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HomeMy WebLinkAbout35-City Clerk " . . ..- .~- .. ORIGINAL CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: Rachel Clark, City Clerk Dept: City Clerk Subject: Appeal hearing regarding the results of a transient lodging tax audit for the Econo Lodge. Date: January 25, 2005 MICC Meeting Date:February 22, 2005 Synopsis of Previous Council Action: April 19, 2004 - The Mayor and Common Council upheld the findings of the City Clerk relating to TL T audits of the Sahara Motel and EI Patio Motel. July 21,2003 - Resolution No. 2003-204 authorizing Progressive Solutions to perform Transient Lodging Tax audits. Recommended Motion: That the hearing be closed; and that the Mayor and Common Council uphold the decision of the City Clerk and adopt her letter of December 7, 2004, as its findings and conclusions, based upon the back-up Information submitted and any additional evidence presented at the hearing; or That the hearing be closed; and that the Mayor and Common Council uphold the appeal of the applicant and reverse the decision of the City Clerk; or That the hearing be closed; and that the Mayor and Common Council uphold the appeal of the applicant In part and direct the City Attorney's Office to prepare findings and conclusions consistent with Its decision. (;J. J.. ~h.~ Signature Contact person: Cin<Jy RIIA~htAr Business Reg. Supervisor Supporting data attached: Yes phnnA. ~?nn Ward: FUNDING REQUIREMENTS: Amount: Source: (Acct. No.) -' (Acct nE'scrirtinn) Finance: Council Noles: ~ ':/j.R./os ~ j)' ~s: ()~as- .,,~ -ff-35 1/ )~J Ds-' -"'v"""""""'-"""". -- - ,,,".?,"',v-.'.-' -.'.,,-,~"'-'.-'~ ,- -,~------ e' "C,'" '.',,~ ,"~' ~""",,;r'," ,.~".. ,"""'__-_~ "_n__ ,'., "0' ___.T"_ _____~__ CITY OF SAN BERNARDINO - REOUEST FOR COUNCIL ACTION STAFF REPORT SUBJECT: Appeal hearing regarding the results of a transient lodging tax audit for the Econo Lodge located at 606 N. "R" Street. BACKGROUND: A transient lodging tax audit for the Econo Lodge was conducted by Progressive Solutions on October 22, 2003. The audit was perfonned in accordance with GAAP (Generally Accepted Accounting Principles) which utilize a statistical sampling to arrive at an Audit Opinion. The review of the hotel's records covered the time period of January 1, 2000 to December 31, 2002. A detailed review was performed of the transactions recorded for the month of June 2002. The review included the following: · Testing, by random selection, the daily summaries which include the date, room number, registration number, and the name of each guest in-house, for completeness and accuracy. . Testing, by random selection, the monthly summary, which includes daily room revenue, tax and exempt revenue, for completeness and accuracy. · Review of the operating records for the purpose of determining the existence of the practice of allowing complimentary rooms to be occupied without TL T being collected and remitted. · Testing the exemptions claimed in the compilation of the taxable room revenues reported to determine that the exemptions were allowable under the City of San Bemardino Municipal Code Section 3.55.035 A and B. The review found discrepancies in the motel's operating procedures that resulted in errors in assessment, collection, and payment of the transient lodging taxes in accordance with the requirements set forth in the San Bernardino Municipal Code Chapter 3.55 and 3.54. Review notes specifically identifying the errors are included in the audit narrative provided as backup to this appeal. Specificallv. the hotel was assessed additional taxable room revenue for the following: .... .It is the motel's practice to report the amounts collected from the transients as taxable room rents and transient lodging taxes; however we did note that occupants that are provided relief by various social and city departments are charged a flat rate, which the hotel contends includes the transient tax, and the amounts are reported to the city by compiling the amount of the taxes from within the amount collected..." 1 " ... - .,-,=" ,,-~-< ,. The hotel's operating procedures that were found to be in violation of the San Bernardino Municipal Code resulted in the assessment of additional Transient Lodging Tax as follows: Additional Transient Lodging Tax Penalty Interest TOTAL AMOUNT DUE $2,970.96 2,970.96 926.29 $6,868.61 March 29. 2004 A hearing was held before the City Clerk regarding the Econo Lodge's request to postpone payment until completion of an appeal of additional transient lodging taxes assessed as a result of an audit of the motel's transient lodging tax. July 2.2004. August 5. 2004 & November 19. 2004 Letters sent to Mr. Frank A. Weiser, Esq., representing the Econo Lodge, requesting communication from Mr. Weiser concerning the Transient Lodging Tax Appeal Hearing and evidence presented. December 7. 2004 Notice of Final Determination of Transient Lodging Tax and Penalty sent via certified mail to the Econo Lodge. December 21. 2004 Appeal received from the Econo Lodge regarding the decision of the City Clerk to assess $6,868.61 in additional transient lodging tax, penalty, and interest. FINANCIAL IMPACT: The hearing found an additional $6,868.61 was owed to the City for transient lodging taxes. Other motels that have been audited and found to owe additional transient lodging tax have paid accordingly, including the assessed penalties and interest. RECOMMENDATION: That the hearing be closed; and that the Mayor and Common Council uphold the decision of the City Clerk and adopt her letter of December 7, 2004, as its findings and conclusions, based upon the back-up information submitted and any additional evidence presented at the hearing; or 2 ~<"W"~'C_~"____ -.--- - -<"'-~-,-'- " . That the hearing be closed; and that the Mayor and Common Council uphold the appeal of the applicant and reverse the decision of the City Clerk; or That the hearing be closed; and that the Mayor and Common Council uphold the appeal of the applicant in part and direct the City Attorney's Office to prepare findings and conclusions consistent with its decision. 3 " ~ CITY OF SAN BERNARDINO APPEAL FORM Office Use Onlv Copies Distributed To: o City Attorney 0 City Administrator Date: DaterI'lme Stamp: RECEIVf ", Cin eLF-if' .04 DEe 22 P 5 :22 IMPORTANT INFORMATION: All appeals to the Mayor and Common Council, Board of Building Commissioners (BBC) and Animal Control Commission must be filed in the City Clerk's Office. Appellant Name: Address: ~. ~p . (\ ~ ~\.. - 'e"<:...~ ~'-o o~ e.. G..<:>C ~~. "'v..." s.'~~e.\ .I <;. Q.. c: tl... 0\1...4..\ U Contact Person Address: ~(l....~~~ \... ~Q..u".q . ~,,~,,\e..."" 'k'C" '-~ ~U.h b \ ~'.'u. \.-.\ QR... ~ L. \) Do ~"\-e. . 1\ 0 ~ \ '- . r... c...t:... "\.0 \) ,() , , C'"L\,\\ S~\.\.h~h\.\ Fax: G,~' ~1.'l3.hl!. . C'"L"~) s.~o.... '\~o" E-mail: Name: Day Phone: Evening Phone: Affected Property Address: Assessor's Parcel Number (APN #): Whose Decision Are You Appealing: Date of that Decision: tC()":)Q \.~'t\~P.. h\)h' ~. '\'w' S""C~p~$,~ "er-... , ""~4\() <:.\"'" ('VV'",", ~,.)Q,.'- ~~v-.~t~~ \\~ \~,t'-4 \...ooG-',.)G- \~ "~b ~e.,.)"''- 'i &~ ~,~~'''\ t>-e.. ct, ~ \La I. , "l..rH~V\ DBoard of Building Commissioners - $75.00 r:!IMayor and Common Council- $75.00* OPlanning Commission - Fee Adjusted Annually DAnimal Control Commission - $75.00 DPoIice Commission - No Charge DOther: - No Charge *Note: Appeals to the Mayor and Common Council can only be from the Planning Commission and Pollee Commission. City of San Bernardino - City Clerk's Office - 300 N. "0" Street - San Bemardino, CA 92418 - (909) 384-5002 ~ ~ ~~~.'~e ~... ., " I. The action appealed: '- ~l;) '\ fI.~o ,..) b, '&a.\\ ~,e..(L,,^"~~~ u t) \)e.. \,.) \,~ ~~D ~~~tl.L\:V...S' 2. The grounds for appeal: 'd... ~, see. ) ~\.Q.~ '"2-o\)\.( ~~ (l... \..e.. L Q..I::>~~~S ~~ ~ 3. The action(s) sought: 'Se..e... 4. Any additional information: c TP""_' '.~'~'--' ~ " 4 LAW OFFices FRANK A. WEISER LEONARD NASATlR OF COUNSEL 3460 WILSHIRE BOULEVARD,SUITE 903 LOS ANGELES, CALIFORNIA 90010 TELEPIIONE: (%13) 384-6964 FACSIMILE: (113) 383-7368 REFER TO FILE NO. December 20, 2004 BY EXPRESS MAIL AND FACSIMILE Rachel C. Clark City Clerk Office of the City Clerk City of San Bernardino 300 North "D" Street San Bernardino, CA 92418-0001 Facsimile: (909) 384-5158 Re: Appeal Notice/Transient Lodging Tax Audit/Desert Inn Motel at 607 W. 5th Street/Terrace Motel at 2606 W. Foothill Blvd./Sunshine Motel at 570 N. "H" Street/ Knights Inn at 1150 S. "E" Street/ Foothill Motel at 2512 Foothill Blvd./ Econo Lodge at 606 N. "H" Street/Astro Motel at IllS. "E" Street/Budget Lodge c/o Larry Hall Dear Ms. Clark: As you know, I represent the above referenced motels located in the City of San Bernardino. I received your letter dated December 7, 2004, notifying my clients of the final determination of transient lodging tax and penalties for eacj motel. Pursuant to your letter and Chapter 2.64 of the San Bernardino Municipal Code, each motel wishes to appeal your individual decision to the Common Council. The grounds for the appeal are as follows: None of the motels owe any monies to the City as they have reported and collected all monies due. Any technical reporting deficiencies noted in your reports are not subject to a tax assessment, as they are just that; technical deficiencies at the most and do not impact the amount of monies collected. Nevertheless, each motel owner denies any such reporting deficiencies. Nothwithstanding this, the City repealed Chapter 3.54 of the muncipal code in November 2002. It is a violation of due process to collect a tax repealed and declared unconstitutionally suspect by the voters. Morevover, both Chapters 3.54 and newly amended Chapter 3.55 violate .. , . ." " Rachel C. Clark City Clerk Office of the City Clerk City of San Bernardino Re: Appeal Notice/Transient Lodging Tax Audit/Desert Inn Motel at 607 W. 5th Street/Terrace Motel at 2606 W. Foothill Blvd./Sunshine Motel at 570 N. "H" Streett Knights Inn at 1150 S. "E" Street/ Foothill Motel at 2512 Foothill Blvd./ Econo Lodge at 606 N. "H" Street/Astro Motel at 111 S. "E" Street/Budget Lodge c/o Larry Hall fundamental due process as they attempt to collect a transient tax in violation of the residency requirement of the Fourteenth Amendment of the United States Constitution. This classification also violates the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution. Notwithstanding this, Chapters 3.54 and 3.55 violate due process as they are "void for vagueness." We seek to completely overturn your determination decisions on each motel before the Common Council and respectfully request a hearing at the Council's earliest convenience. Please advise me accordingly. Your courtesy and cooperation in the matter is appreciated. Sincerely, -.- ~ 0 O"'.ct.J~ Frank A. Weiser Attorney at Law cc: City Attorney's Office (Facsimile: (909) 384-5238) FAW:aw 4 -" - _ uu___. pc' _ . - -,,='_._,,_n' OFFICE OF THE CITY CLERK RACHEL G. CLARK, C.M.C. . CITY CLERK 300 North "D" Street. San Bernardino. CA 92418-0001 909.384.5002. Fax: 909.384.5158 www.ci.san-bernardino.ca.us SM VIA CERTIFIED MAIL December 7, 2004 Paresh Patel Econo Lodge 606 N. "H" Street San Bernardino, CA 92410 RE: NOTICE OF FINAL DETERMINA nON 01<' TRANSIENT LODGING TAX AND PENAI,TY Dear Mr. Patel: After due consideration of the testimony and evidence prest~nted at your appeal hearing on March 29,2004, it is the decision of the City Clerk that your appeal on behalf of the Econo Lodge is denied and the total amount of$6,868.71 is now due and owing to the City of San Bernardino., The audit period which is the subject of this appeal was January 1,2000 through December 31,2002. The substance of the San Bernardino Municipal Code Sections which were not complied with are the same for the ordinance which was in effect from January 1, 2000 through November 5. 2002 (Chapter 3.54), and for the ordinance which has been in effect since November 5, 2002 (Chapter 3.55). It is the decision of the City Clerk, based upon the testimony and evidence so presented, that the Econo Lodge was not in compliance with the following San Bernardino Municipal Code requirements: Room Rental - Failure to report the total amOlmt shown on the motel records for social agency occupants as "room rental charges." Collection of Tax - Failure to provide a receipt for payment of transient occupancy tax to the transient. Registration Cards - Failure to reflect expected date of telmination. Failure to designate the room 1 CITY OF SAN BERNARDINO ADOPTED SHARED VALUES: Integrity. Accountability. Respect for Human Dignity. Honesty .' , "",' " rental separately. The afore-mentioned violations set forth in this decision were detailed and sent to you as part of the audit performed by Progressive Solutions, Inc., via letter dated November 20,2003. This audit was made part of the appeal hearing record at the March 29,2004 hearing. As indicated previously herein, the violations set forth in this decision result in a total assessment due to the City of San Bernardino in the amount of $6,868.71. This amount contains three components: Additional Transient Lodging Tax Penalty Interest $2,970.96 $2,970.96 $926.69 $6,868.71 The amount of$6,868.71 is now due within fifteen (15) days of the date of this decision unless this decision is appealed to the Common Council in accordance with the provisions of Chapter 2.64 of the San Bernardino Municipal Code (a copy of said Chapter 2.64 is enclosed with this letter for your information). However, the City Clerk determines that this amount of $6,868.71 may be paid over a four month period in four equal one-quarter payments of the lump sum in order to avoid any undue hardship. If you choose this method of payment instead of one lump sum payment, you must contact Ms. Cindy Buechter, Business Registration Supervisor, immediately at (909) 385-5035 in order to make payment arrangements. Sincerely, ~h.~ Rachel G. Clark, CMC City Clerk encl. cc: Mr. Frank Weiser 2 It , \ . PROGRESSIVE SOLUTIONS- October 21, 2003 REeE!Wj-eiT'f et.I?l~K V1'ct e -<<l4, '/ 003 OCT 29 P 4 :42 Rachel G. Clark, City Clerk City of San Bernardino 300 North D Street San Bernardino, CA 92418 Dear Ms. Clark, Progressive Solutions, Inc. has applied the procedures enumerated below to the accounting records of the EcQnoLodge with respect to the transient lodging taxes owed to the City of San Bernardino for the three year period beginning January 1,2000 and ending December 31, 2002. The procedures performed are summarized as follows: I. We reviewed the City ordinance relating to the levy of transient Lodging tax. 2. We reviewed the operating records for the purpose of determining the existence of the practice of allowing complimentary rooms to be occupied without TL T being collected and remitted. 3. We tested, by random selection, the daily summaries which include the date, room number, registration number, and name of each guest in-house, for completeness and accuracy. 4. We tested by random selection, the monthly summary, which includes daily room revenue, tax and exempt revenue, for completeness and accuracy. 5. We tested the exemptions claimed in the compilation of the taxable room revenues reported to determine that the exemptions were allowable under the City of San Bernardino code section 3.55.035, under the exemption sub-sections (A) and (B). 6. We performed additional procedures, as we deemed necessary. Our review determined that the hotel had discrepancies in their operating procedures that resulted in errors of assessment, collecting, and paying the transient lodging taxes in accordance with the requirements set for in the City of San Bernardino ordinance. Review notes specifically identifying the errors have been included in the contents of the Audit Narrative. The motel's operating procedures that were found to be in violation of the city ordinance resulted in the assessment of additional transient lodging taxes in the amount of $2,970.96, and related penalties in the amount of $2,970.96 and interest in the amount of $926.69, for a total amount of$6,868.71 due to the City of San Bernardino. This report is intended for the information of City management and the taxpayer. This restriction is not intended to limit the distribution of this report, which is a matter of public record. Sincerely, jL I( t/oIIJ Glenn R. V odhanel, Audit Review Manager Audit Dlvision-Ocellnside; P.O. Box 4489; Oceanside. CA 92052-4489 Tel: (760) 533-7808 FAX: (760) 722-2123 Emai/: ACAPUCHINO@aol.com i~ . . CITY OF SAN BERNARDINO TRANSIENT LODGING TAX ECONO LODGE AUDIT REPORT OCTOBER 22, 2003 Performed by PROGRESSIVE SOLUTIONS- Al Capuchino-Principal Auditor Audit Division-Oceanside; P.O. Box 4489; Oceanside. CA 92052-4489 Tel: (760) 533-7808 FAX: (760) 722-2/23 Email: ACAPUCH/NO@aol.com ~ . PROGRESSIVE SOLUTION~ EeONO LODGE TRANSIENT LODGING TAX AUDIT NARRATIVE Progressive Solutions, Inc. completed the assigned review of the motel's records for the period beginning January I, 2000 and ending December 31, 2002 in the presence of the proprietor, Mr. Paresh Patel. A detailed review, as previously described, was performed of the transactions recorded for the months of June 2002. Our review included the examination of the motel's registration cards, copies of receipts prepared for occupants' payments and the monthly revenue summaries. Registration cards are pre- numbered, which display name of occupant, date of arrival, number of occupants, occupants signature and the rent charged and related tax are shown separately. The hotel's records are computerized and folios may be prepared for each occupant which allows an audit trail for the length of occupancy and the room rental charges for each occupant. The registration card has a duplicate copy that may be used as a receipt to be given to the occupant; however the cards that we reviewed were all intact which is indicative of the hotel's practice of not giving receipts to occupants. We have informed the motel that this practice is in violation of the city ordinance and does not provide for an audit trail that displays that the tax was assess- ed and collected from each occupant. The monthly reports submitted to the city were examined and tested for clerical accuracy. It is the motel's practice to report the amounts collected from transients as taxable room rents and transient lodging taxes; however we did not that occupants that are provided relief by various social and city departments are charged a flat rate, which the hotel contends includes the transient tax, and the amounts are reported to the city by compiling the amount of the taxes from within the amount collected. We have therefore assessed the motel for additional taxable room revenue for amounts under reported for rents collected as flat rate rents for social agencies occupants. This assessment resulted in an error of 3.058% of the 2002 taxable revenue reported to the city. The error percentage was extrapolated to the years 2000 and 2001. The records presented for our review were tested for completeness by comparing the audit compilation of the motel's revenue with the revenue reported on the company's Federal tax return for the year 2002. In summary, the review process disclosed three sections of the city ordinance in which the motel was not in compliance relative to the requirements of the transient lodging tax section. Section 3.55.010 (F) Definitions - Room Rental F. Room rental means the total charge for lodging space. Violation: Failure to report the total amount shown on the motel records for social agency occupants as "room rental charges". Audit Division-Oceanside; P.O. Box 4489; Oceanside. CA 92052-4489 Tel: (760) 533-7808 FAX: (760) 722-2123 Email: ACAPUCHlNO@aofcom .~ . . PROGRESSIVE SOLUTIONS- Econo Lodge Page 2 Section 3.33.030 (A) Collection of tax A. Each operator receiving a room rental payment that is subject to the transient lodging tax, at the time of receipt of the room rental payment, shall collect the amount of tax imposed. The operator shall provide a receipt for payment of the transient lodging tax to the transient. D. No operator shall represent to the public that the transient lodging tax will not be added to the room rental charge, will be absorbed by the operator or will be refunded in a manner contrary to this Chapter. Violation: Failure to provide a receipt for payment of transient occupancy tax to the transient. Section 3055.070 (A) Records - Registration Cards A. Registration Cards. Each operator shall complete and maintain a transient registration card for every transient that is provided lodging space in the operator's hotel. At a minimum, transient registration cards shall list the following information: l. The name of the person who will occupy, or who is entitled to occupy the lodging space. 2. The total number of people who will occupy, or who are entitled to occupy the lodging space. 3. The identification of the lodging space. 4. The date the occupancy will commence and the expected date of termination. 5. The room rental to be charged for the lodging space. Transient registration cards shall bear consecutive numbers that shall be preprinted on the cards by a print shop or manufacturer of the cards. Voided cards shall be kept for audit purposes. Violation: 1) Failure to reflect expected date of termination. 2) Failure to designate the room rental separately. Audit Division-DeelUfside; P.O. Box 4489; Oceanside. CA 92052-4489 Tei: (760) 533-7808 FAX: (760) 722-2/23 Emaii: ACAPUCH/NO@ao/.com ,. , Audit Summal City of San Bernardino Transient Lodging Tax Review Hotel: Econo Lodge Tax rate: 10.0 % Reported Aa....ed Under Reported Tran.lent Iraxable Revenu Iraxable Revenu Paxable Revenu Tax Penaltle. Intere.t Total January 31, 10,181.17 10,187.11 32e.o2 32.80 32.80 11.56 84.78 February 28, 18,245.00 18,741.77 486.77 41.88 4...8 29.08 128.42 March 31, 11,941.00 20,550.80 809.80 80.18 80.18 34.78 156.72 April 30, 11,845.00 20,245.74 800.74 60.07 60.07 33.34 153.48 May31, 11,512.00 20,111.12 588.12 5...1 5...1 32.35 152.17 June 30, 11,078.00 11,651.34 563.34 58.33 58.33 30.83 147.21 July 31, 21,205.00 21,853.45 648.45 94.84 84.84 33.07 182.75 Augu.t31, 11,109.00 20,517.82 808.82 80.88 60.88 30.14 151.10 September 30, 23,378.00 24,082.80 714.10 71.41 71.41 34.32 177.30 October 31, 23,728.00 24,453.80 725.80 72.58 72.56 33.74 178.88 November 30, 22,085.00 22,739.75 874.75 87.47 87.47 30.36 185.30 December 31, 23,211.00 23,121.04 710.04 71.00 71.00 30.81 172.81 Total 2000 238,884.17 245,162.52 7,218.35 721.81 721.11 372.22 1,831.84 Janu.,ry 31. 23,486.00 24,214.51 718.51 71.85 71.85 30.18 173.88 February 28, 30,477.00 31,408.11 131.11 13.20 13.20 37.75 224.15 March 31, 38,440.00 37,554.34 1,114.34 111.43 111.43 43.46 288.33 April 30, 31,811.00 32,712.03 173.03 17.30 17.30 38.41 231.01 May 31, 31,133.00 32,101.51 178.51 17.85 17.85 35.15 230.45 June 30, 35,888.00 38,185.48 1,087.48 101.75 101.75 37.88 257.38 July 31, 32,588.00 33,584.54 186.54 11.85 11.65 32.89 232.19 Augu.t 31, 34,115.00 35,162.70 1,087.70 108.77 108.77 33.83 247.17 September 30, 28,887.00 29,770.38 883.38 88.34 88.34 28.50 203.18 October 31, 27,523.00 28,384.65 841.85 84.17 84.17 23." 192.33 Nove.nber 30, 22,227.00 22,908.70 871.70 87.17 87.17 18.35 154.21 December 31, 21,838.00 22,503.74 887.74 88.77 88.77 17.03 150.57 Total 2001 358,021.00 388,977.53 10,948.53 1,084.85 1,094.85 373.20 2,563.00 January 31, 22,137.00 23,552.73 815.73 81.57 81.57 14.78 137.92 February 28, 27,315.00 27,831.12 318.12 31.81 31.81 7.13 70.51 March 31, 30,548.00 31,281.80 733.80 73.38 73.38 15.41 162.13 Aprll30, 34,415.00 35,888.88 1,271.88 127.17 127.17 24.80 271.14 May 31, 31,815.00 32,928.11 1,111.11 111.20 111.20 20.02 242.42 June 30, 44,585.00 47,174.72 2,581.72 256.97 258.17 42.73 560.87 July31, 34,101.00 35,812.41 1,511.41 151.14 151.14 22.87 324.15 Augu,t 31, 33,188.00 33,508.74 342.74 34.27 34.27 4.83 73.17 September 30, 38,118.00 38,943.50 757.50 75.75 75.75 1.01 180.51 October 31, 24,451.00 25,280.13 801.13 80." 80." 8.50 170.48 November 30, 28,494.00 21,184.21 870..21 87.02 87.02 8.03 140.07 December 31, 24,801.00 25,532.51 731.59 73.18 73.18 5.41 151.81 Total 2002 374,814.00 388,277.02 11,483.02 1,148.30 1,148.30 181.27 2,473.87 Combined Total 171,507.17 1,001,217.08 29,701.69 2,170.18 2,170.16 128.89 8,888.71 "'. ~ R,,",. -I' I'" ~'ll'( ~ l E"K I "'l t ". ..( . 'I' L. I ..1 t . .-'. I .", -, - \, JUt.. -2 P 3 :56 JAMES F. PENMAN CITY ATTORNEY July 2, 2004 Mr. Frank A. Weiser, Esq. 3460 Wilshire Blvd., Suite 903 Los Angeles, CA 900 I 0 RE: Transient Lodging Tax Appeal Hearings and Evidence Presented Dear Mr. Weiser: I called your office last week concerning the above-indicated subject matter, left a message on your answering machine, but as of the date ofthis letter have not heard back from you. As you know, several transient lodging tax ("TL T') appeal hearings were held a couple of months ago wherein you submitted boxes of registration cards, etc. to demonstrate that the random sampling conducted by Progressive Solutions, Inc. was not an accurate measure of any moneys owed to the City of San Bernardino as a result of under or inaccurate reporting ofTL T by your clients. It was indicated at the hearings that the records would be reviewed by Progressive Solutions. It was further indicated that such review could not commence until sometime in May. The City Clerk was advised by Progressive Solutions after the TL T appeal hearings had been concluded that the fee for such an "audit" would be $250 per hour, with a 5 hour minimum requirement, payable before the audit commences. Subsequent costs would be billed as incurred. Further, Progressive Solutions advised the City Clerk that such costs would be borne by the applicant motels since they were requesting this audit service. This financial information was not known to either side at the time of the TL T appeal hearings. After grappling with various ways to resolve this dilemma, this letter is being sent to you to seek your thoughts on a course of action. It is proposed that the boxes of registration cards, etc. be returned to you and/or your clients to be organized in such a fashion as you deem appropriate so that the financial information contained in them can be presented in a concise manner to the City Clerk to address the issue of the accuracy of the random sampling method employed by Progressive Solutions. In this manner, you control the costs in the presentation of your evidence. Obviously, if you and your clients wish to employ Progressive Solutions at the rates indicated, that is your decision. The City cannot make that decision for you, nor is the City going to incur these costs since the "evidence" to be offered is in your defense. ___ _.~__.. .._.. ......I:>~~T. c:a,N R~RNARDINO. CA 92418-0001 . (909) 384-5355. FAX (909) 384-5238 ,-" -,-, - ' , ,- ','''''- . . Please let me know as soon as possible what your thoughts are on this matter so that the appeal hearings can be resolved. As you may know, there are no additional penalties or interest being incurred by your clients as a result of this situation, but I am sure that you are like me and would want this matter brought to a conclusion. You will recall that in one of the TL T appeal hearings it was conceded by Progressive Solutions that it had made a mistake and thus that hearing will be decided in your client's favor. -..6c: Rachel Clark, City Clerk O' ,~.... '<<=.~-~",'..'., "" "',,~, "', .",.,""", ..., "=,, . ~'7"Y ,~,~"',_. .',",",-"~- ,.. .' . OFFICE OF THE CITY ATTORNEY CITY OF SAN BERNARDINO JAMES F, PENMAN CITY ATTORNEY August 5, 2004 Mr. Frank A. Weiser, Esq. 3460 Wilshire Blvd., Suite 903 Los Angeles, CA 900 I 0 RE: Transient Lodging Tax Appeal Hearings and Evidence Presented (2nd Letter) Dear Mr. Weiser: This letter is sent as a follow-up to my prior correspondence to you dated July 2, 2004 concerning the same above-referenced subject matter. As of the date of this letter, I have not heard from you. I know from past experience that you are a very busy sole practitioner, and for that reason I have waited to send this second letter. However, it appears that at least one of your clients is inquiring as to the status of his appeal hearing, and since you represent him, I have not taken nor returned his phone calls. Hence, this second letter to you. As you know, several transient lodging tax ("TL T") appeal hearings were held a couple of months ago wherein you submitted boxes of registration cards, etc. to demonstrate that the random sampling conducted by Progressive Solutions, Inc. was not an accurate measure of any moneys owed to the City of San Bernardino as a result of under or inaccurate reporting ofTL T by your clients, It was indicated at the hearings that the records would be reviewed by Progressive Solutions. It was further indicated that such review could not commence until sometime in May. The City Clerk was advised by Progressive Solutions after the TL T appeal hearings had been concluded that the fee for such an "audit" would be $250 per hour, with a 5 hour minimum requirement, payable before the audit commences. Subsequent costs would be billed as incurred. Further, Progressive Solutions advised the City Clerk that such costs would be borne by the applicant motels since they were requesting this audit service. This financial information was not known to either side at the time of the TL T appeal hearings. The boxes of registration cards, etc. are ready for you and/or your clients to pick up to be organized in such a fashion as you deem appropriate so that the financial information contained in them can be presented in a concise manner to the City Clerk to address the issue of the accuracy of the random sampling method employed by Progressive Solutions. If you and your clients wish to employ Progressive Solutions at the rates indicated, that 300 NORTH "0" STREET. SAN BERNARDINO. CA 92418-0001 . (909) 384-5355. FAX (909) 384-5238 ~- "r"- --~"~-~'r_-- , - ---- ., .' ~" is your decision. The Hearing Officer does not incur these costs since she is the initial decision- maker and the evidence is being offered by one of the parties. Again, there are no additional penalties or interest being incurred by your clients as a result of this situation, but I am sure that you are like me and would want this matter brought to a conclusion. You will recall that in one of the TL T appeal hearings it was conceded by Progressive Solutions that it had made a mistake and thus that hearing will be decided in your client's favor. As for the other appeal hearings involving the afore-mentioned boxes of evidence, the Hearing Officer is prepared to render her decisions by no later than the end of this month if she or I have not heard from you by August 19,2004, which is two weeks from the date of this letter. -.lcc: Rachel Clark, City Clerk '. ; " , '~ ,,;." tll" REO~~I~'(CSI,iltHE CITY ATTORNEY '04 NOV'22T~lP51SAN BERNARDINO JAMES F. PENMAN CITY ATTORNErY November 19,2004 Mr. Frank A. Weiser, Esq. 3460 Wilshire Blvd., Suite 903 Los Angeles, CA 90010 RE: Transient Lodging Tax Appeal Hearings and Evidence Presented (3rd Letter) Dear Mr. Weiser: This letter is sent as a final follow-up to my two prior letters to you dated July 2, 2004, and August 5, 2004. You will recall that both prior letters concerned the issue of the costs associated with ferreting through boxes of records which you produced at the several transient lodging tax ("TL T") appeal hearings in support of your position that the audits performed by Progressive Solutions were flawed, and thus the amount of taxes allegedly owed, as well as penalties and interest, were equally in error. The first letter solicited your thoughts on the best way to proceed concerning your burden of proof requirement vis-a-vis your production of records in boxes, rather than in a fashion which would be readily presentable to the hearing officer. The second letter stated the following: "The boxes of registration cards, etc. are ready for you and/or your clients to pick up to be organized in such a fashion as you deem ap- propriate so that the financial information contained in them can be presented in a concise manner to the City Clerk to address the issue of the accuracy of the random sampling method employed by Pro- gressive Solutions. . . .the Hearing Officer is prepared to render her decisions by no later than the end of this month if she or I have not heard from you by August 19, 2004, which is two weeks from the date of this letter." Neither this office nor the City Clerk's office ever received a written response from you or 300 NORTH "0" STREET. SAN BERNARDINO, CA 92418-0001 · (909) 384-5355. FAX (909) 384.5238 n,,"_~,c"" ~.. . '" .~ ~- . . . ". .. I heard from you as a result of either letter. This office and the Hearing Officer have even waited an additional three months (from August 19), just in case you were on an extended vacation or involved in a multi-month court proceeding and could not respond in a timely fashion. Again, no response of any kind has been forthcoming. Please make arrangements to have the boxes of registration cards, etc. which are currently in the possession of the City Clerk's office picked up - you and your clients may need them in the future. The Hearing Officer will be issuing her decisions within two (2) weeks of the date of this letter. As you have been advised twice before, there are no additional penalties or interest being incurred by your clients as a result of this situation, but this matter needs to be brought to closure, even though the City has not received any response from you to its prior two letters. cc: RJchel Clark, City Clerk "Cindy Buechter, Business Registration Supervisor - --,-. ,_,--_ ~m,_ .. _, _", ~'''_m OmCE OF THE CI1Y CLERK RACHEL G. ClARK, CM.C. - CITY CLERK 300 North "D" Street. San Bernardino. CA 92418-0001 909.384.5002. Fax: 909.384.5158 www.cLsan-bernardino.ca.us July 25,2005 Mr. Frank A. Weiser Attorney at Law 3460 Wilshire Blvd., Suite 903 Los Angeles, CA 90010 Dear Mr. Weiser: At the meeting of the Mayor and Common Council held on July 18, 2005, the following action was taken relative to the appeal hearing regarding the results of a transient lodging tax audit for the Econo Lodge: The hearing was closed; and the Mayor and Common Council upheld the decision of the City Clerk, adopting her letter of December 7, 2004, as its findings and conclusions, based upon the backup information submitted and any additional evidence presented at the hearing. If we can be of further assistance, please do not hesitate to contact this office. Sincerely, ~h.~ Rachel G. Clark, CMC City Clerk RGC:lls cc: Paresh Patel, Beono Lodge, 606 N. "H" Street, San Bernardino, CA 92410 Cindy Buechter, Business Registration Supervisor CITY OF SAN BERNARDlNO ADOPTED SHARED VALUES: Inte21'itv. Accountabilitv. Respect for Human Dipity. Honesty ..", H'~"" 'u' "'-','0"50_ -",,' -~~-'-T'- ' ",-,,' ---r~-'- -~'~~~-~-'-'rrrT'T"-'!---~';,'~-n'l'"-_~.~'"=,,,,,-,,,"" '"'.,,'''''''-- '''''5'~9~ . , OFFICE OF THE CITY CLERK RACHEL G. CLARK, CM.C. . CITY CLEJU{ 300 North "D" Street. San Bernardino. CA 92418-0001 909.384.5002 . Fax: 909.384.5158 www.cLsan-bernardino.ca.us May 4,2005 Mr. Frank A. Weiser Attorney at Law 3460 Wilshire Blvd., Suite 903 Los Angeles, CA 90010 Dear Mr. Weiser: At the meeting of the Mayor and Common Council held on May 2, 2005, the following action , was taken relative to the appeal hearing regarding the results of a transient lodging tax audit for the Econo Lodge: That the matter be continued to the Council/Commission meeting of July 18, 2005, at 4 p.m., and the continuance fee be waived. If we can be of further assistance, please do not hesitate to contact this office. Sincerely, ~~!J.~ Rachel G. Clark, CMC City Clerk RGC:lls cc: Paresh Patel, Econo Lodge, 606 N. "H" Street, San Bernardino, CA 92410 Cindy Buechter, Business Registration Supervisor CITY OF SAN BERNARDINO AnnPTlln ~JI"'Dl1.n VAT.T1W_~! Tntp.oritv. Al"l"nnnt!lhiHtv .1)p.Qnp.l"t fnr Un"",.."", ntfYn,tu. U^",Ol'lf"u ~ ">"", -~.", H"'~~__'" ,__,'~~ '_"~We BRIEF IN SUPPORT OF THE CITY CLERK REGARDING THE APPEALS OF TRANSIENT LODGING TAX AUDITS OF VARIOUS MOTELS- APPEALS HEARINGS OF JULY 18, 2005 1. INTRODUCTION Several hotels/motels have filed an appeal of the City Clerk's decision that imposed additional taxes, penalties and interest following an audit under the City's Transient Lodging Tax ordinance. The audit covered the three year period of January 1, 2000 through December 31, 2002. The hotels/motels involved are the Budget Lodge, Desert Inn Motel, Beono Lodge, Foothill Motel, Knights Inn and the Terrace Motel. During the audit period, there were two separate tax ordinances in effect. The period of January 1, 2000 through November 5,2002 was covered by Municipal Code Chapter 3.54. On November 5,2002, the City's voters approved Chapter 3.55 which took effect the next day. Both ordinances impose a 10% tax on persons occupying a hotel room. Section 3.54.020 levies the tax on any "transient" which is defined as "any person who, for a period of not more than ninety consecutive days, either at his own expense or at the expense of another, obtains lodging or the use of any lodging space in any hotel. . ." Section 3.55.020(A) states as follows: "For the privilege of occupancy in a hotel, each' transient is subject to and shall pay a transient lodging in the amount of ten percent of the room rental charged by the operator." A "transient" is defined as "a person who, for a period of thirty consecutive days or less, exercises occupancy or is entitled to occupancy by reason of concession, permit, right of access, license or contract. The audits were conducted by Al Capuchino, Principal Auditor for Progressive Solutions. 2. Persons Subject to the Tax. Under both ordinance sections cited above, anyone who pays a fee of any kind to occupy a hotel room must pay the tax. This would include someone who is charged a fee to visit a registered guest at a hotel. Neither the guest nor a person visiting the guest is allowed to enter or use the hotel room unless the fee has been paid. The period that the tax is imposed was the first 90 days of occupancy under Chapter 3.54. The period was reduced to 30 days under Chapter 3.55. The 90 day period was upheld in the case of San Bernardino HotellMotel Association v. City RLSljs [T01\TLT,Brief] 1 Nos, .33-3 g 7/Jt;/05 ~"~ .~---"''''7-'''-'''''i';'<<''''''''''",-''--''~' ~ ~"""' ,", "' ,~ ~," ""," of San Bernardino (1999) 59 Cal.App.4th 237,245. 3. The Mayor and Common Council Can Sit As the Hearing Body of the Appeals. Hearings on the appeals initially began on February 22,2005. Frank A. Weiser, the attorney for appellants asked that the matter be continued in order to do further preparation. At that time, Mr. Weiser raised the argument that the Mayor and Common Council could not as act an "unbiased" tribunal. Mr. Weiser cited Haas v. County of San Bernardino (2002) 27 Cal.4th 1017. The Haas case does not support Mr. Weiser's argument. In Haas, the County of San Bernardino used hearing officers who were selected by the County and paid by the County. The plaintiff argued that this presented a conflict of interest affecting the hearing officer's impartiality. The California Supreme Court agreed that it did create a conflict of interest. The court held that the hearing officers must be disqualified when the governmental unilaterally selects and pays the officers on an ad hoc basis and the officer's income from future adjudication work depends entirely on the government's goodwill. The test is not whether the hearing officer is influenced in fact but only whether sitting on the case would offer a possible temptation to the average judge to lead him not to be fair. The Mayor and Common Council do not have a financial interest that is "direct, personal, substantive and pecuniary." Aetna Life Insurance Company v. Lavoie (1986) 475 US 813, 820. The Mayor and Common Council have no personal interest at all in the outcome of the hearing and no financial interest. In Andrews v. Agriculture Labor Relations Board (1981) 28 Cal.3d 781, 792 the court held, in matters in which no financial interest is involved, "a party's unilateral perception of an appearance of bias cannot be a ground for disqualification unless we are ready to tolerate a system in which disgruntled or dilatory litigants can wreak havoc with the orderly administration of dispute - resolving tribunals." Mr. Weiser has not pointed to any actual bias on the part of the mayor or any councilmember. Mr. Weiser's claim of bias should be overruled and the appeals hearings should proceed. 4. Interest Accrues on Unpaid Taxes From the Sixty-First Day of Delinquency Until Paid. Repealed Municipal Code g3.54.050(A)(3) and current Section 3.55.050(A)(3) both provide that "interest at the rate of eighteen percent per annum computed from the sixty-first day of such delinquency until paid" accrues on both the past due taxes and any delinquency penalty. The taxes and penalties are several years past due. Therefore interest continues to accrue. RLS/js [T01\TI.T.Brief] 2 --,'-".. '~ 5. Audits of Appellants Were Not Done In Retaliation for Appellants Exercising Their First Amendment Rights. The First Amendment of the United States Constitution includes the rights of freedom of religion, freedom of speech, peaceful assembly and to petition the government to address any grievances. Mr. Weiser alleged at the initial hearing on the appeals of these matters that the audits were done in retaliation for the appellants' asserting their First Amendment rights. Mr. Weiser did not specifically identify which right was allegedly violated. Mr. Weiser claims that the City only audited members of the San Bernardino Hotel/Motel Association ("Association"). The Association is currently involved in litigation with the City. Mr. Weiser has refused to provide the names of the members of the Association directly to the City. However, in response to discovery in the litigation currently ongoing between the Association and the City, the Association did provide the identities in response to interrogatories. The identities were provided to the City's outside attorneys on January 22,2004. The identities of the Association members have never been provided to the City Clerk's office. The City Clerk attempted to audit all of the hotels and motels in the City. Attached to this brief is a list of the audit results of thirty-six hotels/motels in the City of San Bernardino. The members identified through the discovery process in the litigation with the Association have been circled on the list attached as Exhibit A to this brief and incorporated by this reference. Of the twenty hotels/motels that were found to owe taxes only nine are members of the Association. A summary of the audits shows that nine of the Association members owed transient lodging taxes to the City, three denied the auditor access and one had no discrepancy. Three of the nine who owed taxes and penalties voluntarily paid them. Three other identified members of the Association were not audited. Oasis Motel onMt. Vernon, University Inn on Tippecanoe and a motel at 1363 North E Street. Since the City Clerk did not know who the Association members were prior to initiating the audits, she could not have been retaliating against the Association members. In addition, since the goal was to audit all hotels/motels in the City, it made no difference who were Association members and who were not. Finally, the same audit standards were applied to every hotel/motel that was audited. RLS/js [T01\TLT.Brief] 3 --<,,~_.< '-_'_"'~____"'__M 6. There is No Violation of the Equal Protection Clause. Mr. Weiser claimed at the initial hearing that the Appellants' right to equal protection is violated since the tax is applied to hotels/motels and not to apartments. The only distinctions the current ordinance makes are (1) between those who rent for less than 30 days and those who rent for more than 30 days, and (2) between those who rent for the first 30 days with and without a written contract for more than 30 days rental. The prior ordinance added a 90 day requirement. The obvious purpose of these distinctions is to tax short term renters but not long term ones. A tax measure which does not involve any type of protected class is reviewed under the rational basis test. As both the United States Supreme Court and this court have explained on many occasions, '[i]n areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes fundamental constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification. [Citations<] Where there are "plausible reasons" for [the classification] "our inquiry is at an end." , [Citation] Kasler v. Lockyer (2000) 23 Cal4th 472, 481. This is an extremely low standard. See Buena Park Motel Association v. City of Buena Park (2003) 109 Cal.App.4th 302, 311 (holding an ordinance prohibiting rental of hotel rooms for more than 30 consecutive days is valid). Appellants seem to be arguing the distinction is between those who can afford to live in apartments and those who can only afford a hotel on a day to day or week to week basis. That contention is contrary to the plain terms ofthe current ordinance (Chapter 3.55). The ordinance does not apply to anyone, no matter what type of unit he or she occupies, who stays more than 30 days. It does not apply to anyone during the first 30 days, no matter what type of unit he or she occupies, who signs an agreement to rent for more than 30 days. The ordinance does not impose any obligation to pay the rent up front. Nor does the ordinance prohibit a written agreement to rent for more than 30 days but to pay the rent daily or weekly. Plaintiffs economic arguments are contrary to the actual terms of the current ordinance. The prior ordinance (Chapter 3.54) was for a 90 day period and did not allow for a written agreement. Transient occupancy taxes are the rule rather than the exception. California law expressly allows cities to impose transient occupancy taxes. Revenue and Taxation Code ~7280. In the City of San Bernardino Hotel-Motel Association v. City of San Bernardino (1997) 59 Cal.App.4th 237, the Court held that the statute does not apply to charter cities such of the City of San Bernardino, but RLS/j. [T01\TLT<Brief] 4 _ ,,_.:B!!,"'--~"'~:'';;'''''''''''=P'F'_"''--~' ..-~'~" ",F-' -,. '0 ,.. .. .. - the appellants' arguments would inherently invalidate the statute and every transient occupancy tax nationwide. State law makes a number of distinctions between transient occupants and more permanent occupants. See, e.g., Civil Code ~1940 (excluding transient occupants from the entire chapter on hiring of real property). Most other states also levy transient occupancy taxes. See Rocky River v. Center Ridge Hotel Association (Ohio 1989) 572 N.E. 2d 767; Covenant Community Church v. Lowe (Tenn. 1985) 698 S.W. 2d 339; Admiralty Suites and Inns LLC v. Shelby County (Tenn. 2004) 138 S. W. 3d 223; Delta Airlines, Inc. v. County Board of Arlington County (Virginia 1991) 409 S.E. 2d 130. See the discussion in Atkinson Trading Co. v. Shirley, 210 F.3d 1247, 1264, n. 15 (9lh Cir. 2000), reversed on other grounds in 532 U.S. 645 (2001) Challenges to transient occupancy taxes in those other states have been uniformly rejected, including challenges based on the equal protection clause. In addition to the cases cited above, see Menlove v. Salt Lake County (Utah 1966) 418 P.2d 227, which expressly rejected an equal protection challenge. 7. Challenges for Vagueness Should Be Overruled. Mr. Weiser at the initial hearing made some allegations that both Chapters 3.54 (now repealed) and 3.55 are unconstitutionally vague. Mr. Weiser did not clearly delineate what portions are vague. The question in this proceeding is whether Appellants had any actual problems telling whether they should have collected the tax from their actual hotel guests. No facts were alleged at the initial hearing to suggest any problems determining when the tax applied. A statute or ordinance is void for vagueness only if a reasonable person is unable to tell what he or she is required to do. The application of the void for vagueness doctrine to an ordinance imposing a transient lodging tax was recently addressed in Patel v. City of Gilroy (2002) 97 Cal.App.4th 483. In that case the plaintiff hotel owners were assessed after they failed to collect a hotel tax and filed a petition for writ of mandate challenging the validity of the tax ordinance on the ground that it was unduly vague. The court stated the applicable standard as follows: An enactment may be declared unconstitutionally vague under the due process clauses of the United States Constitution and the California Constitution (U.S. Const., Amends V, XIV; Cal. Const., art. I, ~7) "ifit fails to provide people of ordinary intelligence a reasonable opportunity to understand what conduct it prohibits [or] if it authorizes or even encourages arbitrary and discriminatory enforcement." [Citations] A tax law in particular" 'must prescribe a standard sufficiently definite tobeunderstandable to the average person who desires to comply with it. [Citation.]' " [Citations] We therefore must consider whether chapter 25A of the Gilroy City RLS/js [IOnTLTBrief] 5 Code (the Transient Occupancy Tax ordinance) gives fairnotice of the tax collection and reporting requirements and provides reasonably adequate standards to guide enforcement. [Citations] 97 Ca1.App.4th at 486-487. The primary attack in the Patel case was on definitions contained in the ordinance. The court had no difficulties in upholding the ordinance. The primary focus of the parties' dispute is the definition of the terms used in section 25 Al - specifically, "hotel," occupancy," and "transient." From 1994 to 1996, the period for which appellant was audited, "hotel" was defined as "any structure, or any portion of any structure, which is occupied or intended or designed for occupancy by transients for dwelling, lodging or sleeping purposes, and includes any hotel, inn, tourist home or house, motel, studio hotel, bachelor hotel, lodging house, rooming house, apartment house, dormitory, public or private club, mobile home or house trailer at a fixed location, or other similar structure or portion thereof." (Former g25Al; Ord. No. 928, 9 1 (1971) [Footnote] The term "occupancy" refers to "the use or possession, or the right to the use or possession of any room or rooms or portions thereof, in any hotel for dwelling, lodging or sleeping purposes." (g25A1.) And a "transient" is "any person who exercises occupancy or is entitled to occupancy by reason of concession, permit, right of access, license or other agreement for a period of thirty (30) consecuti ve calendar days or less, counting portions of calendar days as full days. Any such person so occupying space in a hotel shall be deemed to be a transient until the period of thirty (30) da}s has expired unless there is an agreement in writing between the operator and the occupant providing for a longer period of occupancy. In determining whether a person is a transient, uninterrupted periods of time extending both prior and subsequent to the effective date of this chapter may be considered." (g25A.1.) Appellant's argument is self-defeating, as it expressly invokes a "hypothetical" scenario appellant himself does not face. Whether a month-to-month apartment rental would create confusion in the lessor and lessee is not the problem presented here. Rather, here the only issue was whether appellant failed to collect tax for those guests who stayed in his motel for 30 or fewer days without a written agreement for a longer stay. Appellant "cannot prevail by simply suggesting hypothetical situations in which constitutional problems may arise." [Citation] "[S]peculation about possible vagueness in hypothetical situations not before the Court will not support a facial attack on a statute when it is surely valid 'in the vast majority of its intended applications.''' [Citations] Appellant maintains, however, that we must exercise stricter scrutiny of the ordinance because it prescribes criminal penalties for violations. [Citations] Penal RLS/js [TOTln. T.Brief] 6 _>.~, ",~",,,"";.'r,,m ,""._.,'" .._~~".~-,~. enactments are given greater scrutiny when their enforcement threatens the exercise of constitutional rights, such as freedom of expression or freedom of movement. [Citations] But where no such constitutional rights are at stake, it is the facts of the case and not hypothetical situations that determine the viability of a vagueness challenge. [Citations] Thus, if the conduct with which appellant is charged falls clearly within the bounds of the ordinance, appellant may not be heard to complain. [Citation] Even considering appellant's challenge as properly presented, we do not find the ordinance unconstitutionally vague. Appellant acknowledges that the Transient Occupancy Tax ordinance is presumed to be valid and must be upheld unless its unconstitutionality" 'clearly, positively and unmistakably appears.' " [Citations] Furthermore, even when criminal penalties apply, a statute or ordinance will be upheld against a vagueness challenge" , " , "if any reasonable and practical construction can be given its language." . . . ' " , " [Citations] We are bound to give the ordinance before us "a liberal, practical common-sense construction. . . in accordance with the natural and ordinary meaning of its words." [Citations} 97 Cal.AppAth at 487-489. State Board of Equalization v. Wrick (2001) 93 Cal.AppAth 411 elaborated on the standard applicable to tax statutes and ordinances. The standards for certainty in a civil statute are less exacting than the standards for a criminal statute. [Citation] 'It is true that "[c]ivi! as well as criminal statutes must be sufficiently clear as to give a fair warning of the conduct prohibited, and they must provide a standard or guide against which conduct can be uniformly judged by courts. . ." [Citations.] However, " '[r]easonable certainty is all that is required. A statute will not be held void for uncertainty if any reasonable and practicable construction can be given its language.' [Citation.] It will be upheld if its terms may be made reasonably certain by reference to other definable sources." [Citations.]' [Citation.] To be valid, a tax statute must prescribe a standard sufficiently definite to be understandable to the average person who desires to comply with it. [Citation.]" (Ibid.) 93 Cal.App.4th at 420. Settled federal law requires a party who asserts a vagueness challenge to a specific application, rather than in a request for injunctive relief, to prove that the alleged vagueness actually affected the person raising the challenge. United States v. Powell, 96 S.Ct. 316, 319 (1975) ("We said last Term that '[i]t is well established that vagueness challenges to statutes which do not involve First Amendment freedoms must be examined in the light of the facts of the case at hand.' [Citation]"); United States v. Midwest Fireworks Mfg. Co., 248 F.3d 563, 567 (6lh Cir. 2001) ("Because defendants allege a due process violation, this is not a First Amendment problem. Therefore, defendants must show that the regulation is 'unconstitutionally vague as applied to the specific facts of the case, not whether it is unconstitutional on its face.' [Citation]"); Holman v. Page, RLS/js [TOl\TLT.Brief] 7 - ~"'., "'"'="',," '.." -'. 95 F.3d 481,487 Oth Cir. 1996) ("Vagueness challenges to statutes not threatening First Amendment interests are examined in light of the facts of the case at hand. "). Hypothetical difficulties that a hypothetical hotel operator potentially could have had in determining whether the tax applies would be relevant to an action seeking to enjoin the operation of the ordinance in the future. But these appeals are based on the past application of the ordinance. Appellants have alleged no facts to suggest that they had any actual problems, ever, in determining whether the tax did apply. Specifically: 1. Appellants contend it might have been difficult under some circumstances to determine who is subject to the tax. Appellants admit they are members of a hotel/motel association. 2. Appellants alleged no facts to suggest that they ever had any difficulties during the relevant time period, concerning any specific hotel guest, in determining whether the tax applied or not. The only argument was they paid the tax without setting it forth separately on the registration and should not be penalized. The argument was simply that the City received all taxes due. 3. Appellants allege no facts to suggest any problems, in any specific instance, of determining what was room rent to which the tax applied. The cases cited above set forth the standard by which the ordinance must be measured. The question presented in this case is whether any possible ambiguities in former Chapters 3.54 and 3.55 made it impossible for plaintiffs to tell when the tax did and did not apply. Whether other owners of rental housing may have had problems telling whether their rentals to other persons were or were not subject to the tax is simply irrelevant. This challenge to the statute should be denied. 8. The City's Transient Lodging Tax Does Not Violate the Commerce Clause Or The Right to Travel. Mr. Weiser stated at the initial hearing that the TLT violates the right to travel. The commerce clause prevents the states and other public entities from passing legislation that impedes commerce between the states. The short answer to this argument is that the City is not taxing the right to travel. The TLT is a tax on the "occupancy" of a hotel/motel room. The tax applies equally to any guest at a motel no matter whether the guest's present home is in San Bernardino or another city or state. The California Supreme Court in Pacific Merchant Shipping Ass 'n v. Voss (1995) 12 Cal.4th 503 summarized cases interpreting the Commerce Clause as follows: RLS/js [TOliTLT.Brief] 8 ~""""~--~,T--'---' - The commerce clause of the federal Constitution empowers Congress to enact laws 'To regulate commerce with foreign nations, and among the several states, and with the Indian tribes.' (U.S. Const. art. I, ~8, cl. 3.) . . . Thus, any state statute or regulation that impacts domestic interstate or foreign commerce is subject to judicial scrutiny under the commerce clause unless the statute or regulation has been preempted, or expressly authorized, by an act of Congress. [Citation] The commerce clause's implicit, self-executing restriction on the states' power to regulate domestic interstate and foreign commerce is commonly referred to as the "negative" or "dormant" commerce clause. [Citation] 12 Cal.4th at 514. The Court stated the applicable standard as follows: [T]he first step in analyzing any law subject to judicial scrutiny under the negative Commerce Clause is to determine whether it 'regulates evenhandedly with only "incidental" effects on interstate [or foreign] commerce, or discriminates against interstate [or foreign] commerce.' . . . If a restriction on commerce is discriminatory, it is virtually per se invalid. [Citations.] By contrast, nondiscriminatory regulations that have only incidental effects on interstate [or foreign] commerce are valid unless 'the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.' " [Citation] The party challenging the statute's validity bears the burden of showing discrimination. [Citation] In this context" 'discrimination' simply means differential treatment of in- state and out-of-state economic interests that benefits the former and burdens the latter." [Citation] Such discrimination may take any of three forms: first, the statute may facially discriminate against interstate or foreign commerce; second, it may be facially neutral but have a discriminatory purpose; third, it may be facially neutral but have a discriminatory effect. [Citation] 12 Cal.4th at 517. None of those apply here. First, the tax applies evenly to anyone who rents a hotel in San Bernardino, whether that person comes from another country, another state, another city, or within the City itself. Second, Appellants allege no discriminatory purpose and none is apparent. The tax was enacted to raise revenue (section 3.55 .020(B)) and contains no regulatory provisions not directly related to collection of revenue. Third, Appellants alleged no facts to suggest a discriminatory effect. Again, the tax applies equally to anyone who rents a hotel in San Bernardino, no matter where that person lives when not staying in the hotel. There is no unequal treatment or effect Finally, Appellants do not have the right to make this argument. That is, Appellants lack the legal standing to raise this issue. The tax is imposed on the transients who occupy hotel/motel rooms. The Appellants are not taxed (See Nordlinger v. Hahn (1992) 505 U.S. 1, 10-11, California homeowner has no standing to raise the right to travel by others as a basis for challenging a property tax). Appellants did not allege how the TLT affects anyone's right to travel. Clearly there is no effect on Appellants who merely collect the tax and transmit it to the City. RLS/js [TOTlll.T.Brief]2 9 r!~r~~~-"'''''''''^'''C'~'''~''''' "'. ....... ~~_C'^.. 9. There Is No Requirement That There Be A Transition Period Prior To A New Law Taking Effect. Mr. Weiser raised the argument at the initial hearing that a law cannot go into effect the day after it was passed. This argument presumably goes to Chapter 3. 55 which was approved by the voters on November 5,2002. The California Election Code ~9141 provides that ordinances "fixing the amount of money to be raised by taxation or the taxes to be levied" are effective immediately upon passage. Similarly, Government Code ~36937(d) provides that a City ordinance takes effect immediately, if it is an ordinance "relating to taxes for the usual and current expenses of the city." The general rule in California is that measures approved by the voters take effect the day after the election unless otherwise provided in the measure. California Constitution, article II, ~1O. There is no provision in either state law or the City Charter or Municipal Code that requires a transition period. Thorough legal research has not found any legal requirement for a transition period. CONCLUSION Appellants' legal arguments should be disregarded. The Mayor and Common Council should uphold the City Clerk's decision and deny the appeal. Dated: July / ~ , 2005 ~4-~ ROBERT L. 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'" Exhibit "A" I o -i m C il: o -i m ,.... )> C c r' -i ,.... -i -t ~ Z (Jl m z -t r- o C C'l Z C'l -t ~ :> c: c =1 (Jl " m Z )> ,.... ~ Z -i m ;0 m en -i )> il: o c: Z -i C c: m " )- a -"",'~"=,""""~:"";"'.'C'&7,~~'.Fr:\;;"dt.,,,,,,,,,,,~..-;w~~-"'1;,"'IC.,~"""\'1'~'.r";~''''\~'' .-'< "'-~-"",~_c~~"c"''''''-'---'''''''=',''c:~mW~Wri\:~-;;,._. C'_. :"__"'-~"f[,,,-,,-,,-,. ~L.'p~<r"-~:C;)';'!""i".'" '.,.'.,~,.,.< . \-...".~:_ll}l'. ~.st.....~.,.}'~ r'" ~;~~~\~ .oi~ '.' '/:".., r-:,oo\ t , l~.~ 'J~ .~.4 ,.~=..~ ~,...., ~~>:!J ,.. ~~;~ .\~~~- "')' }Jill'" c:T. "~iila\:"\;': INTER OFFICE MEMORANDUM OFFICE OF THE CITY ATTORNEY CITY OF SAN BERNARDINO TO: Sandra Medina, Assistant to the City Clerk City Clerk's Office FROM: Robert L. Simmons, Sr. Assistant City Attorney DATE: July 14,2005 RE: Agenda Item 33 through 38 on Mayor and Common Council Agenda of July 18, 2005 Enclosed is the Brief! discussed with you in support of the Clerk's position on Agenda Item Nos. 33-38. Please attach the brief as part of the back-up. ~ Robert L. Simmons Sr. Assistant City Attorney Enclosure RLS/js [TLT,Medina.Mem]