OCA Audit Reports

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Issued: August 2005

SUMMARY

This report presents the results of the first part of our work related to the administration of the City’s hotel occupancy tax, which focuses on the City’s administration and collection of this tax. The hotel occupancy tax is a nine percent tax levied on qualified hotel room stays. The proceeds of this tax are earmarked for specific tourism-related uses. Proceeds from the hotel occupancy tax are a significant source of revenue for the City, yielding over $26 million in FY04.

We determined that accounting staff record remitted hotel occupancy tax revenues accurately and consistently following established policies. We also noted areas where system improvements could contribute to a more effective and efficient accounting process. For example, limitations of the current accounting systems require a cumbersome monthly reconciliation process for the Hotel Motel Occupancy Tax fund.

With regard to the City’s collection of these revenues, the City has been collecting the majority of the hotel occupancy tax revenues, but has not sufficiently pursued delinquent hotels. As a result, there were approximately $697,000 in delinquencies as of June 2005, and several establishments that may not be appearing on the tax roll at all. Also, calculations of delinquencies prior to FY04 only included self-reported delinquencies, so total delinquencies may be understated.

The City has not made adequate collection and enforcement efforts in order to collect delinquent hotel occupancy taxes. The Controller’s Office has been distributing delinquency letters to non-paying hotels, but has not been actively pursuing non-paying hotels. Collection calls have not been made to hotels to encourage payment of delinquent taxes since FY04, and no cases have been referred to the Law Department for litigation since FY96. Not fully pursuing delinquent hotels has contributed to a worsening trend of non-compliance, had negative impacts on participating funds, and creates a greater risk of uncollectible accounts in the future.

During the course of our work, we identified several enhancements that could be made to improve hotel occupancy tax administration and enforcement. For example, public information for the hotel industry can be improved and enforcement procedures can be strengthened by adopting practices in place in other Texas cities.

Download the entire text of our Hotel Occupancy Tax Administration audit report (Size: 329 KB) in Adobe Acrobat. You will need Adobe's Acrobat Reader to view these files. Or request a hard copy of this audit report, No. AU05105A, by submitting this audit report request form.

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