Monday, April 22, 2013

More Analysis of the San Diego TMD Hotel Tax

This is a follow up to yesterday's post.  Over on the blog, the City Attorney responded to my criticism of Judge Denton's ruling.  He made some cogent points.  First, he affirms the ruling, stating that because the Tourism Management District (TMD) tax is a business-based assessment, only the hotels themselves have standing to sue. The business based assessment district is an exception in Proposition 26 to the definition of a tax.  One of the exceptions is:
A charge imposed for a specific benefit conferred or privilege granted directly to the payor that is not provided to those not charged, and which does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege.
As such, the hotel occupant is not directly assessed the tax. The fact that hotels charge it as a "pass through" seems misleading, but a guest would have to sue the hotel itself for false advertising or on some other legal theory, according to Goldsmith.  I haven't seen a San Diego hotel bill since the passage of the tax, so I don't know if the hotels are calling this out as a separate tax.

However, he doesn't appear to be a fan of the tax itself.  In a legal opinion prepared for the city council in June, 2012, he makes the following suggestion:
Due to the Risks Associated with Assessment Districts to the City, this Office
Suggests that Interested Property Owners and Businesses Consider Forming
Private Associations to Implement the Improvements Activities Desired
He explains that "The current legal landscape with respect to both business-based and property-based assessment districts is treacherous. The passage of Prop 26 has left the legality of business-based assessments in limbo until it is clarified by legislation or litigation. . . A potential solution to this dilemma is for the businesses or property owners to form their own private association and “assess” each of the members for the benefit conferred. The association could also consider recording instruments that would act as a lien on their businesses or property to ensure payment and participation."

I appreciate his willingness to patiently argue his position with me.  Closing question: Why haven't the hoteliers themselves used this option to reduce the risk to the business operations of the TMD?  Perhaps some students with connections in the hospitality industry could ferret out the answer.

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