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.
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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
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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
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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
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Cc:Senator Rod Wright
Assemblymember Bonnie Lowenthal
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