Katy Area Chamber of Commerce officials say they will reapply for a tourism grant for the 30th annual Katy Rice Harvest Festival, after their $67,752 request was turned down July 21 by the city’s Convention and Tourism Bureau.

At that meeting, the CTB said the festival sponsor hadn’t provided evidence to show how Katy’s signature community event qualifies for a Hotel Occupancy Tax grant.

At issue is whether the festival — which expects to welcome more than 40,000 guests this year — can show it attracts overnight hotel guests in addition to local visitors. The item was pulled off the July 26 City Council agenda to give the chamber time to regroup.

“They need a little bit more documentation,” Mayor Don Elder said after Monday’s meeting.

“We certainly respect the CTB request for information,” Chamber President Ann Hodge said this week. “We will do our level best to provide it. We’ve already asked for another hearing.”

Hotel Occupancy Taxes are special taxes paid by hotel guests. According to state law, grants from the tax income are reserved for events and projects that support the city’s hotel and convention industry in specified ways.

Katy has collected a 7 percent hotel occupancy tax since 2004, when its first hotel opened near Katy Mills mall. The fund now holds about $440,000. With a total of four hotels in operation this year, city officials expect that amount to grow.

In the past, money from the HOT fund has flowed to projects like the Southland Conference basketball tournament, the Katy Depot and Heritage Park.

Grant applications are reviewed by the CTB, with final decisions by the City Council. The “heads-in-beds” test has been a frequent issue over the years.

Councilman Carol Adams said the CTB has received additional legal advice and is being “a little more careful” to make sure hotel taxes are spent correctly.

“We all believe the Rice Harvest Festival is a wonderful event for the city of Katy,” Adams said. “The Convention and Tourism Bureau is just making very certain that … everything they do is 100 percent compliant with the Texas tax code.”

She added: “It’s a learning curve for everyone involved.”

Hodge said the chamber was surprised to be denied a recommendation by the CTB, after receiving Rice fest grants totaling more than $60,000 in 2009 and 2008. Under “Basis for Denial,” CTB chairman Greg Murray noted that the chamber application included “No proof or substantiation of providing ‘heads in beds.’ ”

Chamber officials nearly doubled the size of their grant request this year, with the increase reflecting a more aggressive marketing campaign. The original application included $36,257 for advertising and promotion in magazines, newspapers, billboards, cable and online ads.

Hodge said the reapplication will be for a smaller amount because the delay has resulted in the festival missing several publication deadlines.

Hodge said the chamber will have no problem coming up with the requested documentation, since many of its vendors and music acts are from out of state.

One city official described the July 21 CTB meeting as “heated,” but all agreed the issue would be resolved.

“It’s just that the applicant had a difference of opinion than what the city of Katy gives us as guidelines and what comes through by the state agencies,” Murray said.

According to state law, HOT grants must be used to promote tourism and the hotel industry, and must also be tied to one of five areas that include convention and visitors centers, convention registration, tourism-related advertising and promotion, arts programs, or historic preservation.

State law is ambiguous about the documentation required, Murray said. “We err on the side of caution and that’s just the smart thing to do.”

This year’s Katy Rice Harvest Festival is set for Oct. 9-10 in downtown Katy.