As Presidio considers HOT tax ordinance, trouble in Terlingua highlights need for more robust collection

TRI-COUNTY — At the last regular meeting of the Presidio Visitors and Convention Bureau, in April, Board Director Arian Velázquez-Ornelas informed the board that she intended to present an agenda item at an upcoming Presidio City Council meeting that would pave the way for a local hotel occupancy tax (HOT) to be collected from short-term rentals within city limits. Discussion was tabled at that meeting, but the item’s place on the agenda marks a major shift for the tourism industry of the remote border city.

Unlike many neighboring Big Bend communities, Presidio doesn’t yet have local regulations or tax collection mechanisms in place for short-term rentals listed on sites like Airbnb and VRBO. “They’re popping up like bluebonnets,” Velázquez-Ornelas said, speculating that some local families set them up to help make ends meet during the pandemic. 

HOT tax collection is a sore subject for Presidio city officials, despite the relatively small number of short-term rentals in town. Unlike Marfa, which has 168 active rentals, Presidio only has 25; where Marfa has five hotels, Presidio only has two. The status of Presidio’s non-operational third hotel — the Big Bend Inn — has been questionable since it was revealed that the business owed $100,000 in overdue HOT taxes. The hotel’s owner could not be reached for comment.

“I actually looked into it a few years back and even reported the case to the state, but nothing to my knowledge ever came of it,” Mayor John Ferguson said. “​​I can’t remember the last time that they were doing their due diligence to pay those taxes.”

Velázquez-Ornelas explained that HOT funds in Presidio fund activities through the Visitors and Convention Bureau. Despite its name, the board also organizes holiday events the community can enjoy, like last year’s successful Christmas Posada and a Fourth of July celebration at the Presidio International Speedway. “[HOT funds] basically determine our budget,” she explained. 

The state collects its own HOT funds, the majority of which go to the General Revenue Fund and a smaller portion of which go to state-wide tourism initiatives, per the comptroller’s website. Usage of local HOT funds can vary depending on the size and location of the local entity involved — coastal communities, for example, can use HOT funds to maintain beaches. 

In general, local HOT funds must be somehow linked to improving the area’s tourism. In 2021, the Big Bend’s state representative, Eddie Morales, introduced a bill that would expand the definition of what HOT taxes could be used for, arguing that the funds should be able to be used in dark sky protections that enhance area tourism. The bill died in the chamber, but highlighted a desire to reconfigure HOT tax programs to better suit diverse tourist economies. 

“The tax code is very prescriptive — there’s only a certain number of things that these taxes can go toward,” explained Marfa City Attorney Teresa Todd. “It can’t go into the general fund — street paving or the police department or anything like that. They have to be used for the promotion of tourism.” 

Todd has helped steer Marfa through its fair share of HOT tax collection issues. In 2019, a city budget workshop revealed that the Hotel Saint George owed the city more than $100,000 in local HOT funds, prompting the city to reevaluate how they were dealing with tax collection. Todd started summoning some of the smaller players into municipal court. Many newer short-term rental operators weren’t even aware that they owed tax. 

“These weren’t really folks who get notices to come to court that much,” she explained. “It really traumatized them — people would come to City Hall crying with their checkbooks. All we were really looking for was compliance.” 

Just before the pandemic, the city opted to contract with House Compliance, hoping that hiring an outside agency for collections would help. Widespread shutdowns in the spring of 2020 caused problems within the company, and the city ultimately decided the contract money wasn’t worth the hassle. “We just didn’t feel we were getting the bang for our buck,” Todd said.

The City of Marfa returned to DIY collection. State tax law allows for a city or county to charge interest on overdue HOT tax and outlines provisions through which the municipality’s legal fees are covered by the tax pool, should the collection process require legal muscle.

Since the pandemic, Todd hasn’t noticed as many compliance issues, and the city has opted for a lighter touch — in the case of smaller operators who may not have been aware that local as well as state tax was due, the city often opted to waive late fees, focusing on empowering short-term rental owners to get into and stay in compliance. 

“I don’t even know that we ever really fined anybody — there have been a few people with pretty egregious cases that maybe paid interest, but that’s very, very rare,” she explained. 

Some of the issues lie in the fact that local HOT taxes in the Big Bend are self-reported and remitted. In neighboring Brewster County, a flat 7% HOT tax is charged for all short-term rentals outside of Alpine. Short-term rental operators are sent a spreadsheet with tax bills for all other short-term rentals in the area and a worksheet to help them verify the amount owed. 

This sheet of tax data is publicly accessible, but the fact that it is also automatically sent out to all short-term property owners in the area has stoked controversy in Brewster County Commissioners Court, as rental owners are made acutely aware each tax season who’s been keeping up with their bills. 

“It’s been an ongoing issue since before I came into office,” said South County Commissioner Sara Allen Colando, who was sworn in in January 2019. “It started out as people not realizing that they had to pay HOT taxes to Brewster County, and it’s kind of devolved into, ‘Well, if Joe’s not going to pay then I’m not going to pay either.’ There are some pretty significant rental operations out here who know they’re supposed to pay and are just not paying. It’s created a lot of friction.”

Non-payment of county HOT taxes has been the subject of public comment at the past three Brewster County Commissioners Court meetings. During their April 26 meeting, Daryl Eby of Big Bend Vacation Rentals asked county officials how they planned to address the discrepancy. “It seems like the county should be obligated to enforce that tax in Terlingua,” he said. “If one of our largest competitors is not obligated to pay, that is a significant disadvantage to other lodging operators in the county that are paying.” 

Eby did not name the entity in question: Basecamp Terlingua, a popular rental spot on Kempf Road widely known amongst the influencer set for its distinctive “bubble house” lodging. 

According to records obtained through the Brewster County Treasurer’s Office, Basecamp Terlingua has not paid HOT taxes to Brewster County since March 2020. Basecamp doesn’t appear on the Brewster County HOT rolls until 2019. In 2019 and 2020, Basecamp paid a total of $28,488 in Brewster County HOT tax — to date, the only money it has ever paid the county, according to public records, despite being one of the most popular and successful short-term rentals in the area. 

Basecamp is not the only rental property in Brewster County delinquent on HOT taxes, but it is the largest such company to do so and has delayed payment the longest. According to the worksheet sent to rental owners by the Brewster County Treasurer’s Office, the county levies a 10% per annum interest on late taxes. Basecamp’s current rental holdings should generate around $300 a night for the county at full occupancy.

Most other rental properties automatically deduct taxes from their bookings through platforms like Airbnb and VRBO. According to an Airbnb spokesperson, the company has an agreement with the state of Texas allowing the site to automatically collect and remit the 6% state HOT tax each time a guest books. In some areas, hosts can opt-in to a system that automatically collects local HOT taxes as well, streamlining the process. “In Texas, Airbnb collected and remitted over $64 million in occupancy taxes in 2019 –– an increase of approximately 95% over 2019,” they said.

Basecamp was barred from Airbnb in 2020, amidst sexual assault allegations against founder and owner Jeff Leach. Basecamp rentals are currently managed through the company’s website, which automatically adds 13% tax to each transaction — 6% of the total to the state, and 7% of the total to the county. Where that money ends up is unclear.

We have contributed hundreds and thousands of dollars to HOT tax over the years from various entities we manage,” Leach wrote in response to a request for comment. “We are in contact with Visit Big Bend and look forward to chatting with them about concerns and questions.”

A representative for Visit Big Bend — the entity responsible for instituting and dispersing Brewster County’s HOT funds — did not return requests for comment.

Commissioner Colando stressed the need for better education and updated regulations to help the county collect. “People don’t understand how HOT taxes can and cannot be used and are frustrated that it’s not being used for worthwhile projects that are simply illegal uses of the funds. Then — on top of that — there’s this huge amount of money that is not being collected or remitted to the county like it’s legally supposed to. There’s a lot of people who are understandably upset with how the HOT tax is collected, enforced and expended.” 

Justin Bragiel, general counsel for the Texas Hotel and Lodging Association, had been briefed on the situation in Terlingua. “This isn’t a Brewster County-only problem — this is a problem everywhere. I get lots of calls about short term rentals because there’s so many of them and they’re hard to locate.” 

“The law is very much on the county’s side,” he explained. “The problem is always the amount of resources that the county devotes to going after each individual operator who may not be complying with the law. The county attorney, for example, can go to the district court and ask the court to enjoin that lodging property from operating until they become current on their taxes. The county has the ability to do full audits of any individual who’s supposed to be remitting taxes. And then there are paneled penalties that apply for failure to comply. The legal tools are there — it’s just a matter of devoting the resources.”

As Presidio begins regulating a burgeoning short-term rental industry, Marfa and Terlingua can provide a blueprint for local officials to plan how to grow the local tourism economy responsibly and fairly. 

Mayor John Ferguson, for one, is looking forward to the changes. “I’m going to open an Airbnb myself probably within the next year,” he said. “I’m happy to pay, I think it’s the right thing to do. Hopefully it’ll make a positive difference in Presidio.”