When is a tax more than a tax?

    

How about when the tax is charged twice?

     

For the past decade, many Santa Clara hotels have been creative in finding ways to promote their rooms through combination packages.

     

These package promotions promise combinations of bed, breakfast, free cocktails, admission tickets to Great America Park or other similar benefits tied to renting a room.

     

While room promotions have been around for years, they gained a lot of momentum following the dot.com bust and the events surrounding 9/11.

     

It was a devastating time for the hotel industry and they eagerly sought ways to reestablish their markets with the business traveler and family vacationers.

     

Remember, this was a time when hotel occupancy dropped from the high 70 percent level to under 50 percent almost overnight. And it was several years before business returned to a quasi “normal” state.

     

So creating a marketing plan with a free breakfast, cocktails or other incentives was simply a means to generate interest in attracting business into coming back to the hotels.

     

To drive travelers to return to the hotels they would package the room, a free breakfast or cocktails or admission tickets and offer the total combination at one price.

     

Now of course the hotel would have to pay transit occupancy tax (TOT) on the cost of the room after deducting out the cost of the other promotional items. And they did that.

     

Historically TOT is charged only on room costs and NOT on ancillary services such as bar, restaurant, room service charges, spa charges, promotional tickets or parking.

     

However, the City of Santa Clara, also still trying to climb out of the dot.com recession hired hotel auditors to review all the hotel revenues and tax payments.

     

The auditors with the blessing of the City made a determination that the entire room package should be charged the TOT tax.

     

So let’s see.

     

If the cost of a room is $100, and the cost of a breakfast is $12, and the charge for Great America Tickets is $23 that would be a total package of $135 of which $100 would be subject to the TOT tax.

     

Well, that’s what you would think and that is what the hotels considered correct and proper.

     

“Not so” says the City attorney’s office who agrees with the auditors. The entire $135 charge is subject to the TOT tax.

     

Out of curiosity one would have to wonder, “How you can sleep in a hamburger?”

     

Unfair argued the hotels. We pay TOT tax on the room revenue, we pay sales tax on the restaurant, bar, spa, coffee bar and concessions revenue and outside promotions tickets are taxed as revenue to the vendors.

     

The hotels argue they have already paid their fair share of taxes.

     

“What the City is doing is leveling a double tax” indicated one hotel operator.

     

And according to reports received by the WEEKLY, this is no small amount of change. Some hotels caught in this questionable interpretation of tax procedure are being asked to pay the City $40,000 or more in back taxes.

     

Ok, that takes care of the auditor’s salary, but what about the hotels that are being double charged?

     

When asked if there was ever any indication to the Santa Clara Hotel industry this would be the way package deals would be taxed, the answer was a unanimous “NO.”

     

Most likely this issue is too hot to end by sending off a check. Our guess is the City Council will be ruling on this nefarious financial fiasco in the foreseeable future.

     

While the City needs money, double taxation is not fair, equitable or in the spirit of good relations.