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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