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CITY COUNCIL AGENDA REPORT
City of Anaheim
CITY MANAGER’S OFFICE
DATE: JANUARY 10, 2023
FROM: CITY MANAGER’S OFFICE AND CITY ATTORNEY’S OFFICE
SUBJECT: ORDINANCE AMENDING CHAPTER 2.12 (TRANSIENT
OCCUPANCY TAX) OF THE ANAHEIM MUNICIPAL CODE TO
MODIFY THE SPECIAL PACKAGE PROVISIONS, CLARIFY
REMITTANCE REQUIREMENTS FOR BOOKINGS
FACILITATED BY ONLINE TRAVEL COMPANIES, AND
SPECIFY THAT FUTURE TAX INCREASES MUST BE
APPROVED BY THE VOTERS (SECOND READING)
ATTACHMENT (Y/N): YES ITEM # 20
REQUESTED ACTION:
1. That the City Council, by Motion, adopt an ordinance amending sections
2.12.020, 2.12.025, and 2.12.030 of the Anaheim Municipal Code to clarify remittance and other procedural requirements associated with the voter-approved addition of online and other travel companies as operators required to collect and remit transient occupancy tax pursuant to Chapter 2.12 of the Anaheim Municipal Code (TOT Code).
DISCUSSION:
1. Historical Background
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 TOT Code, a significant portion of the City’s General Fund revenue (approx. 36%) comes from TOT.
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. Accordingly, in 2022, after years of litigation and negotiations with the OTCs, the City Council approved a ballot measure (Measure J) requiring OTCs to collect and remit tax on transactions facilitated by them.
Anaheim is one of only a handful of cities in California to successfully place such a tax measure before the voters.
Proposed Ordinance Modifying Transient Occupancy Tax Code January 10, 2023
2. Measure J
Measure J effectuated two primary changes to the TOT Code. i) It expanded the definition of an “operator” obligated to collect and remit TOT to include online travel companies (and other room sellers/resellers).
Prior to the passage of Measure J, the TOT Code did not define OTCs as operators, and the City therefore did not collect TOT on any amount these companies charged a hotel guest that exceeded the amount they paid a hotel for a room.
ii) It clarified and reinforced the definition of “rent” upon which TOT is owed to include items like overnight guest parking, resort fees, and WIFI charges, which fell within the broad definition of rent in the TOT Code, but were not specifically listed in the Code.
3. Proposed Procedural Changes to the TOT Code following Passage of Measure J
a. Changes to 2.12.030 (Reporting and Remitting TOT)
In light of Measure J’s expansion of the definition of operator to encompass OTCs and other room sellers/resellers, staff is recommending procedural changes to the TOT Code to clarify which operator is required to remit TOT to the City in transactions involving an OTC. While the current TOT Code makes clear that every operator that collects rent from a transient is also required to collect the applicable TOT and then remit it to the City, for transparency purposes, staff is proposing that the Code expressly delineate how the remittal process should work in cases where an OTC collects rent from a transient.
Specifically, the proposed changes to the TOT Code provide that:
i) If an OTC collects the rent from a transient for accommodations at a short-term rental property, the OTC should remit the TOT to the City.
ii) If an OTC collects the rent from a transient for accommodations at a hotel, the OTC should remit to the hotel the TOT on the amount it paid the hotel for the room (defined as the “discount room charge” in the TOT Code), which the hotel will then remit to the City. The OTC should remit the TOT on any markup of the room rate or fees it charges the guest (defined as the “facilitation fee” in the Code, which is the difference between what the OTC paid the hotel for the room and the amount the OTC charged the guest).
Under the existing provisions of the TOT Code, if a hotel or STR collects the rent directly from the guest and remits a commission to the OTC, the hotel or STR collects the TOT owed on the full amount of rent charged to the guest and remits it to the City.
Similarly, the hotel or STR remains responsible for the tax on any incidentals (parking, resort fees etc.) collected directly from the guest.
Proposed Ordinance Modifying Transient Occupancy Tax Code January 10, 2023
b. Changes to 2.12.020 Relating to Special Packages and 2.12.025 Relating to Regulations
The proposed ordinance makes three other substantive changes to the TOT Code. The first is a modification of section 2.12.020 to create an exception to the special package form requirements in the TOT Code in instances where an OTC sells a large number of special packages, such that filing and reviewing special package forms would be burdensome for the OTC and the City. In these circumstances, the City would be permitted to enter into an agreement with the OTC setting forth a methodology that provides the City with the tax information it needs to administer and enforce the Code without the necessity of special package forms. The second is the removal of the language in 2.12.020 requiring that guests directly pay hotels for accommodations, which is no longer necessary after Measure J. The third change is a “clean up” amendment to section 2.12.025 to recognize that changes to the TOT Code that increase the amount of the tax must be approved by the voters.
IMPACT ON BUDGET:
The changes in the proposed ordinance are procedural and will have no budgetary impact.
Respectfully submitted, Concurred by,
Jim Vanderpool Robert Fabela
City Manager City Attorney
Attachments:
1. Proposed Ordinance Amending Sections 2.12.020, 2.12.025 and 2.12.030 of the Anaheim Municipal Code
2. Redline of changes to AMC Sections 2.12.020, 2.12.025 and 2.12.030