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HomeMy WebLinkAboutItem 11 - Introduce Ordinance Amendment Regarding TOTItem #11 GtT Y Ofi rn O Council AgendaReport CIS O Department Name: Finance Cost Center: 2003 For Agenda of: January 14, 2020 Placement: Public Hearing Estimated Time: 30 Minutes FROM: Brigitte Elke, Finance Director Prepared By: Natalie Harnett, Interim Budget Analyst SUBJECT: INTRODUCE AN ORDINANCE AMENDING DESIGNATED PORTIONS OF THE CITY OF SAN LUIS OBISPO MUNICIPAL CODE SECTION 3.04.020, SECTION 3.04.080, SECTION 3.04.090, SECTION 3.04.100 AND SECTION 3.04.130 OF MUNICIPAL CODE CHAPTER 3.04 — TRANSIENT OCCUPANCY TAX. RECOMMENDATION Introduce an ordinance amending Municipal Code Chapter 3.04 Transient Occupancy Tax (TOT) to revise action to collect applicable tax assessments and to clarify the process to appeal. DISCUSSION Background Over the past years, the lodging industry has changed dramatically with homestays entering the market and changing the landscape of short-term rentals and the applicable tax due to the City. A fair number of these rentals are booked through third -party services and are in compliance with the City's tax law. The City utilizes a third -party compliance company, Host Compliance, that estimates at least 64 homestays currently operating in the City without the required permits and have not been remitting TOT. Host Compliance estimates that over $441,862 in TOT debt are owed to the City considering back -taxes due since the homestays began renting. In June 2018, the City and Airbnb (the largest third -party homestay online portal) reached an agreement that provides that Airbnb will automatically collect the 10% TOT, 1 % Tourism Marketing District assessment and the 2% Business Improvement District assessment. These required taxes and assessments will be automatically added to the amounts collected from renters when a reservation is made on Airbnb for a stay in the City. However, Airbnb remits the TOT as a "total amount" and does not disclose specific lodging or property information about what properties it is collected from. The lack of information on specific properties makes it difficult to ascertain which specific properties are remitting TOT and which are not. The City therefore served its first batch of Violation Notice letters to homestay operators in June 2018. The enforcement letters were sent in batches because many operators contact the City after receiving the correspondence, requesting clarification and additional information. This approach Packet Page 115 Item #11 allows for better management of the triggered workload. To date, the City has sent 66 letters. The total TOT revenue for back -taxes owed generated from these enforcements is approximately $75,507. Though there has been some compliance, staff recommends the City consider stronger actions to collect from those operators who do not respond to permitting and tax collection efforts and thus ensure compliance with adopted city policies and that there is a fair playing field so to speak relative to brick and mortar lodging opportunities. Actions to Collect As a charter city, the City has the plenary power to legislate on matters of municipal affairs. This power includes the ability to impose, administer and collect taxes. Further, Government Code section 43000 and 43001 provide that a city may make an ordinance allowing for the assessment, levy and collection of city taxes. Therefore, staff is recommending that, if the amount of tax due is not paid, the tax administrator may submit a request to the City Council to approve a resolution certifying the amounts of any liens being sought against an operator. After receiving the requisite City Council approval, the tax administrator may take the necessary steps to enforce the lien, which includes but is not limited to, requesting the Office of the San Luis Obispo County Recorder to record a Notice of Lien. This process coincides and mirrors the adopted current policy and practice by which the City collects unpaid fines and other debts related to code enforcement, fire safety, and solid waste violations. Appeal The ordinance currently allows customers to appeal to the Council by filing a notice of appeal with the City Clerk's office within fifteen days of the Tax Administrator's decision. Clarification on the contents to appeal and the hearing procedures were added as ordinance revisions. Given the importance of the tax and its revenue stream to the City's General Fund, staff does not recommend changing this practice. As it is also a matter of creating fair competition amongst the lodging industry by enforcing the same dues on all short-term rental operators, an appeal before Council will allow the public to better understand the City's efforts that are affecting neighborhoods. If Council would like to place appeals in before the City's administrative body, staff can return with any recommended actions and changes to city practices and policies. Policy Context The ordinance to collect TOT was implemented in 1955. The tax was assessed at 10% of room rent and is applicable for all stays under 30 days. Chapter 3.04 of the City's Municipal Code is the governing document for TOT. Public Engagement Consistent with the City's Municipal code, a legal ad was published in the New Times 10 days prior to the Council meeting. Public comment on the item can be provided to the City Council through written correspondence prior to the meeting and through public testimony at the meeting. Tourism Business Improvement District Board (TBID) The City's advisory body for tourism is staffed by members of the local lodging industry. The enforcement of TOT from homestays has been a frequent topic as places equality amongst all lodging establishments. The proposed changes were presented to the TBID board on November 13, 2019 and the board is in support of the changes to the TOT chapter as recommended. Packet Page 116 Item #11 CONCURRENCE The Finance Department communicates directly with Code Enforcement to identify non- compliant operators and customers with delinquent taxes. The Finance Department, Community Development Department, and the City Attorney's office have been working closely to accomplish a process to enforce homestay compliance. ENVIRONMENTAL REVIEW The California Environmental Quality Act does not apply to the recommended action in this report, because the action does not constitute a "Project" under CEQA Guidelines Sec. 15378. FISCAL IMPACT Budgeted: Yes Budget Year: 2019-20 Funding Identified: Yes Fiscal Analysis: Funding Sources Current FY Cost Annualized On -going Cost Total Project Cost General Fund $16,333 State Federal Fees Other: Total $16,333 The City has a current contract with the company assisting with the enforcement of homestay operators. The contractual amount is $16,333 and has been budgeted for in 2019-20 in the Community Development operating budget. The proposed revisions are anticipated to have a positive fiscal impact because they should clarify and streamline the collection process and result in increased revenue from collection of operators who have not remitted TOT thus far. It will also help enforce homestay compliance with the City's permitting requirement. However, there is a cost associated with the cases heard by the City Council which would be absorbed by current appropriated budget. The City intends to work with operators and rectify appeals at the Tax Administrator level before they proceed to Council. If undue burden is put on the City Council from TOT appeals, further changes to the ordinance will be made to change the appeal process. Because homestay enforcement is such a new process for the City, staff believes it would be most effective to leave the appeals process as currently written until it can gauge the response from operators. Packet Page 117 Item #11 ALTERNATIVES 1. Do not adopt and implement the recommended Code revisions. This is not recommended because it will limit finance tax collection effectiveness. 2. Provide changes to the proposed ordinance and introduce the ordinance for a first reading. Attachments: a - Revised TOT Ordinance Packet Page 118 Item #11 ORDINANCE NO. (2020 SERIES) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO, CALIFORNIA, AMENDING SECTIONS 3.04.020, SECTION 3.04.080, SECTION 3.04.090, SECTION 3.04.100 AND SECTION 3.04.130 OF MUNICIPAL CODE TITLE 3.04 — TRANSIENT OCCUPANCY TAX WHEREAS, the City of San Luis Obispo adopted its transient occupancy tax in 1955; and WHEREAS, since then the lodging industry has changed significantly through the availability of homestay rentals; and WHEREAS, the City's ordinance governing the lodging tax requires amendment to address some of the unique circumstances surrounding homestays; and WHEREAS, the City of San Luis Obispo amends designated portions of its Municipal Code Title 3.04 — Transient Occupancy Tax. NOW, THEREFORE, BE IT ORDAINED by the Council of the City of San Luis Obispo as follows: SECTION 1. Recitals. The above recitals are true and correct and are incorporated herein as the findings of the Council by this reference. SECTION 2. Section 3.04.020 of the San Luis Obispo Municipal Code, entitled Definitions, is hereby amended to read as follows: 3.04.020 Definitions Except where the context otherwise requires, the definitions given in this section govern the construction of this chapter: A. "Effective Date of Tax Administrator's Decision" The date specified in the tax administrator's decision as the effective date. Generally, the effective date will be the date the tax administrator's decision is issued. B. "Hotel" means any structure, or any portion of any structure, which is occupied or intended or designed for occupancy by transients for dwelling, lodging or sleeping purposes, and includes any hotel, inn, tourist home or house, motel, studio hotel, bachelor hotel, lodging ouse, rooming house, apartment house, a homestay, dormitory, public or private club, mobile home or house trailer at a fixed location, or other similar structure or portion thereof. C. "Occupancy" means the use or possession, or the right to the use or possession of any room or rooms or portion thereof, in any hotel for dwelling, lodging or sleeping purposes. X Packet Page 119 Item #11 Ordinance No. (2020 Series) Page 2 D. "Operator" means the person who is proprietor of the hotel, whether in the capacity of owner, lessee, sublessee, mortgagee in possession, licensee, or any other capacity. Where the operator performs his or her functions through a managing agent of any type or character other than an employee, the managing agent shall also be deemed an operator for the purposes of this chapter and shall have the same duties and liabilities as his or her principal. Compliance with the provisions of this chapter by either the principal or the managing agent shall, however, be considered to be compliance by both. E. "Person" means any individual, firm, partnership, joint venture, association, social club, fraternal organization, joint stock company, corporation, estate, trust, business trust, receiver, trustee, syndicate, or any other group or combination acting as a unit. F. "Rent" means the consideration charged, whether or not received, for the occupancy of a space in a hotel valued in money, whether to be received in money, goods, labor or otherwise, including all receipts, cash, credits and property and services of any kind or nature, without any deduction therefrom whatsoever. G. "Tax administrator" means the city tax collector or city finance director, or his or her designee, for the CL of San Luis Obispo. H. "Transient" means any person who exercises occupancy or is entitled to occupancy by reason of concession, permit, right of access, license or other agreement for a period of thirty consecutive calendar days or less, counting portions of calendar days as full days. Any such person so occupying space in a hotel shall be deemed to be a transient until the period of thirty days has expired unless there is an agreement in writing between the operator and the occupant providing for a longer period of occupancy. In determining whether a person is a transient, uninterrupted periods of time extending both prior and subsequent to the effective date of this chapter may be considered. (Prior code § 2551) SECTION 3. Section 3.04.080 of the San Luis Obispo Municipal Code, entitled Delinquencies and penalties, is hereby amended to read as follows: 3.04.080 Delinquencies and penalties A. Delinquency. Any operator who fails to remit any tax imposed by this chapter within the time required shall pay a penalty the amount of which will be set by the tax administrator or by resolution of the city council. SECTION 4. Section 3.04.090 of the San Luis Obispo Municipal Code, entitled Failure to collect and report tax —Determination of tax by tax administrator, is hereby amended to read as follows: 3.04.090 Failure to collect and report tax —Determination of tax by tax administrator If any operator fails or refuses to collect the tax and to make, within the time provided in this chapter, any report and remittance of the tax or any portion thereof required by this chapter, X Packet Page 120 Item #11 Ordinance No. (2020 Series) Page 3 the tax administrator shall proceed in such manner as he or she may deem best to obtain facts and information on which to base his or her estimate of the tax due. As soon as the tax administrator shall procure such facts and information as he or she is able to obtain upon which to base the assessment of any tax imposed by this chapter and payable by any operator who has failed or refused to collect the same and to make such report and remittance, he or she shall proceed to determine and assess against such operator the tax, interest and penalties provided for by this chapter. In case such determination is made, the tax administrator shall give a notice of the amount so assessed by serving it personally or by certified U.S. mail, postage prepaid, addressed to the operator so assessed at his or her last known place of address. Such operator may within ten days after the serving or mailing of such notice make application in writing to the tax administrator for a hearing on the amount assessed. The operator's application for a hearing must be delivered to the City of San Luis Obispo's Finance Department or postmarked within ten days after the serving or mailing of such notice. If application by the operator for a hearing is not made within the time prescribed, the tax, interest and penalties, if any, determined by the tax administrator shall become final and conclusive and immediately due and payable. If such application is made, the tax administrator shall give not less than five days' written notice in the manner prescribed herein to the operator to show cause at a time and place fixed in the notice why the amount specified therein should not be fixed for such tax, interest and penalties. At such hearing, the operator may appear and offer evidence why such specified tax, interest and penalties should not be so fixed. After such hearing the tax administrator shall determine the proper tax to be remitted and shall thereafter give written notice to the person in the manner prescribed herein of such determination and the amount of such tax, interest and penalties. The amount determined to be due shall be payable after fifteen days unless an appeal is taken as provided in Section 3.04.100. (Prior code § 2558) SECTION 5. Section 3.04.100 of the San Luis Obispo Municipal Code, entitled Appeal, is hereby amended to read as follows: 3.04.100 Appeal 1. Appeal. Any operator aggrieved by any decision of the tax administrator with respect to the amount of such tax, interest and penalties, if any, may appeal. To appeal the tax administrator's determination. the appellant shall comply with the anneals process as set forth in . � 1 r!tisri� . �sr�s�xs!�!�sisr_tsrrtsns!�e!�i�a�!�ersr.�� 2. Contents of Appeal. The written appeal shall state the following information: a. A caption setting forth the names, addresses, phone numbers and other contact information of the appellant(s) and the operator, if the appellant and operator are not the same, participating in the appeal. b. A brief statement setting forth the interest of the appellant(s), either as the recipient of the notice of tax administrator's determination, or the legal interest of the appellant(s) in the hotel or pronertv that is the subiect of the notice of tax administrator's determination. n Packet Page 121 Item #11 Ordinance No. (2020 Series) Page 4 c. A brief statement describing: i. The specific notice of tax administrator's determination being appealed, by the day of the notice of tax administrator's determination, address of the hotel or property; and ii. Whether all or only pecified tax, interest, penalties are being appealed; and iii. Why the tax administrator's determination should be revoked, modified or otherwise set aside. d. A statement that all of the matters alleged in the appeal are true, followed by the signature(s) of each appellant(s), and one official mailing address for the appellant(s) to receive further notices from City relating to the appeal. 3. Hearing_ Procedures for Appeal. a. Recordss or Appeal. The tax administrator, or his or her designee, shall ensure that the tax administrator's determination and any supporting documentation are delivered to the applicable city clerk in sufficient time prior to the appeal hearing. b. Failure to Appear. The failure of the appellants) to appear at the hearing, unless the hearing was continued per subsection g of this section, or unless the appellants) has submitted written evidence per subsection f of this section, shall constitute an abandonment of the appeal. 4. Findings of the Council. The findings of the council shall by final and conclusive and shall be served upon the appellant in the manner prescribed in Section 3.04.090 for service of notice of hearing. Any amount found to be due shall be immediately due and payable upon the service of notice. SECTION 6. Section 3.04.130 of the San Luis Obispo Municipal Code, entitled Actions to Collect, is hereby amended to read as follows: 3.04.130 Actions to Collect 1. Actions. Any tax required to be paid by any transient under the provisions of this chapter shall be deemed a debt owed by the transient to the city. Any such tax collected by an operator which has not been paid to the city shall be deemed a debt owed by the operator to the city. Any person owing money to the city under the provisions of this chapter shall be liable to an action brought in the name of the city for the recovery of such amount. (Prior code § 2562) 2. Liens. To recover an., delinquent tax as alien on real property, the following conditions must be met: X Packet Page 122 Ordinance No. (2020 Series) Item #11 Page 5 a. The tax administrator must submit to and receive from the citv council for a resolution certifying the amounts of the liens sought to be collected from the operator; and b. The total amount of the delinquent tax against the operator must be delinquent for sixty days or more. 3. Lien Collections. The tax administrator is authorized to take any steps necessary to enforce collection of the lien, including but not limited to request the county recorder to record a notice of anv lien certified by resolution of the citv council. 4. Notice of Lien Collection Procedures. All notice of the amount so assessed by the tax administrator or city council shall contain a notice that unpaid taxes, interest and penalties are subject to the lien collection procedures of this chapter. In addition, the tax administrator shall by first class mail send notice to each operator and property owner at least ten days before the city council considers the resolution to certify the amounts of the liens and special assessments stating the date, time, and location of the meeting. The lien shall be imposed on the date the tax administrator's determination or city council's decision is issued to the responsible person and shall become effective upon the recording of a notice of lien by the county recorder. 5. Contesting Certification of a Lien. A person may contest the amount or the validity of any lien for unpaid taxes, interest and penalties at the public hearing when the city council considers the resolution to certify the liens. Such contests shall be limited to the issue of the amount or validity of the lien and may not consider whether the delinquency occurred. Pursuit of such a contest by person is necessary to exhaust the administrative remedies concerning a legal challenge to the validity of any such lien. SECTION 7. Severability. If any subdivision, paragraph, sentence, clause, or phrase of this ordinance is, for any reason, held to be invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect the validity or enforcement of the remaining portions of this ordinance, or any other provisions of the City's rules and regulations. It is the City's express intent that each remaining portion would have been adopted irrespective of the fact that any one or more subdivisions, paragraphs, sentences, clauses, or phrases be declared invalid or unenforceable. SECTION 8. Environmental Review. The proposed ordinance amendment is exempt from environmental review requirements of the California Environmental Quality Act (CEQA) because the adoption of this Ordinance is not a project as defined in CEQA Guidelines Section 15378 because it can be seen with certainty that it will not result in either a direct physical change in the environment or a reasonably foreseeable indirect physical change in the environment.. SECTION 9. Ordinance Number 1234 (1993 Series) is hereby amended and superseded to the extent inconsistent herewith. SECTION 10. A summary of this ordinance, together with the names of Council members voting for and against, shall be published at least five (5) days prior to its final passage, in The Ef Packet Page 123 Item #11 Ordinance No. (2020 Series) Page 6 New Times, a newspaper published and circulated in this City. This ordinance shall go into effect at the expiration of thirty (30) days after its final passage. INTRODUCED on the day of , 2020, AND FINALLY ADOPTED by the Council of the City of San Luis Obispo on the day of , 2020, on the following vote: AYES: NOES: ABSENT: Mayor Heidi Harmon ATTEST: Teresa Purrington City Clerk APPROVED AS TO FORM: J. Christine Dietrick City Attorney IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Luis Obispo, California, this day of , 2020. Teresa Purrington City Clerk X Packet Page 124 Transient Occupancy Tax Ordinance Revisions January 14, 2019 Recommendation "INTRODUCE AN ORDINANCE AMENDING DESIGNATED PORTIONS OF THE CITY OF SAN LUIS OBISPO MUNICIPAL CODE SECTION 3.04.020, SECTION 3.04.080, SECTION 3.04.090, SECTION 3.04.100 AND SECTION 3.04.130 OF MUNICIPAL CODE CHAPTER 3.04 - TRANSIENT OCCUPANCY TAX" What is TOT? ■ A 10% tax levy by the City on transients for all applicable room rent. Collected by business operator and applicable for all stays under 30 days. ■ Each operator shall collect the tax imposed and remit to the tax administrator within the period established in Chapter 3.04. ■ The ordinance to collect TOT was implemented in 1955. ■ The City's third largest source of General Fund Revenue. ■ Traditionally a stable income from stable industry (Hotels) Why the change? ■ Lodging industry has dramatically changed with homestays entering the market. ■ Less stable industry with a multitude of known and unknown players ■ Enforcement action availability was limited ■ Currently around 100 permitted and at least 64 unpermitted homestays operating within the City ■ Third party host compliance company estimates over $400,000 in TOT debt owed to the City. Recommended Changes ■ Lien on Property: Since linked directly to property rental, the tax administrator may take necessary action to enforce a lien on the property for unpaid taxes. ■ This process mirrors the adopted policy to collect debt related to code enforcement, fire safety, and solid waste violations. ■ Creates an even playing field for operators that have been properly remitting TOT and long-term rentals that maintain housing stock. Operator can Operator may request appeal request appeal of Tax with Tax Administrator's Administrator decision with Council If unpaid, Tax TOT Due Administrator assesses amount due TOT is due based on council decision If TOT remains unpaid it will be placed as a lien on the property Recommendation "INTRODUCE AN ORDINANCE AMENDING DESIGNATED PORTIONS OF THE CITY OF SAN LUIS OBISPO MUNICIPAL CODE SECTION 3.04.020, SECTION 3.04.080, SECTION 3.04.090, SECTION 3.04.100 AND SECTION 3.04.130 OF MUNICIPAL CODE CHAPTER 3.04 - TRANSIENT OCCUPANCY TAX"