HomeMy WebLinkAboutReso 01-2010RESOLUTION NO. 01-2010
CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA
A RESOLUTION RATIFYING THE TAX ADMINISTRATOR' S
ADMINISTRATIVE INTERPRETATION OF CHAPTER 4.20
(TRANSIENT OCCUPANCY TAX) OF THE SOUTH SAN
FRANCISCO MUNICIPAL CODE RELATED TO LANGUAGE
APPROVED AS PART OF MEASURE O
WHEREAS, on November 3, 2009, South San Francisco voters approved Measure O
(Ordinance No. 1419-2009), which amended Chapter 4.20 (Transient Occupancy Tax) of the South
San Francisco Municipal Code; and
WHEREAS, on January 4, 2010, the Finance Director, in his role as the Tax Administrator,
issued an Administrative Interpretation of several of the changes that Measure O made to the Transient
Occupancy Tax ("TOT"). The Tax Administrator revised the Administrative Interpretation on January
5, 2010, which is attached as Exhibit A; and
WHEREAS, although Tax Administrator interpretations are effective upon issuance and do not
require Council ratification, the Tax Administrator has requested that the City Council affirm the
Administrative Interpretation regarding Measure O and the TOT.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of South San
Francisco that the City Council hereby ratifies the Tax Administrator's Administrative Interpretation
of Chapter 4.20 of the Municipal Code, as amended by Measure O (Ordinance No. 1419-2009),
attached hereto as Exhibit A.
* * ~
I hereby certify that the foregoing Resolution was regularly introduced and adopted by the
City Council of the City of South San Francisco at a special meeting held on the 6th day of January,
2010 by the following vote:
AYES: Councilmembers Pedro Gonzalez, Richard A. Garbarino, and Karyl Matsumoto,
Vice Mayor Kevin Mullin and Mayor Mark Addiego
NOES: N
ABSTAIN:
ABSENT: None
ATTES'T~ ~ ~`
City
Exhibit A
Administrative Interpretation of Chapter 4.20
of the South San Francisco Municipal Code
Summary
At the November 3, 2009 election, voters approved Measure O (Ordinance No. 1419-2009),
which raised the Transient Occupancy Tax ("TOT") to 10%a and put several clarifications into
the TOT ordinance with the intent of providing the City more flexibility in the event that
currently pending litigation or legislation provides guidance about how charges for online hotel
reservations should be treated fox TOT. In light of that litigation and potential legislation
regarding the proper definition of "rent" for a hotel room when a room is booked using an
Intemet site not operated by the hotel itself, the City of South San Francisco's present
interpretation of Chapter 4.20 of the Municipal Code is that, for the purpose of calculating the
Transient Occupancy Tax owed to the City, rent means the "Net Rate" set by the hotel, even if
the total amount that the transient occupant of the room pays to a third-party Internet site
(sometimes referred to as "Internet Hotel Intermediary" or "Intermediary"} is more than the Net
Rate due to additional fees charged by the Intermediary, Further, the City does not presently
expect hotel operators or Intermediaries to change the manner of collection and remittance of
TOT, when a transient occupant uses an Intermediary to arrange for occupancy of a hotel room.
Background
The Transient Occupancy Tax ("TOT") is a tax on the rental of hotel rooms, calculated based on
the amount of the "rent" for the roam and paid by the occupant of the room (referred to as the
"transient"). Traditionally, hotels collected the tax with the rent and remitted the funds collected
to the City. The rise in booking of hotel rooms using third-party Internet sites has led a number
of municipalities in California and other places in the country to investigate whether their
respective TOT's are being applied to the entire amount that occupants pay far hotel rooms when
booked through an Intermediary. The issue of whether a portion of the amount charged by
Intermediaries should be excluded from the rent used to calculate the TOT is presently the
subject of litigation in California (Priceline.co,n Inc, v. City of Anaheinx, No. G041338 (CaI. Ct.
App.)) and preliminary legislative efforts in California and in other Jurisdictions.
On November 3, 2009, the voters of South San Francisco approved Measure O (Ordinance No.
1419-2009), which made several changes to the TOT levied by Chapter 4.20 of the Municipal
Code. Among those were changes to the definition of rent in section 4.20.020(e) and
clarifications regarding the collection responsibilities of hotel operators and Internet
intermediaries.
The following sentence was added to section 4.20.020(e}, which defines rent: "Whenever a third
party collects the consideration charged for occupancy on behalf of an operator, or charges a fee
for arranging occupancy on behalf of an operator but does not itself collect the consideration
Tax Administrator Interpretation
South San Francisco Municipal Cade Chapter 4.20
Januazy 4, 2010; REVISED January 5, 2010
Page 2 of 3
chazged, the rent shall be the total amount represented to the transient by the third party as the
consideration chazged for the occupancy."
The following sentence was added to section 4.20.050: "If a third party collects the rent from the
transient on behalf of the operator, ar otherwise arranges occupancy on behalf of an operator, the
operator shall ensure that the tax is levied on the rent, and shall obtain from the third party any
tax collected. The operator shall remit to the City the total amount of tax owed based on the
rent."
Subsequent to passage of Measure O, local hotel operators requested an interpretation of Chapter
4.20, as amended. As part of their request, they provided a presentation about the relationship
between hotel operators and Intermediaries that book hotel rooms. That presentation explained
that, in general terms, in making rooms available to Intermediaries, hotel operators set a rate that
the Intermediaries pay to the operators; that rate is sometimes~called the "Net Rate." Hotel room
occupants pay the Intermediaries a "Posted Rate," which typically differs from the Net Rate.
Intermediazies classify any difference between the Posted Rate and the Net Rate as a fee or fees
and assert that they do not collect TOT on the amount of the fees; they do collect TOT on the Net
Rate and pay both to the operators at the same time.
Anal sis
The changes to Sections 4.20.020{e} and 4.20.050 would likely provide the City with the
necessary statutory authority to enforce full collection of the TOT in Iight of the use of
Intermediaries, if (I) the pending litigation referred to above resulted in a judicial ruling that
TOT maybe calculated using the Posted Rate as the rent, or (2) state or federal legislation were
adopted that took a similar view of the issue. Presently, however, the courts have not resolved
the issues being contested in the litigation and no state or federal legislation has been adopted. I
therefore find that immediate and full implementation of the amendments to Chapter 4.20 would
be premature. That finding is specifically based upon the uncertain outcome of the pending
litigation and any legislative efforts that might take more concrete form in the future. It is also
based upon the facts presented to the City by the hotel operators and their representatives
including the charts showing that the amount charged by Intermediaries in excess of the Net Rate
is limited to fees. If the legal framework changes in the future or evidence arises that the facts
are different from those presented, the Tax Administrator may review that finding to ensure that
it remains appropriate.
Conclusion
It is my interpretation of Chapter 4.20 of the Municipal Code, as amended by Measure O, that for
the purposes of calculating TOT when an Intermediary arranges occupancy of a hotel room, rent
means the Net Rate that the Intermediary pays to the hotel operator. Changes to this
interpretation, if any, would apply only to hotel reservations made after such change in
interpretation. Further, the City does not presently expect hotel operators or Intermediaries to
Tax Administrator Interpretation
South San Francisco Municipal Code Chapter 4.20
January 4, 2010; REVI5ED January 5, 2010
Page 3 of 3
change the manner of collection and remittance of TQT, when a txansient occupant uses an
Intermediary to arrange for occupancy of a hotel room.
ISSUED BY: DATE: January 4, 2010
J' teele, Tax Administrator REVISED: January 5, 2010
City of South San Francisco
1342642.1