COVID-19 shutdown causes TOT revenue losses

The coronavirus shutdown included the entire fourth quarter of fiscal year 2019-20, and the loss of Transient Occupancy Tax revenue for the April through June period contributed to a full-year decline from 2018-19 of $1,611,590.45, or 27.9%.

The county collected $5,784,173.63 of TOT revenue for 2018-19 and $4,172,583.18 for 2019-20. The county's 2017-18 annual revenue was $5,105,749.14. The fourth quarter decrease of $914,496.83 from $1,344,106.50 in 2019 to $429,609.67 during 2020 equates to a 68.0% drop; the county had collected $1,131,140.09 of fourth quarter TOT revenue in 2018.

"The COVID-19 really did play a role in business losses," said San Diego County Treasurer-Tax Collector Dan McAllister.

"It's the most logical explanation for the dip, there's no question about that," McAllister said. "They're off significantly in many sectors."

Various reasons other than decreased lodging can cause a decline of TOT revenue on a quarterly or annual basis from one year to the next. A facility may be closed for renovations or may outright cease business.

A timeshare unit used by an ownership partner or an owner's guest is not subject to the TOT, although if a unit is rented to the general public it is subject to the tax for that period, and if a private campground has a membership program a member or a member's guest is exempt from the TOT.

A late payment or a payment postmarked by the deadline but not processed by the sixth of the following month will be reported for the following quarter, which can cause annual fluctuations. The TOT is not collected for lodging facilities on Indian reservations or other areas where the county has no taxing power.

Some community losses for 2019-20 are due to a revision in the community definitions rather than to losses for a specific establishment. One of the revisions separated Valley Center and Palomar Mountain from Pauma Valley; fourth quarter revenue for the combined three communities in 2020 actually exceeded the total for what was called Pauma in 2019.

For the fourth quarter of 2018-19 the largest TOT collections were $337,775.24 in Rancho Santa Fe, $227,456.20 from Borrego Springs lodgers, $165,836.52 generated in unincorporated Escondido, $144,185.33 for unincorporated San Marcos, and $114,085.56 from Fallbrook. For the fourth quarter of 2019-20 collections fell by 86.8% to $44,492.08 in San Marcos, 84.7% to $34,802.01 for Borrego Springs, and 71.9% to $40,466.35 in unincorporated San Marcos.

Unincorporated Escondido revenue for the fourth quarter dropped by 44.8% to $91,619.22, which made Escondido the community with the largest TOT revenue for the fourth quarter of 2019-20.

Because the Welk Resort provides much of unincorporated Escondido's revenue generation and because increased use by timeshare ownership partners decreases available rentals to the general public which are subject to the TOT, fluctuations in unincorporated Escondido revenue are often due to that factor.

Excluding communities not listed in the 2018-19 report, Escondido was one of three communities whose third quarter revenue increased for 2020.

The Transient Occupancy Tax, which was reduced from 9% of the unit rate to 8% in October 2007, is collected from occupants of hotels, motels, bed-and-breakfast venues, mobile home parks, private campgrounds, and other structures occupied or intended for occupancy by nonresidents for lodging or sleeping purposes.

Fallbrook lacks the luxury resorts Rancho Santa Fe and Borrego Springs have, so Fallbrook was somewhat insulated from the losses due to the shutdown. The Friendly Village collected $85,341.16 of fourth quarter TOT revenue in 2020, which is a 25.5% decline from the previous quarter.

"There's not a whole lot of places to stay here," said Fallbrook Chamber of Commerce Chief Executive Officer Lila MacDonald.

"We have a lot of vacation rentals," McDonald said. "We wouldn't be impacted by that as much."

Campgrounds at county parks are not subject to the TOT. A federal or State of California officer or employee on official business does not pay the TOT, nor does any foreign government officer or employee exempt under federal law or international treaty.

The tax is not collected if the regular rent is four dollars a day or less or if the lodger receives a free room where the only compensation received is publicity for the lodging site. A unit which is occupied or rented by the same person for more than 30 consecutive days is not subject to the TOT.

The county has been issuing housing vouchers which allow homeless residents to stay in motels or hotels. The agreement between the city or county and the facility may limit the amount the establishment can charge per room, but that amount would include all fees and taxes charged for a stay. Thus, a housing voucher for no more than 30 consecutive days is subject to the TOT, and McDonald noted that the use of Fallbrook lodging facilities to shelter the homeless has contributed to a lower decline.

"We also have less capacity," McDonald said.

The coronavirus shutdown canceled Fallbrook's Avocado Festival, which is held in the fourth quarter of the fiscal year. McDonald noted that many Avocado Festival vendors use Temecula lodging facilities, so the cancellation of the Avocado Festival likely affected Temecula's lodging room tax revenue more than the County of San Diego's.

For the entire fiscal year Fallbrook revenue declined 35.5% from $540,602.11 to $350,468.17. First quarter revenue dropped 47.8% from $236,569.00 to $123,511.41 although the late-processed payments inflated the 2018 figure from $137,731.64 during 2017.

The 4.5% drop for the second quarter was from $100,848.39 to $96,261.62. The coronavirus shutdowns began March 12 and impacted three weeks of the 13-week fiscal year 2019-20 third quarter, and the 2020 Fallbrook revenue of $45,354.28 is a 49.1% decrease from the 2019 figure of $89,099.16.

Bonsall revenue was also down significantly for the entire fiscal year. The 2018-19 total of $23,355.44 declined by 85.1% to $3,487.83. That covers an 87% decrease from $10,174.30 to $1,326.40 for the first quarter, a 79.7% drop for the second quarter from $6,535.82 to $1,325.71, an 86.7% reduction from $4,467.85 to $593.77 for the third quarter, and an 84.3% decline for the fourth quarter from $2,177.57 to $241.95.

In 2019, Pauma had an annual collection of $75,514.63 consisting of $25,529.60 for the first quarter, $14,412.98 paid in the second quarter, $20,809.09 generated during the third quarter, and $14,951.96 in the fourth quarter.

Pauma Valley had 2019-20 annual TOT revenue of $32,337.12 comprised of $8,824.04 of first quarter collections, $8,239.83 from second quarter lodgers, $10,121.08 paid during the third quarter, and $5,152.17 for the fourth quarter.

The annual Valley Center figure of $23,637.23 covered quarterly amounts of $2,509.48, $12,293.09, $1,366.48, and $7,468.18. The Palomar Mountain quarters of $2,634.56, $4,698.75, $1,364.39, and $2,549.37 produced an annual total of $32,337.12.

The three communities combined for $15,109.82 of fourth quarter TOT payments in 2020, which made the area one of two to have a fourth quarter increase over 2019.

The county collected $1,169,171.01 for the second quarter of 2017-19 and $1,184,690.39 for that quarter in 2018-19. The amount increased by 11.8% to $1,342,438.23 for 2019-20.

"We were on a steady stream of increases every year," McAllister said.

The third quarter of the fiscal year covers January through March. In 2019 the county collected $1,491,782.64 of TOT revenue, but that figure dropped 36.5% to $947,175.31 for the 2020 quarter in which the coronavirus shutdown began.

"I think we reasonably had to anticipate there would be a drop," McAllister said.

The annual revenue is the lowest since the county collected $4,128,274.69 during 2015-16. The revenue for April through June is the lowest fourth quarter revenue this century.

"An awful lot of entrepreneurs are having a difficult time," McAllister said. "We just have to keep marching forward hoping that things turn around."