Texas Comptroller of Public Accounts STAR System
HEARING NO. 40,676
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: 04/01/96 THROUGH 12/31/97
HOTEL OCCUPANCY TAX/RFD
BEFORE THE COMPTROLLER
OF PUBLIC ACCOUNTS
OF THE STATE OF TEXAS
Administrative Law Judge
E. LANCE FITZGERALD
Representing Administrative Hearings Section
At the request of the Claimant, this case is being decided based upon the
written submissions of the parties.
Unless otherwise indicated, Section references are to Title 2 of the Texas Tax
Code, and Rule references are to sections of Title 34, Texas Administrative
Code. Notice has been taken of Comptroller's records pertinent to Claimant or
the issues raised in this case.
The Comptroller erred in partially denying Claimant's claim for a refund of
hotel occupancy taxes reported and paid on attrition fees.
FINDINGS OF FACT:
1. Claimant owns and operates a hotel in **************, Texas.
2. By agreement, organizations reserve groups of rooms at Claimant's hotel for
varying amounts of time.
3. The agreement calls for the payment of attrition fees when an organization
cancels or does not utilize 84% or less of the number of rooms originally
4. The partial denial of Claimant's refund claim (i.e., Claimant's contention)
pertains to attrition fees charged under contracts, which included the
following "Attrition Schedule:"
( . . . ACCOUNT) acknowledges that it understands the rates quoted for guest
room reservations are based upon utilization of the original numbers provided
by ( . . . A CCOUNT) to the [Claimant] and noted in this agreement.
In the event guestroom utilization falls below this original number and
negatively impacts anticipated revenues, the following attrition schedule will
apply. ( . . . A CCOUNT) agrees to pay The [Claimant] fees noted below within
thirty (30) days of departure. Attrition fees are arrived at by calculating a
percentage of anticipated revenue, which was lost due to guestrooms originally
reserved but not utilized.
Total Room Nights Used: (85% or greater)
Total Attrition Fee: Waived
Total Room Nights Used: 84% or less)
Total Attrition Fee: (Room rate for each unused room)
DISCUSSION AND CONCLUSIONS OF LAW:
Section 156.051(a) provides that hotel occupancy tax is imposed on a person who
by contract or agreement ". . . pays for the use or possession or for the right
to the use or possession of a room or space in a hotel . . ."
Claimant essentially argues that under the type of contract referred to in Fact
No. 4, organizations or clients are only "obligated to pay for 85% of the
Claimant also argues that "[a]nother factor to consider is that the customer
does not have the right to occupy the room by paying this attrition fee.
Twenty one days before the contracted group is to come in, any unreserved rooms
or non guaranteed rooms are reverted back to inventory for sale to public
The Administrative Hearings Section's (AHS) basis for opposing Claimant's
contention is described as follows in AHS' Response of October 24, 2001:
Physical occupancy is not a necessary condition, per longstanding policy, to
impose the Hotel Occupancy Tax. Hotel Occupancy Tax is imposed whenever the
full room rate is charged. In Comptroller's Decision No. 24,654 (1989) the
Petitioner, a hotel operator, and a customer entered into a contract containing
a cancellation fee. If the customer cancelled more than thirty days before
scheduled arrival, the fee was less than the full room rate. Cancellation
within thirty days of the scheduled arrival cost the customer the full room
rate. The Petitioner argued the cancellation fee was not subject to the Hotel
Occupancy Tax because it constituted damages for breach of contract. The
Decision held the first instance was not subject to Hotel Occupancy Tax; but
the second situation was. The Decision concluded as to the second situation:
[T]he customer has paid the full consideration necessary to achieve a right of
occupancy and the charge is taxable under TEX. TAX. CODE ANN. SECTION
Finally, the Decision directed "the audit be amended by deleting cancellation
fees when the customer cancelled more than thirty days before the scheduled
arrival and the fee was less than the contract price."
In the instant case, the auditor did not grant a refund of Hotel Occupancy Tax
collected because of the attrition fee schedule shown above. The Claimant's
Attrition Schedule specifically charges customers the "room rate for each
unused room". The charge is taxable under the reasoning of Comptroller's
Decision No. 24,654 (1989). The AHS rejects the Claimant's contention.
Section 111.102(a) provides that a credit or refund will be issued only if the
Comptroller finds that the tax has been unlawfully or erroneously collected.
Therefore, Claimant understandably bears the burden of proving its contention,
by a preponderance of the evidence. Decision Nos. 39,706 (2001) and 37,961
Based on a review of the evidence of record and the authority referenced above,
I conclude that the AHS has the better case. The contract language in question
clearly states that the organization or client must pay Claimant the full
"[r]oom rate for each unused room," and as pointed out by the AHS, under
Decision No. 24,654 and Section 156.051(a) the charge/attrition fee is taxable.
(See Fact Nos. 3 and 4.) Accordingly, Claimant has failed to meet its burden
Claimant's contention should be denied.
SIGNED January 25, 2002.
Administrative Law Judge
HEARING NO. 40,676
ORDER OF THE COMPTROLLER
The above decision of the Administrative Law Judge is approved and adopted in
all respects. This decision becomes final twenty-three (23) days from the date
of this Order.
If a rehearing is desired, a Motion for Rehearing must be filed with the
Administrative Law Judge no later than twenty-three (23) days after the date of
this Order, and must state the grounds upon which the motion is based.
RENDERED and ISSUED January 25, 2002.
CAROLE KEETON RYLANDER
Comptroller of Public Accounts
of the State of Texas
ACCESSION NUMBER: 200201878H
DOCUMENT TYPE: H
TAX TYPE: HOTEL