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CITY COUNCIL AGENDA REPORT
City of Anaheim
CITY MANAGER’S OFFICE
DATE: JULY 12, 2022
FROM: CITY MANAGER’S OFFICE
SUBJECT: RESOLUTION ORDERING THE SUBMISSION OF A GENERAL TAX MEASURE AT THE NOVEMBER 8, 2022 GENERAL
MUNICIPAL ELECTION TO THE QUALIFIED VOTERS OF
THE CITY OF ANAHEIM SET FORTH IN A PROPOSED
ORDINANCE AMENDING CHAPTER 2.12 OF THE ANAHEIM
MUNICIPAL CODE TO INCLUDE ONLINE AND OTHER
TRAVEL COMPANIES AS OPERATORS REQUIRED TO
COLLECT AND REMIT TRANSIENT OCCUPANCY TAXES
AND TO MAKE OTHER RELATED AND CLARIFYING
CHANGES, ETC.
ATTACHMENT (Y/N): YES ITEM # 15
REQUESTED ACTION:
1. That the City Council, by Resolution, order the submission of a general tax measure expanding the transient occupancy tax code to include online and other travel companies as operators obligated to collect and remit the tax and to make other related and clarifying changes to the qualified voters of the City at the General Municipal Election to be held on Tuesday, November 8, 2022, as called by Resolution No. 2022-057; requesting the Board of Supervisors of the County of Orange to include said general tax measure on the consolidated statewide general election to be held on Tuesday, November 8, 2022; setting priorities and deadlines for the filing of arguments and rebuttal arguments; and directing the City Attorney to prepare an impartial analysis.
2. That the City Council, by the same Resolution, determine that the general tax measure relates to organizational or administrative activities of government that will not result in direct or indirect physical changes in the environment, and therefore is not a project within the meaning of the California Environmental Quality Act ("CEQA") and the State CEQA Guidelines, Section 15378(b).
DISCUSSION:
In 1992, the Anaheim City Council passed an ordinance establishing a transient occupancy tax (“TOT”) to be paid by guests (referred to as transients) of hotels in the City. In 1996, City voters approved an increase in the TOT from 13% to 15%. Since the establishment of the City’s TOT, a significant portion of the City’s General Fund revenue (approx. 36%) comes from TOT.
Proposed Ballot Measure Expanding Transient Occupancy Tax Ordinance July 12, 2022
Beginning in the early 2000’s, a growing number of visitors began booking their hotel rooms through a variety of online travel companies (“OTCs”), such as Travelocity, Expedia, Orbitz, etc. As a result of this new method of hotel booking, many municipalities, including Anaheim, began to realize that they were not receiving their full share of TOT via these online transactions. In fact, with these types of online transactions, cities would often only receive TOT on the wholesale amount the OTCs paid the hotel for the room for, rather than the full amount that the guest paid the OTC for the room. This differential (delta amount) that is not remitted to cities adds up to a significant sum over thousands of transactions annually.
In the mid-2000’s, the City of Anaheim, as well as many other municipalities, initiated legal action against the OTCs in order to collect TOT amounts owed. However, after years of legal proceedings and appeals, the City of Anaheim was ultimately unsuccessful. In 2016, the California Supreme Court issued an opinion that allows cities to collect TOT from OTCs by initiating legal actions against local hoteliers with contracts with OTCs provided certain specific conditions are met. Although that still remains an option, staff is not aware of any successful effort by municipalities to utilize this method to extract past due TOT from the OTCs.
In 2020, the City passed an ordinance that altered the manner in which OTCs remit payments, implementing a “direct pay” model, generally requiring hotel guests to pay the hotels, rather than the OTCs, for accommodations. The goal of this effort was to seek an alternative method of achieving full remittance of online TOT by the OTCs. In conjunction with that effort, staff also began preparing an amendment to the TOT Code that specifically includes OTCs as “operators” obligated to collect and remit TOT on the entire amount a hotel guest pays for accommodations. Staff believes that this change to our definition of operator is the more permanent solution to solve this issue on a go- forward basis.
The proposed amendment to the TOT Code would expand the entities obligated to collect/remit TOT, and make clear that TOT is owed on the full rate charged to hotel guests, so staff is recommending that it be submitted to the voters for approval in accordance with Proposition 218. Staff is accordingly also proposing that the City take this opportunity to modify the definition of rent upon which TOT is charged to specifically include items such as resort fees, WIFI/internet charges, and overnight guest parking.
The proposed ordinance/ballot measure amending the TOT Code is primarily designed to do two things:
1. Expand the definition of an “operator” obligated to collect and remit TOT to include online travel companies (and other room sellers/resellers). The current TOT Code does not define online travel companies such as Expedia, Travelocity, etc. as operators. The City therefore does not collect TOT on any amount these companies charge a hotel guest that exceeds the amount they pay a hotel for a room.
Proposed Ballot Measure Expanding Transient Occupancy Tax Ordinance July 12, 2022
2. Expand/clarify the definition of “rent” upon which TOT is charged to include items like parking, resort fees, and WIFI charges which fall within the broad definition of rent in the TOT Code, but are not specifically listed in the Code.
These items are currently enumerated in the TOT Guidelines promulgated by the City pursuant to Section 2.12.025 of the TOT Code, which allows the City’s License Collector to establish rules and regulations to assist in administration of the Code. For transparency and clarity purposes, staff is recommending that these items be expressly delineated in the TOT Code and approved by the voters as part of the ballot measure.
The attached proposed Resolution and Ordinance outline the proposed changes to the City’s TOT code as well as provides ballot language that would be presented to the voters should this item be approved.
IMPACT ON BUDGET:
Submission of the ordinance/tax measure to the voters at the General Municipal Election to be held on November 8, 2022 will cost approximately $8,500. If the measure passes, it is anticipated that it will generate additional TOT of up to $3 million annually.
Respectfully submitted, Concurred by,
Jim Vanderpool Robert Fabela
City Manager City Attorney
Attachments:
1. Resolution placing a Tax Measure on the Ballot
2. Proposed Ordinance Amending Section 2.12.005 of the Anaheim Municipal Code (Attachment 1 to the Resolution)