HomeMy WebLinkAbout1984-01-15; City Council; 8027; Collection Procedures Transient Occupancy Tax10
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CITY,9F CARLSBAD - AGENW-11LL
AB# FR.? 7 TIT & DEPT. HD.
MTG.�15�d_ REVISIONS TO COLLECTION PROCEDURES CITY ATTY .,�v�_
DEPT. FAN FOR THE TRANSIENT OCCUPANCY TAX CITY MGR. �`
RECOMMENDED ACTION:
!hat the City Council introduce Ordinance No. / 2 7,J'
ITEM EXPLANATION
The City of Carlsbad collects a 6% transient occupancy tax on the rental of all
transient lodging. The Municipal Code Section under which this tax is imposed
and collected were established in 1964 and have never been substantially
revised. The proposed ordinance will update the Code by making the following
changes:
- Responsibility of the Operator - The proposed ordinance improves the
wording used to describe the responsibility of the operator with
respect to the collection of the tax, the payment of tax receipts to
the City and the liability of the operator upon sale of the business.
- Reporting - Under the revised ordinance, all operators will be required
to remit transient occupancy tax receipts to City of Carlsbad on a
monthly basis, as the total volume of tax collections grow, the speed
of collection by the City becomes more important. (Total TOT Revenue
In 1983-84 reached $1 million.)
- Penalties and Interest - The prior ordinance imposed a penalty
of 20% and interest rate of 1/2 of 1 percent per month for failure to
pay taxes due the City on a timely basis. Under the new ordinance, the
maximum penalty remains at 20% while the interest rate has been
Increased to 1 1/2 percent per month.
- Violations - The proposed ordinance clarifies the penalty for violation
of the various code sections, i.e. failure to remit tax revenues is a
violation of the State Penal Code while violation of other sections of
this chapter is a misdemeanor and is guided by the City Municipal
Code.
FISCAL IMPACT
The eventual adoption of this ordinance will provide the City with better
control of the collection and audit of transient occupancy tax revenues. An
Increase of about $9,000 in interest revenue should be realized by speedinq up
cash flow.
EXHIBITS
1. Memorandum from City Attorney
2. Ordinance No. / 27�
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October 24, 1984
TO: Finance Director
FROM: City Attorney
RECOMMENDED REVISIONS TO THE TRANSIENT OCCUPANCY TAX ORDINANCE
You have recently asked our office to file lawsuits against two
hotel operators in the City who refused to pay the City's
transient occupancy tax. In both cases the amounts were sizable
($15,000 and $40,000) which had built up over long periods of
delinquency.
In taking steps to collect the money on behalf of the City we had
occasion to review chapter 3.12 of the Carlsbad Municipal Code
which provides for our transient occupancy tax. This memorandum
is to advise you that as a result of our review, we think some
revisions to our Code are necessary to minimize this problem in
the future. The existing chapter was adopted in 1964 and has
never been amended. We compared it to those of other cities, in
particular San Diego, and it appears our Code is out of date.
Using the City of San Diego's ordinance as a guide we have
prepared a series of revisions to our Code for your
consideration. Attached is an ordinance in that regard. The
balance of this memorandum will discuss the ordinance which you
may wish to recommend to the the City Council.
Section 3.12.020(6) makes the City Treasurer responsible for the
administration of the tax. Since the City has implemented a
Finance Director approach this section is no longer accurate and
should be amended to reflect the current organization of the
City. Section 1 of the ordinance would define the tax
administrator as the City's finance director.
Section 3.12.050 imposes a series of duties on operators of
hotels. Section 2 of the ordinance makes some techincal changes
to that section regarding record keeping requirements. It also
adds a provision requiring each operator to notify the City upon
cessation of business. As you know, one of the collection
problems we experienced resulted from a series of sales of the
hotel which were not brought to ne City's attention. As a
result, when we tried to collect the unpaid taxes we were faced
with attempting to find operators who had been out of business for
some considerable period of time. This change with two discussed
later will help ensure that any tax liabilities are cleared in
conjunction with the sale of the business. This approach
parallels that utilized by the state in collecting sales tax.
EXHIBIT I
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Section 3 of the ordinance amends section 3.12.070 to change the
time for payment of the tax from quarterly to monthly. This
change would bring our ordinance into accord with that of the
City of San Diego and of most counties. It should eliminate the
problem we have experienced of operators running up big
delinquencies over extended time periods and would ensure that in
the future our collection problems would be little problems and
not big problems. Section 3 retains the quarterly reporting
period but provides for monthly payments. It will be necessary
for the City to prepare a new form for reporting which includes
monthly payment coupons. Subsection (f) has been added to
section 3.12.070 to deal with the problem of operators ceasing
business discussed above. This provision would require an
operator to report and pay his tax at the same time as he goes
out of business. Subsection (g) is also new and would underline
the fact that the operator collects the tax as an agent of the
City directly from the occupant and in a manner similar to sales
tax holds the City's money in trust and then pays it over on
demand.
Section 4 of the ordinance adds two new sections directly drawn
from San Diego's ordinance to further deal with the problem of
sales of business subject to tax. It should eliminate the
problem we experienced of successors in interests in the business
each refusing to pay on the basis that the obligation was that of
either an operator who had come before or after them
When we discussed problems of enforcement and collection you
quite properly pointed out that the interest rate provided in
section 3.12.080 was very low and in fact creates an incentive
for an operator to withhold tax payments from the City and
thereby receive in effect a low interest loan. Section 5 of the
ordinance includes your suggested change to section 3.12.080(d)
to raise the effective interest rate from 68 to 188. We have
also added new subjection (c) to extend the penalty provisions
for nonpayment to situations where the amount due is determined
as a result of an audit.
Section 6 of the ordinance makes some technical changes to
sections 3.12.130 and 3.12.140 regarding actions to collect and
violations. As a result of our research on collections we
discovered that section 424 of the Penal Code mades it a felony
to willfully fail to accurately report on transient occupancy tax
collections or to pay the money over to the City as required by
the ordinance. The penalty is a minimum of two years in state
prison. We have revised our ordinance to reflect that fact
mainly to put operators on notice of the potential seriousness of
any failure to properly account for what is, in a real and legal
sense, public funds.
-3-
If you have any questions or comments on the changes to the
ordinance which we have discussed in this memorandum please let
me know.
VINCENT F. BIONDO, JR.
City Attorney
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ORDINANCE NO. 1275
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA AMENDING TITLE 3, CHAPTER
3.12 OF THE CARLSBAD MUNICIPAL CODE BY THE
AMENDMENT AND ADDITION OF VARIOUS SECTIONS TO
REVISE THE PROCEDURES FOR COLLECTION OF THE
CITY'S TRANSIENT OCCUPANCY TAX.
The City Council of the City of Carlsbad, California
does ordain as follows:
SECTION 1: That Title 3, Chapter 3.12, Section
3.12.020 of the Carlsbad Municipal Code is amended by the
amendment of subsection (6) to read as follows:
"(6) "Tax administrator" means the City Finance
Director."
SECTION 2: That Title 3, Chapter 3.12, is amended by
the amendment of Section 3.12.050 to read as follows:
"3.12.050 0 erator's duties. Each operator shall
collect the tax impose y t is chapter to the same extent and at
the same time as the rent is collected from every transient. If
the operator collects the rent but fails to collect the tax
imposed by this chapter for any reason, the City shall require
the operator to pay such tax. The amount of tax shall be
separately stated from the amount of the rent charged and each
transient shall receive a receipt for payment from the operator.
A duplicate of this receipt shall be kept by the operator in
accordance with Section 3.12.110. No operator of a hotel shall
advertise or state in any manner, whether directly or indirectly,
that the tax or any part thereof will be assumed or absorbed by
the operator, or that it will r.�t be added to the rent, or that,
if added, any part will be refunded except in the manner
hereinafter provided. Each operator shall account monthly, for
taxable rents and for taxes collected. Each operator shall
notify the tax administrator within ten days upon the cessation
of business for any reason and shall make his books and records
available for audit."
SECTION 3: That Title 3, Chapter 3.12 is amended by
the amendment of Section 3.12.070 of the Carlsbad Municipal Code
to read as follows:
"3.12.070 Remittin and reporting.
(a) All operators shall remit monthly the full amount
of taxes collected on the appropriate return form provided by
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the tax administrator and a return shall be filed quarterly.
(b) Returns filed quarterly and taxes remitted monthly
and actually received by the tax administrator on or before the
last day of the following month shall be deemed timely filed and
remitted; otherwise, the taxes are delinquent and subject to the
penalties imposed by Section 3.12.080.
(c) Each operator reporting on a calendar quarter
basis shall, on or before the last day of the month following
the close of each calendar quarter, make a return to the tax
administrator on forms provided, of the total taxable rents
charged and the amount of tax collected for the quarter,
remittances made for each of the first two months of the
calendar quarter, and the balance of the tax due. At the time
the return is filed, the full amount of the balance of the tax
due shall be remitted to the tax administrator.
(d) The tax administrator may establish shorter
reporting periods for any certificate holder if he deems it
necessary in order to insure collection of the tax and he may
require further information in the return.
(e) Any operator required to report on other than a
calendar quarter basis shall, on or before the same day of the
next month following the close of such reporting period, or on
the last day of the next month if no corresponding day exists,
make a return to the tax administrator on forms provided, or the
total taxable rents charged _and the amount of tax collected for
the quarter, remittances made during the approved reporting
period, and the balance of the tax due. At the time the return
in filed, the full amount of the balance of the tax due shall be
remitted to the tax administrator.
(f) Each operator, upon cessation of business for any
reason, shall, on or before the same day of the next month
following the cessatrion of business or on the last day of the
month if no corresponding day exists, make a return to the tax
administrator on forms provided of the total taxable rents
charged, the amount of tax collected for the reporting period,
remittances made, if any, and the balance of the tax due. At
the time the return is filed the full amount of the balance of
the tax due, if any, shall be remitted to the tax administrator.
Returns filed and taxes remitted and actually received by the
tax administrator on or before the same day of the next month
following the cessation of business, or on the last day of the
next month if no corresponding day exists, shall be deemed
timely filed and remitted; otherwise, the taxes are delinquent
and subject to the penalties imposed by Section 3.12.080.
(g) All taxes collected by operator pursuant to this
Chapter shall be held in trust for the account of the City until
payment thereof is made to the tax administrator."
SECTION 4: That Title 3, Chapter 3.12 is amended by
the addition of Section 3.12.072 and 3.12.074 of the Carlsbad
Municipal Code to read as follows:
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-3.12.072 Dutr of successor of operator- If an
operator who is liable for any tax or penalties under this
chapter sells or otherwise disposes of his business, his
successor shall notify the tax administrator of the date of sale
and withhold a sufficient portion of the purchase price to equal
the amount of such tax or penalty until the selling operator
produces a receipt from the tax administrator showing that the
tax or penalty has been paid or a tax clearance certificate from
the tax administrator stating that no tax or penalty is due. I£
the seller does not present a receipt or tax clearance
certificate within thirty days after such successor commences to
conduct business, the successor shall deposit the withheld amount
with the tax administrator pending settlement of the account of
the seller."
"3.12.074 Liabilitv of successor for failure to
withhold: Notice of amount due. If the successor to the
business fails to withhold a portion of the purchase price as
required, he shall be liable for the payment of the amount
required to be withheld. Within thirty days after receiving a
written request from the successor for a tax clearance
certificate, stating that no tax or penalty is due, the tax
administrator shall either issue the certificate or mail notice
to the successor at his address as it appears on the records of
the tax administrator of the estimated amount of the tax and
penalty that must be paid as a condition of issuing the
certificate."
SECTION 5: That Title 3, Chapter 3.12 c.f the Carlsbad
Municipal Code is amended by the amendment of section 3.12.080 by
renumbering subsections (c) through (e) respectively to (d)
through (f) respectively and by adding a new subsection (c) and
revising newly renumbered section (e) regarding interest to read
as follows:
"(c) Audit deficiency. If, upon audit by the City, an
operator is found to be deficient in his return or his
remittance, or both, the tax administrator shall immediately
invoice the operator for the amount of the net deficiency plus a
penalty of ten percent of the net deficiency. If the operator
fails or refuses to pay the deficient amount and applicable
penalties within fourteen days of the date of the invoice, an
additional penalty shall be imposed at the rate of one percent
per day of the net deficiency, not be exceed ten percent."
"(e) Interest. In addition to the penalties imposed,
any operator who fails to remit any tax imposed by this chapter
shall pay interest at the rate of one and one-half percent per
month or fraction thereof on the amount of the tar., exclusive of
penalties, from the date on which the remittance first became
delinquent until paid."
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SECTION 6: That Title 3, Chapter 3.12 of the Carlsbad
Municipal Code is amended by the amendment of sections 3.12.130
and 3.12.140 to read as follows:
"3.12.130 Actions to collect. 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 and payable
through the operator. Any such tax, collected by an operator,
which has not been paid to the City, shall be deemed funds held
in trust for the account of the City which are due and payable
by the operator to the City pursuant to the provisions of this
chapter. Any person owing money to the City under the
provisions of the chapter shall be liable to an action brought
in the name of the City of Carlsbad for the recovery of such
amount plus attorney's fees and costs."
"3.12.140 Violations. Any operator who fails to remit
any tax coTle—cted pursuant to this chapter shall be subject to
prosecution under Section 424 of the Penal Code of the State of
California. Any person violating any of the other provisions of
this chapter shall a guilty of a misdemeanor and shall be
punishable as provided in section 1.08.010."
EFFECTIVE DATE: This ordinance shall be effective
thirty days after its adoption, and City Clerk shall certify to
the adoption of this ordinance and cause it to be published at
least once in the Carlsbad Journal within fifteen days after its
adoption.
INTRODUCED AND FIRST READ at a regular meeting of the
Carlsbad City Council held on the 15th day of January ,
198.6, and thereafter
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2 PASSED AND ADOPTED at a regular meeting of said City
3 Council held on the 22nd day of January , 198 5 by the
4 following vote, to wit:
5 AYES: Council bSegbers Casler, Lewis, Kulchin, thick and Pettine
6 NOES: None
7 ABSENT: None
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ATTEST:
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ALETHA L. RAUTEN RA
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MARY H: CASLER, Mayor