Can a hotel project get a TIF or another public subsidy?

An issue is a private activity bond when more than 10 percent of the proceeds go to private business use and more than 10 percent of the debt service is secured by or paid from that use.^[1] Private business use means use in a trade or business carried on by anyone other than a governmental unit, and the thresholds fall to 5 percent, with a $15,000,000 ceiling on certain output facilities, where the private use is unrelated to the government use.^[1] A privately owned hotel meets all of that on the first dollar.

That leaves the qualified bond categories. The statute names seven, and only two could describe a commercial building: the exempt facility bond and the qualified redevelopment bond.^[1] The exempt facility route is a closed list: section 142(a) names 17 categories, from airports and docks through water, sewage, solid waste and rail to broadband and carbon dioxide capture. Qualified residential rental projects are the only one that houses anyone; lodging is absent, and the IRS's own 2026 publication on qualified private activity bonds prints the same list.^[10]

A qualified redevelopment bond is an issue 95 percent or more of whose net proceeds go to redevelopment purposes in a designated blighted area.^[4] Four limits decide whether a hotel fits.

The area. A local governing body designates it blighted on factors such as vacant land, abandoned buildings and delinquent taxes. It must be contiguous and compact and at least 100 acres, or 10 acres where no more than 25 percent of the financed area goes to one person, and all such designations together cannot exceed 20 percent of the assessed value of real property in the jurisdiction.^[4]

The security. Debt service must be primarily secured by taxes of general applicability, or by the increase in real property tax revenue reserved exclusively for it, which is a tax increment written into the Code.^[4]

The work. Redevelopment purposes means acquiring real property through a governmental unit with eminent domain power, clearing and preparing the land it acquired, rehabilitating real property it acquired, and relocating occupants.^[4] Then the sentence that ends most hotel projects: redevelopment purposes does not include the construction, other than the rehabilitation, of any property or the enlargement of an existing building.^[4] A ground-up hotel is out; a conversion of a vacant downtown building is the fact pattern the section is written for.

The uses. No portion of the proceeds may provide a golf course, country club, massage parlor, hot tub or suntan facility, racetrack or other gambling facility, or a store whose principal business is off-premises alcohol sales.^[4] A resort that will run its own golf course is operating one of those; a hotel bar is not. No more than 25 percent of net proceeds may go to a facility described in section 147(e), which covers a health club, so a fitness room sits well inside it.^[4][11] And property the government buys with proceeds and sells on has to go at fair market value.^[4]

A government can own a hotel and still issue ordinary tax-exempt governmental bonds, as long as private business use stays under the 10 percent line.^[1] A management contract is one of the arrangements that creates it, judged on all the facts and circumstances, with one clear trigger: compensation based in whole or in part on a share of net profits from the operation of the facility.^[12] Since January 17, 2017, Rev. Proc. 2017-13 has set the safe harbor that keeps a contract out of that.^[5]

Its conditions run together. Compensation must be reasonable, and no element of the fee, meaning eligibility, amount or timing, may take into account net profits or both revenues and expenses, apart from reimbursed direct expenses paid to unrelated parties. The provider must not bear net losses, claim depreciation or rent, or hold more than 20 percent of the voting power of the government's governing body. The term, renewal options included, cannot exceed the lesser of 30 years or 80 percent of the property's weighted average economic life. The government must approve the annual budget, capital expenditures, each disposition, the rates charged and the type of use, and must bear the risk of loss.^[5]

Two of those bite on a hotel. A base fee set as a percentage of gross revenues takes revenue into account and not expenses, so it stays outside the net profits definition. An incentive fee measured on gross operating profit, or on net operating income after a priority return, takes both into account, which is what the safe harbor forbids unless it is rebuilt as incentive compensation whose eligibility turns on a standard measuring quality of service, performance or productivity.^[5] The measure is at gross operating profit, the fee structures at How do hotel management agreements work?.

The other is rate approval. The revenue procedure's own illustration of acceptable approval is a government approving a methodology, such as one that establishes hotel room rates using specified revenue goals based on comparable properties.^[5] The IRS wrote that example about hotel room rates, so revenue management at a publicly owned hotel runs inside an approved method, against a comp set.

Missouri's act divides the taxes on a redevelopment project. Tax on the certified initial assessed value keeps flowing to the taxing districts. Payments in lieu of taxes attributable to the increase above that value go to the municipal treasurer and into a Special Allocation Fund that pays redevelopment costs, and for projects approved by ordinance after August 31, 1991, 50 percent of the additional revenue from taxes generated by economic activity in the area goes into the same fund.^[6] The plan has to state dates for completion and for retirement of the obligations, and they cannot be more than 23 years from the ordinance approving the project.^[13]

Now the part written for hotels. Both the definition of economic activity taxes and the 50 percent provision exclude taxes imposed on sales or charges for sleeping rooms paid by transient guests of hotels and motels.^[6][7] A hotel in a Missouri TIF contributes its property tax increment in full and contributes nothing from the tax on the thing it mostly sells. For a limited-service hotel, the economic activity half is close to nothing, and the arithmetic below sizes that gap.

Minnesota answers by geography. In an economic development district, tax increment may not assist a development if more than 15 percent of the buildings and facilities, by square footage, are used for anything outside a short permitted list, and tourism facilities is the fifth item on it.^[8] A hotel is a tourism facility only if it is in a county whose median income is no more than 85 percent of the state median, in development region 1, 2, 3, 4, 5 or 7E, and not in a city with a population over 20,000.^[9] All of those must hold at once, so the first thing to ask a development authority is which section of the state code it is working from.

Missouri requires every municipality to report on each live plan by November 15, and the Department of Revenue publishes the file.^[14] The 2025 edition, dated January 30, 2026, reports 355 projects in its summary, from 84 municipalities, with $3,694,284,956 of payments in lieu of taxes and economic activity taxes received since inception. Its project pages carry 354 blocks, counted four independent ways, so summary and detail disagree by one project; the table works from the 354 present.^[3]

Eight of those plans carry a hotel or a lodging brand in the name. The report has no use or industry field, so a hotel inside a larger mixed-use plan appears in no count, and eight is a floor.^[3] Anticipated TIF-reimbursable costs run from $424,000 on the Holiday Inn Express plan in Sikeston to $197,642,748 on the Kansas City Convention Headquarters Hotel. Across the eight, $231,561,577 of TIF-reimbursable cost sits against $439,844,982 of anticipated total project cost, which is 52.6 percent in aggregate and is dominated by that one project.^[3]

Two details matter more than the range. Six of the eight are pay as you go, reimbursing eligible costs out of the fund as increment arrives rather than paying at closing; one uses TIF notes and one another bond.^[3] And the Sikeston plan, the only one named for a limited-service brand, reports $425,879.83 of payments in lieu of taxes since inception and $0.00 of economic activity taxes, while the downtown Kansas City and Columbia plans report millions of each.^[3] The report explains no single figure, and a plan can also simply not capture economic activity taxes. But a rooms-only hotel is the shape the sleeping-room exclusion hits hardest.

No award size is published before a plan is adopted. A TIF is negotiated against a redevelopment plan and a cost-benefit analysis, so the number is an output of that negotiation, not of a schedule. Anyone quoting a typical hotel TIF percentage is quoting nothing: the eight Missouri plans above run from 6.2 percent to 79.8 percent of total project cost.^[3] There is no national count of hotel TIFs either: reporting is state by state, and Missouri's file carries no industry field at all.^[3]

Two things are published and worth reading. The state statute, because it can decide the question outright, as Minnesota's does.^[8][9] And the municipality's own annual report on each existing plan, which Missouri requires to carry the revenue in the fund, the expenditures from it, the original and added assessed value, and the payments in lieu of taxes received and expended.^[14] An owner can read what the last developer got.

This page explains rules. It is not tax, legal or municipal advice, and a project depending on public money needs bond counsel from the first budget.

Guide

How does hotel financing work, and what does it cost right now?

Other questions in this guide

• Can I use historic tax credits to renovate a hotel?
• Can I use New Markets Tax Credits on a hotel?
• Do opportunity zones still help hotel investors?
• Can I use C-PACE financing on a hotel?
• How do I finance hotel construction in 2026?
• What is a hotel capital stack, and how do I build one?
• How do I finance converting my hotel to a new brand?

Terms defined in the glossary

• Gross Operating Profit (GOP)
• Competitive Set (Comp Set)
• Net Operating Income (NOI)

Our own data

• Matthews Hotel Markets rate sheet