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HomeMy WebLinkAbout1984-01-15; City Council; 8027; Collection Procedures Transient Occupancy Tax10 w /O 0 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� / 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 -2- 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 rmh attachment 1 2 3 4 5 6 7 8 9 10 11 12 0 a 1 co3 �Uwa 14 O LL 2 i,Wo ° '< = 15 LL c'�U WZ- w 16 U 0 m >Q = 17 H U 18 19 20 21 22 223 V 24 2° 2( 2' 2F 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 1 2 3 4 0 10 11 12 ca co 13 oU. �;a 14 z ° W o m~<� 15 U. V J U ="'W� 16 U ¢O m >Q a 17 18 19 201 211 22 23 24 25 26 27 28 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: 2. G 0 a m a� w¢ 0 tL z Z O w CC 0 (0~aJ uo 9 x 4 4 U v ill 211 3 4 11 11 6 7 8 9 10 11 12 13 14 15 16 17 18, 19 20 21 22 23 24 25 26 27 28 W -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." 3. 1 2 3 4 5 6 7 8 9 10 11, 12 0 13 �W< 14 O U. : 2 i � w0O L 15 U 2W d 16 U m >Q a 17 18 19 20 21 22 23 24 2r 2@ 2, 2E 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 4. W ra 1 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 8 9 10 11 12 ATTEST: c ` m 13 d� -'tw< u W_ oC�15 14 �&Yr ALETHA L. RAUTEN RA ILL z= a 16 , .. V= O >Q 17 18 19 20 21 22 23 24 25 26 27 P 28 5. L21� — MARY H: CASLER, Mayor