Facilities are a qualified hotel.

Question Five (revised per email received on Sept. 25, 2019): Does the City's issuance of COs meet the requirements of Section 351.155(a)?

Ruling Five: Yes, the City’s issuance of COs satisfies the requirements of Section 351.155(a).

Analysis for Ruling Five: A municipality may pledge or commit the revenue derived from the tax imposed under Chapter 351 from a qualified hotel and the revenue to which the municipality is entitled under Section 351.156 for the payment of contractual obligations related to the project, including obligations under a contract authorized by Chapter 380, Local Government Code, for the project and an interlocal agreement directly related to the project. See Section 351.155(a).

Question Six (revised per email received on Sept. 25, 2019): Will the City's pledge of local hotel occupancy taxes to pay for the City's COs for the project satisfy the requirements of Section 351.155(b)?

Ruling Six: Yes, Section 351.155(b) is satisfied with the pledging or committing of revenue derived from the tax imposed under Chapter 351 from a qualified hotel for the payment of the City COs to construct and equip the New Convention Center Facilities.

Analysis: A municipality may pledge or commit revenue for the payment of bonds, other obligations, or contractual obligations only if the qualified hotel that is a component of the qualified project for which that revenue is pledged or committed benefits from the pledging or committing of that revenue. See Section 351.155(b).

Question Seven: Is the City entitled to receive revenue derived from the Hotel Facilities and each restaurant, bar, and retail establishment located in or connected to the Hotel Facilities under Section 351.156 if the City pledges the revenue derived from the tax imposed under Chapter 351 from the Hotel Facilities for the payment of the City COs issued for the New Convention Center Facilities?

Ruling Seven: Yes, by pledging the revenue derived from the qualified hotel the City is entitled to the revenue described by Section 351.156 derived from the qualified hotel, and each restaurant, bar, and retail establishment located in or connected to the qualified hotel.

Analysis for Ruling Seven: A municipality is not entitled to receive revenue under Section 351.156 or 351.157 unless the municipality has pledged or committed a portion of the revenue derived from the tax imposed under Chapter 351 and collected by the qualified hotel for the payment of bonds, other obligations, or contractual obligations … and issued or incurred for the qualified project. Section 351.155(e). This requirement is satisfied by the City pledging the revenue derived from the tax imposed under Chapter 351 collected at the qualified hotel for the payment of the City’s COs.

Question Eight: What revenue is the City entitled to receive under Section 351.156?

Ruling Eight: The City is entitled to receive revenue under Section 351.156 as long as the requirements for Section 351.155(e) are satisfied.

Analysis for Ruling Eight: A municipality is entitled to receive the revenue derived from state sales tax and state hotel occupancy tax generated, paid, and collected by a qualified hotel, and each restaurant, bar, and retail establishment located in or connected to the hotel or the related qualified convention center facility. See Section 351.156. Additionally, a municipality may also receive the local sales tax imposed by a political subdivision under Chapter 322 or 323, the hotel occupancy tax imposed by a political subdivision under Chapter 352, and the mixed beverage tax issued under Section 183.051 if the political subdivision that is entitled to receive the revenue from the tax agrees in writing to the municipality receiving that revenue. Section 351.156(3).

Question Nine: Is the City entitled to receive all funds described in Section 351.156 generated by the Project for a period of 10 years after the date the Hotel Facilities are open for initial occupancy?

Ruling Nine: Yes, the City is entitled to receive all funds described in Section 351.156 generated by the Project for a period of 10 years after the date the Hotel Facilities are open for initial occupancy provided the requirements in Section 351.155(e) are satisfied.

Analysis for Ruling Nine: Section 351.158 states that a municipality is entitled to receive revenue as provided by Sections 351.156 and 351.157 until the 10th anniversary of the date the qualified hotel to which the entitlement relates is open for initial occupancy. Open for initial occupancy means the earliest date on which a member of the public obtains sleeping accommodations for consideration and the qualified convention center facility is operational, as supported by records of the hotel and convention center.

Question Ten: When will the entitled tax revenues be paid to the City by the Comptroller?

Ruling Ten: The rebates will be for the first 10 years after the qualified project is open for initial occupancy. The Comptroller’s office will make monthly payments of state sales and use taxes and state hotel occupancy taxes. The Comptroller allocates mixed beverage taxes quarterly under Section 183.051(b) to cities.

Question Eleven: Assuming the Comptroller’s office agrees that the City is entitled to receive the revenues under Section 351.156, what is the process for obtaining such revenues?

Ruling Eleven: The City may submit a written request to receive the revenues under Section 351.156 to the Comptroller’s Audit division. There is no specific timeframe for when a City may formally submit a request. The Comptroller’s office will not issue revenue to the City until the qualified hotel is open for initial occupancy. A written request to the Comptroller’s Audit Division should include the following:

A copy of the municipality’s ordinance or resolution approving the rebate agreement between the municipality and the qualified project;

A copy of the architect’s plan for the qualified project;

A map showing required distances between the qualified hotel, including restaurants, bars, retail establishments, and the qualified convention center facility;

Documentation showing ownership for the qualified convention center facility and property ownership for the qualified hotel;

Designation of the hotel;

Records from the qualified hotel, qualified convention center, and municipality, such as guest folios and press releases, which show the date when the project was open for initial occupancy;

Name and address of the qualified hotel and the Comptroller-issued taxpayer identification and location numbers that the hotel is using, or will use, to report sales and use tax, hotel occupancy tax, mixed beverage gross receipts tax, and mixed beverage sales tax;

Name and Comptroller-issued taxpayer identification, and location numbers of each restaurant, bar, and retail establishment that is part of the qualified project;

Waiver of confidentiality releases signed by the authorized officer or director of the hotel and from each restaurant, bar, and retail establishment allowing the Comptroller to release the facility’s sales and use tax and mixed beverage sales tax information to the municipality. Releases must be renewed annually, unless the release specifically states a longer period not to exceed three years;

Name and telephone numbers of contact person for the municipality; and

Completed direct deposit authorization form from the municipality.

After review, the Comptroller’s office will give the City written notice as to the results of that review and will initiate the rebate process as appropriate.

The Comptroller’s office does not have statutory authority to approve a qualified project for any benefits until the project is completed and an application for benefits is submitted and verified. At this time the Comptroller does not find facts that would preclude the City from being eligible to request a refund related to the qualified project under the applicable statutory provisions.

The Comptroller reserves the right to audit and investigate the City’s project to confirm the accuracy of the representations made in this private letter ruling. If City’s representations are inaccurate, the Comptroller shall have the right to rescind this private letter ruling and may collect the amounts due from the project by any method allowed by Tax Code, Chapter 111, or any other applicable law.

The Comptroller will have to verify all relevant facts after receiving a request for refund of the taxes described in Section 351.156. We base this response on the facts presented, which are subject to verification by the Comptroller’s Audit Division. Different facts may yield different conclusions.

Question Twelve: In the event any of the restaurants, bars, and retail establishments located in or connected to the Hotel Facilities or the New Convention Center Facilities or the Existing City Convention Center are leased out to a private entity other than the operator of the Project, would the City still be able to receive revenues for such facilities?

Ruling Twelve: Yes, the City would be able to receive revenues for restaurants, bars, and retail establishments that are located in or connected to the related qualified convention center facility or the qualified hotel. Leasing these facilities to a private entity would not prevent the City from receiving revenues from the facilities.

The City can only receive rebates from the New Convention Center Facility and Hotel Facilities. The Existing Convention Center Facility is not part of the qualified project and therefore, the City is not entitled to receive revenues from restaurants, bars, and retail establishments that are located in the Existing Convention Center Facility.

Analysis for Ruling Twelve: A municipality is entitled to receive the revenue derived from the taxes generated, paid, and collected by a qualified hotel, and each restaurant, bar, and retail establishment located in or connected to the hotel or the related qualified convention center facility. See 351.156. A qualified convention center facility must be wholly owned by a municipality and none of which is or may be owned through an undivided common interest. See 351.151(2)(B). Even if the restaurant, bar, or retail establishment located in the related qualified convention center facility is leased out to a private entity, then the ownership requirement for the qualified convention center facility is still satisfied.

Section 351.151(3) contains the requirement that a qualified hotel must be located on land owned by the City. Therefore, the City will continue to receive revenues in the event that the restaurants, bars, or retail establishments located in the qualified hotel are leased out to a private entity, so as long as the qualified hotel is located on the property owned by the City.

Question Thirteen: Are there any minimum capital expenditure requirements required to be made in connection with the Project?

Ruling Thirteen: No, there are no minimum capital expenditure requirements required to be made in connection with the Project.

Question Fourteen: Are there any minimum or maximum size requirements for the buildings or sites or delegated space for certain purposes within such buildings or component spaces associated with the Project?

Ruling Fourteen: The only size requirement is found in Section 351.151(2)(E) and states that the qualified convention center facility has at least 10,000 square feet of continuous meeting space.

Question Fifteen: Are there any minimum or maximum number of guest room requirements to be a “qualified hotel” under Section 351.151(3)?

Ruling Fifteen: No, there are no minimum or maximum number of guest room requirements express or implied in Section 351.151(3).

Question Sixteen (Question 16 from the initial request has been restated as Question 16 and Question 17): As long as the Project and its separate components (i.e. the Hotel Facilities), meet the definitional requirements of a “qualified hotel” under Section 351.151(3), will the City’s entrance into a ground lease or facilities lease with a tenant affect the Hotel Facilities qualification as a “qualified hotel” under Section 351.151?

Ruling Sixteen: No, as long as the definitional requirements are met for a qualified hotel, the City’s entrance into a ground lease or facilities lease with a tenant will not affect the Hotel Facilities status as a qualified hotel under Section 351.151.

Analysis for Ruling Sixteen: A qualified hotel must be located on land owned by the designating municipality. See Section 351.151(3)(A). The Hotel Facilities will be built on land owned by the City. A ground lease will not disqualify the Hotel Facilities as long as the City retains ownership of the land on which the hotel is located.

Question Seventeen: As long as the Project and its separate components (i.e. the New Convention Center Facilities), meet the definitional requirements of a “qualified convention center facility” under Section 351.151(2), will the City’s entrance into a ground lease or facilities lease with a tenant affect the New Convention Center Facilities qualification as a “qualified convention center facility” under Section 351.151?

Ruling Seventeen: No, the City’s entrance into a ground lease or facilities lease with a tenant will not affect the New Convention Facilities status as a qualified convention center facility under Section 351.151.

Analysis for Ruling Seventeen: A qualified convention center facility must be wholly owned by a municipality and none of which may be owned through an undivided common interest. See Section 351.151(2)(B). The New Convention Center Facilities will be wholly owned by the City and will be built on land owned by the City. A ground lease will not disqualify the New Convention Center Facilities as long as the City wholly owns the New Convention Center Facilities through an undivided common interest.

Question Eighteen: Are there any restrictions on the use of funds received by the City under Section 351.156?

Ruling Eighteen: There is no statutory restriction on the use of rebated state sales and use taxes and state hotel occupancy taxes.

Question Nineteen (added based on email received on Sept. 25, 2019): Will the construction of parking facilities to serve the qualified project, and the construction of related infrastructure to serve the qualified project be eligible to be included as part of the qualified project?

Ruling Nineteen: Yes, the construction of parking facilities and the construction of related infrastructure to serve the qualified project are both eligible to be included as part of the qualified project.

Analysis for Ruling Nineteen: A qualified project may include a parking area or structure, the nearest property line of which is located not more than 1,000 feet from the nearest property line of a qualified convention center facility or qualified hotel. See Section 351.151(4)(B)(i)(b). Additionally, a qualified project may include constructing infrastructure that is directly related to and necessary for the qualified convention center facility or qualified hotel and is located within the property lines of the qualified convention center facility or qualified hotel, or not more than 1,000 feet from the nearest property line of the facility or hotel. See 351.151(4)(B)(ii).

The Texas Tax Code and Texas Administrative Code are accessible at www.comptroller.texas.gov/taxes/.

If you have questions about this private letter ruling, please email us through our website at https://comptroller.texas.gov/web-forms/tax-help/ and reference Private Letter Ruling No. 20190311135245.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

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