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RPVCCA_SR_2010_05_04_16_Opposition_LetterCrrYOF MEMORANDUM RANCHO PALOS VERDES TO: FROM: DATE: SUBJECT: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL CAROLYNN PETRU,DEPUTY CITY MANAGER~ MAY 4,2010 OPPOSITION OF SBX6 2 TRANSIENT OCCUPANCY TAXES:COLLECTION REVIEWED BY:CAROLYN LEHR,CITY MANAGERID~eL. Project Coordinator:Sara Singer,Senior Administrative Analyst ~ RECOMMENDATION AUTHORIZE THE MAYOR TO SIGN LETTER OPPOSING SaX6 2 AND DIRECT STAFF TO TRANSMIT LETTER TO SENATOR CALDERON AND SENATOR WRIGHT.. BACKGROUND AND DISCUSSION saX6 2 was introduced by Senator Calderon on November 24,2009,to add Section 7283.52 to the Revenue and Taxation Code,which would create a special exemption to the "pay first"rule for various online travel companies seeking to challenge a disputed amount of Transient Occupancy Taxes (TOT)that is owed to local jurisdictions.In addition to this legislation,another related piece of legislation is under development by Senator Rod Wright. The "pay first"requirement is imbedded in Article XIII,Section 32,ofthe state Constitution -and is a well established legal principle throughout the country -that requires those that seek to contest the validity of a tax shall pay first pay the tax before they seek judicial remedy.To do otherwise would expose public revenue streams to uncertainty and potentially impede the delivery of public services. 16-1 OPPOSITION OF SBX6 2 TRANSIENT OCCUPANCY TAXES:COLLECTION May4,2010 Page 2 SBX62 is based,in part,on recent litigation over the application of the "pay first"rule in City ofAnaheim v.Superior Court ofLos Angeles County,(Cal,~d Dist.).The Court ruled that because the city did not have a "pay first"clause in its local ordinance,that it could not enforce this requirement.The Court also held that Article XIII,Section 32,only applied to state revenues.But another court recently enforced local "pay first"provisions in similar litigation involving the City of San Francisco. The Anaheim case represents just a small piece in a much broader legal dispute between local agencies and online travel companies throughout the nation.The crux of this dispute is the concern that these companies are collecting TOT from customers who purchase rooms over the Internet,but then fail to fully remit the proceeds of those taxes to local agencies.Courts in Texas,Georgia and South Carolina have held in favor of local agencies in this dispute. For example,in Rancho Palos Verdes,the Terranea Resort may have agreements with online travel companies to offer their rooms at a discounted rate.The online travel company would charge the customer $500 for their hotel room.The City's TOT rate is 10 percent,so the online company would collect $50 for TOT revenue.The online company has agreed to pay Terranea $400 for the room,so they only submit $40 for the TOT revenue,yet they collected $50.The online company should be submitting the entire $50 in TOT revenue. The League of California Cities has opposed this legislation,and they have encouraged other concerned cities to submit letters of opposition.Recently,the League has also become aware of another piece of Legislation,SB 625,introduced by Senator Rod Wright. In its current form,it does not address TOT,however,earlier this year,amendments were drafted to insert the online travel companies'amendments into the bill.Staff is proposing to send a copy of the proposed letter to Senator Wright to confirm the City's position on this issue. Attachments: DRAFT Letter Opposing SBX6 2 Transient Occupancy Taxes:Collection 16-2 April 28,2010 Senator Ronald S.Calderon State Capitol,Room 5066 Sacramento,CA 95814 RE:SBX6 2 (Calderon)Transient Occupancy a Notice of Opposition Dear Senator Calderon: On behalf of the City of Rancho Palos V opposed to SBX6 2. it has become increasingly difficult to ructure projects.Transient Occupancy ce for our City and helps to fund many of his measure creates a special exemption to the "pay panies seeking to challenge a disputed amount of local jurisdiction;and,therefore,it could have a TOT revenue collected by the City. The "pay first'IS imbedded in Article XIII,Section 32,of the Constitution - and is a well esta egal principle throughout the country -that requires those that seek to contest the idity of a tax shall first pay the tax before they seek judicial remedy.To do 0 erwise would expose public revenue streams to uncertainty and potentially impede the delivery of public services. It is our understanding that this legislation is based,in part,on recent litigation over the application of the "pay first"rule in City ofAnaheim v.Superior Court of Los Angeles County,(Cal,2nd Dist.).The Court ruled that because the city did not have a "pay first" clause in its local ordinance,it could not enforce this requirement.The Court also held that Article XIII,Section 32,only applied to state revenues.But another court recently 16-3 enforced local "pay first"provisions in similar litigation involving the City of San Francisco. The Anaheim case represents just a small piece in a much broader legal dispute between local agencies and online travel companies throughout the nation.The crux of this dispute is the concern that these companies are collecting TOT from customers who purchase rooms over the Internet,but then fail to fully remit the proceeds of those taxes to local agencies.Courts in Texas,Georgia,and South Carolina have held in favor of local agencies in this dispute. Anaheim case may ate revenues,it ifferent legal ent.If approved,any other al tax 1,no doubt,seek a legislative commencing litigation.This is not the is local revenue streams. ature oppose this legislation that favors a the "pay first"standard so that it applies equally to et the Anaheim decision stand and allow local es accordingly. ty of Rancho Palos Verdes opposes SBX6 2 and any other ng a local agency's ability to collect the full amount ofTOT y questions,please contact City Manager Carolyn Lehf at 1.The policy behind this bill is fundamentally fla have interpreted a Constitutional provisio makes no policy sense for local agen standard. 2. 3. For the abo proposed legis revenue.If you (310)544-5202. Therefore, specific' both age Thus,we oppose this legislation and any legislation which w to collect the full amount of TOT for three reasons: Sincerely, Stephan Wolowicz Mayor City of Rancho Palos Verdes 16-4 Cc:Senator Rod Wright Assemblymember Bonnie Lowenthal 16-5