Texas Tax Code Chapter 351: Municipal Hotel Occupancy Tax

The Texas municipal hotel occupancy tax is a local lodging tax that cities can impose under Chapter 351 of the Tax Code on rooms rented for $2 or more per day, capped at 7 percent of the room price for most cities and higher for certain qualifying ones. The guest pays it as part of the room charge, the operator collects and remits it, and the city can only spend the revenue on tourism and the convention and hotel industry, never on general operations.¹

How Much the Tax Can Be

The default ceiling is 7 percent of the room price. Some municipalities can go above that:

Eligible central municipalities with populations of 440,000 or more: up to 9 percent.
Gulf Coast cities with populations over 250,000: up to 9 percent.
Eligible barrier island coastal municipalities: up to 8.5 percent.
Certain other municipalities meeting specific population and geographic criteria in the statute: up to 9 percent, with the revenue above 7 percent earmarked for convention center construction or operations.

These are caps. The city council sets the actual rate by ordinance, and many cities charge less than the maximum.²

The municipal tax sits on top of the 6 percent state hotel occupancy tax under Chapter 156. Add county and venue taxes, and the combined rate from all sources cannot exceed 17 percent of the room price.³

What Counts as a Hotel

Chapter 351 defines “hotel” broadly: any building where members of the public obtain sleeping accommodations for a fee. That covers hotels, motels, tourist homes and courts, lodging houses, inns, rooming houses, and bed and breakfasts. Hospitals, nursing homes, and educational-institution dormitories are excluded.¹

The Texas Comptroller reads that definition to reach condominiums, apartments, and houses rented on a short-term basis, which pulls most vacation rentals listed on Airbnb, Vrbo, and similar platforms into the tax.⁴ The tax applies once the room costs $2 or more per day. Below that, no local hotel occupancy tax is due.⁵

If your property provides sleeping quarters to the public for payment, even informally, it likely meets the statutory definition. Missing that recognition can lead to back taxes, penalties, and a court order barring you from operating until the delinquency is cleared.

Do Airbnb and Vrbo Collect the Tax for You?

Sometimes. Major booking platforms collect and remit lodging taxes in jurisdictions where they are required by law or have entered a voluntary collection agreement with the local authority. Vrbo, for example, handles collection in those places, and hosts in those jurisdictions cannot opt out. But the property owner remains responsible for any taxes the platform does not cover, including bookings taken before the platform started collecting in that city.

The trap: coverage in one city does not mean coverage in yours. Confirm directly with your municipality’s finance department whether the platform is remitting the local hotel occupancy tax on your bookings. If it isn’t, the full collection and reporting obligation is yours, and assuming the platform handled it will not protect you from penalties.

Who Is Exempt

Not every guest owes the tax. The most common exemption is the permanent resident rule: a guest with the right to occupy a room for at least 30 consecutive days, with no interruption in payment, is a permanent resident and exempt from both the state and municipal hotel occupancy taxes.¹ If a guest initially books a shorter stay and later extends past 30 days, taxes collected during the initial period may be refundable once the threshold is met.

Federal government entities are fully exempt. State government entities and their employees traveling on official business are treated differently: they pay the tax at check-in and then claim a refund afterward.

A guest claiming any exemption must present a valid exemption certificate at check-in, and the operator must keep it on file. Without the certificate, the operator is on the hook for the uncollected tax if the city audits the property. Because Chapter 351 gives municipalities four years to bring an enforcement action, keeping exemption certificates and supporting records for at least four years is the safe practice.⁶

Collecting, Filing, and Keeping Records

Chapter 351 puts the collection obligation on the operator. The guest pays the tax as part of the room charge, and the operator segregates that money and remits it to the city. Each municipality sets its own forms, filing frequency, and procedures by ordinance. Most require monthly returns due by the 20th of the following month, though some cities allow quarterly filing for lower-volume operators.⁴

A return typically asks for total gross room receipts, exempt receipts broken out (permanent residents, government stays), and the net taxable amount. Many cities now offer online portals for electronic filing and payment through the finance department or tax assessor-collector’s office.

Keep records as you go. Track every room transaction, note which guests provided exemption certificates, and reconcile daily totals against your guest folios. The Comptroller’s audit manual expects auditors to see guest registration cards, folios, daily control reports, room revenue balance sheets, and the general ledger.⁷ If those records are missing at audit, the examiner will use alternative records or estimate liability from prior-year filings, and estimates rarely favor the operator.

Penalties for Late or Missing Payment

The consequences run harder than many small operators expect. Under Section 351.004, once the tax has been delinquent for at least one full municipal fiscal quarter, the city can impose a penalty of 15 percent of the total tax owed.⁶ A delinquent operator is also liable for the city’s reasonable attorney’s fees, interest, and the cost of any audit conducted after the tax has been delinquent for at least two full municipal fiscal quarters.

A city can sue to collect unpaid taxes or ask a court to enjoin the operator from running the property until the delinquency is cleared. A municipality can also adopt an ordinance making a violation of its hotel occupancy tax rules a criminal misdemeanor.⁶ The statute of limitations for enforcement suits is four years from the date the tax becomes due.

If an operator never files, the city can conduct its own audit, pull the operator’s state tax reports filed under Chapter 156, or estimate the tax using whatever prior-year filings exist. That estimate carries legal weight as presumptive evidence of what’s owed.

The state hotel occupancy tax under Chapter 156 has its own separate penalty structure and is filed separately with the Texas Comptroller, so operators need to track state and municipal obligations as two distinct compliance streams.⁴

What Cities Can Spend the Revenue On

Municipalities cannot treat hotel occupancy tax revenue as general income. Section 351.101 sets a two-part test: every expenditure must directly promote tourism and the convention and hotel industry, and it must fall within one of the statute’s enumerated categories. Spending that fails either prong is illegal.⁸

Authorized categories include:

Convention center facilities and visitor information centers: acquisition, construction, improvement, equipping, repair, operation, and maintenance.
Convention registration support: facilities, personnel, and materials for registering delegates.
Tourism advertising and promotional campaigns aimed at attracting tourists and convention attendees.
Encouragement and support of the arts, including live performance, visual arts, film, and creative writing, tied back to tourism.
Historic preservation at or near convention facilities, or elsewhere in the municipality if the sites draw tourist traffic.
Promotion of sporting events, subject to population and geographic requirements spelled out in the statute for the city bringing the event.⁸

Chapter 351 flatly prohibits using this revenue for general governmental operations. A city that routes hotel occupancy tax money into its operating budget is violating the statute.¹

Operator Reimbursement

Section 351.005 lets a municipality allow operators to keep a portion of the tax they collect as reimbursement for the cost of collecting, reporting, and remitting it. Whether your city offers this, and at what rate, depends on the local ordinance. Many cities don’t offer it, and those that do typically cap it at a modest percentage. Check your city’s ordinance before assuming you can retain anything.

1
State of Texas. Texas Tax Code Chapter 351 – Municipal Hotel Occupancy Taxes
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State of Texas. Texas Tax Code 351.003 – Tax Rates
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Texas Comptroller of Public Accounts. Local Hotel Occupancy Tax Overview
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Texas Comptroller of Public Accounts. Hotel Occupancy Tax
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State of Texas. Texas Tax Code 351.002 – Tax Authorized
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State of Texas. Texas Tax Code 351.004 – Tax Collection
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Texas Comptroller of Public Accounts. Audit Procedures for Hotel Occupancy Tax
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State of Texas. Texas Tax Code 351.101 – Use of Tax Revenue