Does a convention center count as "owned by a municipality" for Texas's qualified-hotel-project tax rebate if the city's ownership interest is a reversionary "determinable fee" instead of outright fee simple?

Plain-English summary

A private developer proposed a large mixed-use redevelopment of a historic site — a hotel, a convention center, a food hall, restaurants, a concert venue, retail, and a rooftop farm — and wanted the city to designate it a "qualified hotel project" so it could receive Chapter 351 tax rebates. The financing structure: the developer would build the convention center at its own cost, then convey it to a city-affiliated local government corporation (LGC) in "determinable fee" — a form of ownership where title reverts back to the developer 10 years and a day after the hotel opens (extendable another 10 years for a second phase). The LGC would then lease the convention center right back to the developer to operate.

The Comptroller ruled the project did not qualify. Texas Government Code § 2303.003(8) requires the convention center to be "owned by a municipality" of the relevant population size — and a determinable fee isn't equivalent ownership: the municipality can't freely dispose of the property, and title is encumbered by the automatic reversion back to the developer. Because the convention center ownership prong failed, the entire project fell outside the "qualified hotel project" definition, and the Comptroller declined to answer any of the other questions in the request (which had asked about the tax rebate itself) — there's no reason to reach rebate mechanics for a project that isn't qualified in the first place.

What this means for you

Developers structuring convention center ownership for a qualified hotel project

Fee simple (or its practical equivalent) matters, not just formal transfer of a deed. A reversionary interest like a determinable fee — even one that keeps the property under municipal control for a decade or more — does not satisfy the ownership requirement. If your financing structure depends on eventually reclaiming the convention center, expect the Comptroller to treat that as disqualifying, and structure around it (e.g., outright fee simple with no reversion) before applying.

Cities and local government corporations partnering with private developers

Watch how title actually transfers to any municipal or LGC entity in your qualified-hotel-project structure. This ruling is a useful negative example: it shows exactly the kind of encumbered, time-limited ownership interest that will sink a project's eligibility regardless of how compelling the surrounding facts (multi-use redevelopment, adaptive reuse of a historic site) otherwise are.

Accountants and tax professionals

Note the Comptroller's restraint here — once the threshold ownership question failed, it expressly declined to reach the taxpayer's remaining rebate questions rather than opining on hypothetical mechanics for a disqualified project. This is a useful companion to other STAR rulings analyzing Chapter 351 qualified hotel projects (including rulings issued the same week on qualifying projects) — read together, they show the ownership-structure line the Comptroller actually draws.

Common questions

Q: What is a "determinable fee" and why did it fail the ownership test?
A: It's an ownership interest that automatically ends (reverts to the prior owner) on a stated event or date — here, 10 years and a day after the hotel opened. Because the municipal entity's ownership was time-limited and encumbered, it wasn't equivalent to owning the property outright, which the statute requires.

Q: Did the Comptroller rule on whether the hotel or the rest of the project qualified?
A: No. Because the convention center ownership requirement failed and a qualified hotel project requires a qualifying convention center, the Comptroller declined to address the taxpayer's other questions about the hotel or the rebate mechanics.

Q: Could restructuring the ownership fix this?
A: This ruling doesn't say — it only addresses the facts presented. But it strongly signals that conveying the convention center in unencumbered fee simple, without an automatic reversion, is what the ownership requirement is looking for.

Q: Can another developer rely on this ruling for a similar project?
A: No. It binds the Comptroller only for the taxpayer and facts presented; a different ownership structure could reach a different result.

Citations and references

Statutes and rules:

• Tex. Gov't Code § 2303.003(8) (qualified hotel project — convention center ownership requirement)
• Tex. Tax Code § 151.429(h) (tax rebates for qualified hotel projects)

Note: This document is also indexed on STAR as a hotel tax document under Accession No. 202001026L.

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/202001025L

Original ruling text

Note: This document is also indexed as a hotel tax document under STAR 202001026L.

January 28, 2020

RE: Private Letter Ruling No. PLR 20190403104404

**, 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 29, 2019, and supplemental correspondence on April 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

** is a proposed mixed-use development to be located on a 16-acre parcel of land at ** in downtown CITY (Project). The Project focuses on the adaptive reuse and reinvention of the historic COMPANY site. The Project is currently owned by ** (Taxpayer) and affiliates (Developer). The Developer is requesting that the CITY Council adopt an ordinance through which the CITY would select Developer to construct a qualified hotel project within the meaning of Texas Government Code Section 2303.003(8) and receive tax rebates under Section 151.429(h).

CITY First Corporation (CFC) is a local government corporation created by and acting on behalf of the CITY, organized pursuant to Subchapter D of Chapter 431 of the Texas Transportation Corporation Act. It is contemplated that Developer would create a condominium for the Project consisting of several units, one of which would be a convention center facility of approximately 35,000 square feet (Convention Center Unit).

Upon completion of construction of the Convention Center Unit by the Developer at its cost and expense, the Developer would convey the Convention Center Unit to CFC in determinable fee, which could revert to Developer ten years and one day after the hotel opening. Such period could be extended an additional ten years if a second hotel is constructed as part of a future phase of the Project. The conveyance by Developer to CFC would be subject to certain exceptions to title, including an existing deed of trust lien by a mortgagee granted by Developer. The application for benefits would be submitted to the Comptroller after that conveyance occurred.

CFC would, in turn, lease the Convention Center Unit back to Developer (or an affiliate of Developer) for a term coterminous with the determinable fee. The Convention Center Unit would be managed for CFC under a development and management agreement with an affiliate of Developer and under which the Developer would be obligated to pay all costs to operate, repair, and maintain the Convention Center Unit. No rebate of ad valorem taxes, local sales and use taxes, local hotel occupancy taxes, or local mixed beverage taxes is contemplated.

Another condominium unit of the Project would be a hotel containing approximately 90- 200 rooms, which would be constructed and owned by Developer, and privately operated and managed (New Hotel). Other condominium units of the Project may include an international food hall area (approximately 40,000 sq. ft.), restaurant and patio space (approximately 30,000 sq. ft.), a feature roof-top restaurant (15,000 sq. ft.), a concert venue (50,000+ sq. ft.), retail (approximately 20,000 sq. ft.), and a roof-top farm (80,000+ sq. ft.) (Other Condo Units). The New Hotel and the Other Condo Units would all be within 1,000 feet of the Convention Center Unit, and could include restaurants, retail, entertainment uses, and potentially a second hotel.

Questions, Rulings, and Analysis

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

Question One: Assuming the CITY Council adopts the contemplated ordinance, does the Convention Center Unit qualify as a “convention center owned by a municipality having a population of 1,500,000 or more” pursuant to the definition of “qualified hotel project” set forth in Texas Government Code Section 2303.003(8)?

Ruling One: No, the Convention Center Unit does not qualify as convention center owned by a municipality having a population of 1,500,000 or more as set forth in Texas Government Code Section 2303.003(8).

Analysis for Ruling One: The Developer owns the Project site and would own the Convention Center Unit. The Developer would convey the Convention Center Unit to CFC in determinable fee. This determinable fee could revert to Developer ten years and one day after the hotel opening and could be extended an additional ten years. Unlike with fee simple, the municipality would not have the freedom to dispose of the Convention Center Unit at will and title to the Convention Center will be encumbered. Therefore, the Convention Center Unit will not satisfy the ownership requirement in Texas Government Code Section 2303.003(8) of being owned by a municipality having a population of 1,500,000 or more under the proposed arrangement. A qualified hotel project only exists if the convention center ownership requirement is satisfied.

The Comptroller declines to answer all remaining questions in the request because the Project is not a qualified hotel project as set forth in Texas Government Code Section 2303.003(8).

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. 20190403104404.

Sincerely,

Tax Policy Division – Indirect Taxes

Texas Comptroller of Public Accounts

ENDNOTE:

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.