TOT ordinance modified to clarify exemptions

The County of San Diego’s Transient Occupancy Tax (TOT) will remain at eight percent, but changes to the TOT ordinance will ensure that those whose exemption from payment was uncertain will now be subject to the tax.

A 5-0 San Diego County Board of Supervisors vote Dec. 2 approved the first reading and introduction of the ordinance amendments while a 5-0 vote Jan. 6 approved the second reading and adoption. The amendments will become effective Feb. 5.

“I think it’s important to check these things from time to time,” said San Diego County Treasurer-Tax Collector Dan McAllister.

Each year some establishments subject to the Transient Occupancy Tax are audited in an effort to ensure compliance. The annual audit process allows the Treasurer-Tax Collector to determine which areas of the TOT ordinance may require clarification. “These are definitions changes,” McAllister said.

The first type of change, McAllister noted, involves the definition of a hotel. The ordinance had defined a hotel as any structure or any portion of a structure occupied, or designed or intended for occupancy, for lodging or sleeping purposes including any hotel, inn, tourist home or house, motel, mobilehome, trailer, or other lodging. The changes add “space, lot, area, or site” to “structure”, add “but is not limited to” to “includes”, and add bed and breakfasts, timeshares, campgrounds, and recreational vehicle parks to the types of establishments covered under the hotel definition subsection.

The hotel subsection change also adds that “hotel” does not include an owner or a guest of an owner in a timeshare estate or in a room of a timeshare project and does not include the owner of a membership in a camping contract at a campground or a guest of such an owner.

The occupancy definition subsection, which had defined occupancy as the use or possession or the right to use or possess a room, portion of a room, or other living space in a hotel for lodging or sleeping purposes, was changed to add “dwelling” to lodging and sleeping, and a new sentence stipulates that the right to use or possess includes any non-refundable deposit or guaranteed no-show fee which is paid regardless of whether the use or possession is exercised.

The definition of “operator” had referenced the person who is the proprietor of the hotel or that operator’s managing agent. An operator is now the person or entity who is the proprietor of the hotel or that person or entity’s managing agent.

A second major area of change involves the exemption for a stay of more than 30 days. A “transient” is still defined as a person who exercises or is entitled to occupancy of a hotel for a period of 30 consecutive days or less, counting portions of days as full days. Two new sentences in that subsection state that a person occupying such a space shall be deemed a transient until that 30-day period has expired or until the person and operator enter into an agreement for a period of occupancy longer than 30 days and that the agreement must be acknowledged by the person and operator on a form provided by the county tax collector.

McAllister noted that the Transient Occupancy Tax is usually associated with tourists. “TOT is a short-term tax,” he said.

The third area of major change is rent. The definition of rent, which was unchanged, is the monetary value of the consideration charged, whether or not received, for the occupancy or living space whether received in money, goods, labor, or other forms including all receipts, cash, credit, property, and services of any kind without any deduction. Two new sentences stipulate that rent is also the regular value of a room provided to a guest who receives a room at no charge which is not defined as exempt in the ordinance’s exemptions section and that rent does not include charges for personal services or other charges otherwise subject to state taxes.

“The term rent relates to the value of free or complimentary rooms unless specifically exempt,” McAllister said. “Unless it’s exempted, it includes the value of free or complimentary rooms.”

The only free or complimentary rooms covered in the exemptions section are for persons who receive a free or complimentary room where the only consideration the operator receives is publicity value for the hotel. The existing exemptions also include an occupancy beyond the power of the county to impose the tax; while the ordinance does not specifically exempt Indian reservations or other areas where the County of San Diego has no taxation power, the tax is not collected on Indian reservations. McAllister noted that some Indian casinos provide frequent gamblers with complimentary rooms, whose value would be subject to TOT collection if that arrangement occurred in hotels under county jurisdiction. “There could be other situations, too,” McAllister said.

McAllister indicated that the most likely scenario for a lodging facility subject to the TOT would involve provision of some complimentary rooms for a conference being held at the premises. “That would require rent to be paid,” McAllister said. “It would result in the TOT being implemented.”

The exemption section included facilities where the rent was four dollars per day or less; the changes now exempt such facilities only if the regular rent is no more than $4. The exemptions also include a federal or State of California officer or employee on official business and any foreign government officer or employee exempt under federal law or international treaty. An addition to the exemption section now requires an exemption claim under penalty of perjury to be made at the time the rent is collected and using a form prescribed by the county tax collector.

The amendments now require that annually in July, as well as within 30 days of commencing business, the operator shall register the hotel with the tax collector and obtain a transient occupancy registration certificate from the county. The previous language only required the registration and certificate within 30 days after the start of operations. The certificate had only required the operator’s name and the hotel’s address; certificates will now require both the name and the address of the operator and both the name and the address of the hotel, and the changes also add the certificate number and the required reporting period to the certificate information requirements.

The amendments did not change the clauses that the facility operator must submit payment to the county on a quarterly basis by the last day of the month following the end of the calendar quarter and that if the facility ceases operation the payment must be made within 30 days after the operator ceases doing business. An addition is that the certificate is not transferable and is void upon a hotel change of name or a sale or transfer of the hotel or its operators and, in the event of a name change, sale, or transfer, the TOT payment must be made within 30 days of that change or transaction.

The previous record-keeping requirements called for the operator to retain for three years the facility’s rent receipts, duplicate copies of payment receipts given to transients, documents verifying exemptions from TOT payment, occupancy records, room logs, gross receipts records used to calculate the TOT amount due, and other business records which show when rooms were occupied.

Those requirements all remain while new record-keeping requirements add ledgers, guest folios, booking and registration records, banking and tax records showing when the rooms were occupied, and the rent and tax amounts collected and paid.

The requirement for records calculating occupancy tax due now requires separate calculation of the amount of rent and the amount of occupancy tax due. The three-year record retention requirement was changed to require records to be kept for a minimum of three years, and an added sentence notes that an audit does not waive the requirement to retain records for three years.

The changes to the TOT ordnance were the first since 2007, when the tax was reduced from nine percent of the lodging unit rate to eight percent.

The TOT is collected only from lodging facilities in the county’s unincorporated area, although the revenue is used for the county’s Community Enhancement program and may be given to organizations in incorporated cities as well as unincorporated communities.

Community Enhancement funds, which are allocated during the county’s annual budget process, are intended to promote tourism including visitors from other parts of the county. The County of San Diego collected $3,403,805.14 of TOT revenue during fiscal year 2013-14, which was the county’s highest amount since 2007-08. During 2012-13 the TOT revenue was $2,646,965.75 and the 2011-12 countywide revenue was $2,579,408.47. The county’s 2007-08 collections totaled $3,473,838.85.

During 2013, countywide first-quarter TOT revenue from July through September totaled $882,294.50. First-quarter collections for July through September 2014 were approximately $1.1 million, which provided the county with 35.66 percent of the $3.1 million TOT revenue budgeted for 2014-15.

“We’re well ahead of where we expected to be,” McAllister said. “We’re seeing better times overall for TOT.”