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“WE FOUND SOME INCONSISTENCIES…”
FUND COLLECTS $1.5M ANNUALLY FOR COTULLA
A requirement that all hotels, motels and boarding houses inside Cotulla city limits comply with a room booking surcharge for an occupancy tax is being enforced this month by the municipal administration.
Audits of a half dozen hotels selected at random by City Hall have been completed, and the administration has indicated most are in compliance with the tax requirement.
In a brief presentation to councilors at their March 16 meeting, City Administrator Larry Dovalina reiterated a message that City Hall has been sending for more than two years to hotel owners or managers, indicating that audits would be ordered to determine whether the businesses are paying their dues to the city.
“We do an audit of five or six hotels annually to make sure their records confirm what they are reporting to the state and to the city,” Dovalina said last week. “We found some inconsistencies.”
The Cotulla Hotel Occupancy Tax is levied against every room booked at establishments in the city and applies to all rooms occupied by different guests for up to 30 days. Attempts by some businesses to circumvent the tax by booking rooms for months at a time have been foiled by the city when it is shown that the rooms are occupied by different guests during the extended period.
The state of Texas mandates how cities may use their hotel tax revenues.
Revenues from the tax may only be used for a limited number of city projects, all of them aimed at increasing tourism and thereby boosting the local economy, in turn increasing the number of hotel rooms booked in the city. The “heads in beds” principle has allowed the city of Cotulla to fund its downtown historic preservation efforts; commission bronze statues of Joseph Cotulla, Lyndon Baines Johnson and Florence Maltsberger; design and execute downtown beautification projects such as landscaping, sidewalks and gas lighting on Front Street and a mural of Cotulla’s history on Main Street; and pay for the ongoing project to restore Plaza Florita to its original design and enhance its “town square” appeal by repurposing nearby buildings for public facilities.
The city purchased Guadalupe Hall from the Catholic Diocese of Laredo and the former Jimenez Grocery Store from a local property owner and is expecting to convert the two buildings facing Plaza Florita into meeting spaces, restrooms, exhibition space, and multipurpose facilities for community events.
The two largest recent expenditures of hotel tax revenues by the city have been the purchase and complete reconstruction of a onetime gas station and garage on Main and Carrizo streets, converting it into today’s City Hall; and the purchase, restoration and repurposing of the onetime Stockmens Bank on Front Street to house exhibition space and the offices of the Cotulla Main Street Program.
Those projects topped a million dollars each, covered almost entirely by revenues from the city’s hotel tax.
The city has also used its hotel tax revenues to pay for advertising events that attract visitors, among them the annual Wild Hog Cook-Off and the Independence Day festival, for which it purchased the fireworks.
Both former and current city finance directors Jorge Flores and Ernesto Garcia have indicated to the council in recent weeks that the city’s Hotel Occupancy Tax is expected to generate as much as one and a half million dollars for Cotulla in 2023.
Addressing the council on March 16, Garcia said a finance report for February indicates at least $264,000 in hotel tax revenues for the second quarter of the fiscal year. Payments totaling over $72,000 had been recorded in February alone, he said, and more than $14,000 had been paid to the city in early March.
Flores told the council in January that payments totaling at least $370,000 had been logged for the first quarter of the fiscal year.
“If we continue this way, that’s almost $1.5 million for the year,” Flores said on Jan. 12, adding that the figure “is better than pre-pandemic numbers.”
Garcia told councilors at their Feb. 9 meeting that revenues in the Hotel Occupancy Tax fund for January had exceeded $192,000 and that $59,000 had already been paid in February.
“Hotels are booked,” Assistant City Administrator David Wright said in early March. “Everywhere you look, they’re busier today than they have been for a long time. Obviously, this is great for the local economy, because all those guests are shopping locally and eating in our community’s restaurants.
“What is also means is that the hotel tax fund is boosted, allowing us to undertake projects that we couldn’t hope to do otherwise,” Wright said. “Provided, that is, the hotels pay the dues that they owe.”
Garcia said at the February council meeting that a further indicator of a strengthening economy in Cotulla was shown in sales tax revenues (derived from retail and consumer sales at businesses in the city), which topped $960,000 for the period between October and February, a tally representing a spike of at least 38 percent over the same period the previous year.
Portions of sales taxes paid by businesses to the state of Texas are distributed among the cities from which they originated on a rigid schedule, allowing local governments to monitor their economic status closely and to match that growth or depression monthly with regional trends, development of new business, traffic, and related changes in the workforce.
Councilors learned from the finance director last year that hotels do not make their tax payments within the same monthly finance period as recorded by City Hall, therefore payments made in one month may reflect collections of more than a month previously.
Both the city administrator and Attorney Steve Pena said at meetings in 2022 and 2023 that they believe some hotels have been lax in handling their city tax collections, with Pena noting at a meeting last year that monies collected for the occupancy tax should not be absorbed into a hotel’s general operating funds or considered profit.
“The city has audited the hotels,” Dovalina said at the March 16 meeting. “Differences in the tax audits have been noted, and the businesses have been notified of this in a letter from the attorney.”
The city administrator said on Thursday last week that the most recent hotel tax audit showed differences of “one or two thousand dollars” between what was recorded and what should have been paid to the city.
“We choose different hotels each time,” Dovalina said on March 23. “There were no gross infringements noted the last time. Sometimes, what hotels still owe the city is in the thousands, if they have not paid their taxes on time.
“On one occasion, before the pandemic, a hotel changed hands, and the new owner did not obtain a certificate from the city showing that taxes were paid in full,” Dovalina said. “It was an oddball deal. It turned out there were thousands still owed, and that debt carried over to the new owner. I’m sure he wasn’t expecting that.”
In each case, the city administrator said, hotels are notified of taxes owed to the city.
“If they agree, then we ask for payment,” Dovalina said. “If they don’t, then we refer it to the attorney for legal action. It’s as simple as that.
“Most of them are honest,” he added.