BILL ANALYSIS

C.S.H.B. 4412

By: Landgraf

Ways & Means

Committee Report (Substituted)

BACKGROUND AND PURPOSE

The bill author has informed the committee that the City of Kermit has experienced exceptionally high hotel occupancy rates due to oil and gas activity, generating approximately $1 million in hotel occupancy tax revenue annually. The bill author has further informed the committee that with a population of only around 6,000, Kermit has little demand for major tourism-related projects, such as sports arenas or convention centers, which are typically eligible for hotel occupancy tax revenue funding. Consequently, the city routinely carries over excess hotel occupancy tax revenue from year to year, resulting in a substantial and growing surplus. C.S.H.B. 4412 seeks to address this issue by allowing the City of Kermit to use hotel occupancy tax revenue for a public improvement project that will directly benefit the hotel and tourism industry.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 4412 amends the Tax Code to authorize a municipality that is the county seat of a county that borders New Mexico and contains a portion of a state park that is located in two counties to use municipal hotel occupancy tax revenue, in addition to other authorized uses, for the promotion of tourism by funding a public improvement project that directly benefits the hotel and tourism industry. The bill prohibits the municipality from using the municipal hotel occupancy tax revenue as follows:

· to fund more than 25 percent of the total costs of the public improvement project; and

· in an amount that causes the total amount of municipal hotel occupancy tax revenue used for a statutorily prescribed purpose regarding the use of municipal hotel occupancy tax revenue during a calendar year to be less than the average annual amount of revenue used by the municipality for those purposes during the 36-month period preceding the municipality's use of hotel occupancy tax revenue to fund the public improvement project.

C.S.H.B. 4412 prohibits the municipality, on or after the eighth anniversary of the date the municipality first uses municipal hotel occupancy tax revenue for a public improvement project, from imposing a municipal hotel occupancy tax rate at a rate that exceeds two percent of the price paid for a room in a hotel. The bill prohibits the municipality from using municipal hotel occupancy tax revenue for a public improvement project after December 31, 2034.

EFFECTIVE DATE

On passage, or, if the bill does not receive the necessary vote, September 1, 2025.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 4412 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

Both the introduced and the substitute authorize a municipality that is the county seat of a county that borders New Mexico and contains a portion of a state park that is located in two counties to use municipal hotel occupancy tax revenue for certain public improvement projects. However, the substitute omits the following additional criteria for the municipality present in the introduced:

· in the most recent completed fiscal year, hotel occupancy levels within the municipality and its extraterritorial jurisdiction exceeded 90 percent;

· in the most recent completed fiscal year, on average, more than 40 percent of the individuals within the municipality and its extraterritorial jurisdiction stay within a hotel within the municipality each night; and

· in the most recent completed fiscal year, unexpended balances of municipal hotel occupancy tax revenue exceeded $1.8 million.

With respect to the use of the municipal hotel occupancy tax revenue, both the introduced and the substitute authorize the applicable municipality to use the revenue for public improvement projects that directly benefit the hotel and tourism industry. However, the substitute clarifies that funding these projects is for the promotion of tourism, whereas the introduced did not make such a clarification.

Additionally, the substitute specifies that authorization to use the municipal hotel occupancy tax revenue for a public improvement project is in addition to the other authorized uses for the revenue, whereas the introduced did not make such a specification.

Whereas the introduced prohibited the municipality from reducing the amount of revenue that it uses for a statutorily prescribed purpose to an amount that is less than the average amount of revenue used by the municipality for those purposes during the 36-month period preceding the municipality's use of the revenue for a public improvement project, the substitute prohibits instead the municipality from using the revenue in an amount that causes the total amount of municipal hotel occupancy tax revenue used for such a statutorily prescribed purpose to an amount that is less than the average annual amount of revenue used by the municipality for those purposes during that 36-month period.

Whereas the introduced required the municipality, within eight fiscal years of using municipal hotel occupancy tax revenue for the public improvement project, to reduce the rate of municipal hotel occupancy tax to no more than two percent of the price paid for a room in a hotel and prohibited the municipality from increasing its municipal hotel occupancy tax rate to no more than two percent of the price paid for a room in a hotel within that period, the substitute prohibits instead the municipality from imposing a municipal hotel occupancy tax rate at a rate that exceeds two percent of the price paid for a room in a hotel on or after the eighth anniversary of the date the municipality first uses the revenue for such a project.

Whereas the introduced set its provisions to expire on December 31, 2034, except for its provisions relating to changes to the municipality's hotel occupancy tax rate within eight fiscal years of the municipality using revenue from that tax for a public improvement project, the substitute does not set such an expiration date.