Placer says Tahoe rentals underpaid taxes
October 7, 2007
According to preliminary findings of a Placer County audit, Tahoe Basin lodging properties underpaid an estimated $1 million in bed taxes over the past three years, an assistant county auditor told North Shore resort officials last week.
At a meeting of the North Lake Tahoe Resort Association, Assistant Auditor-Controller Andrew Sisk said the county will release a final audit report in a few weeks, and will seek to recover the past-due Transient Occupancy Tax by the start of next year.
Sisk said the county is prepared to negotiate any penalties and interest on a case-by-case basis depending on the report’s conclusions.
Sisk added that the review of the county’s tax program for short-term rentals uncovered instances of inconsistent applications of the tax, shortcomings the county plans to address.
The audit is part of a county effort to improve the collection and accounting of bed taxes owed by rental properties.
“[Transient Occupancy Tax] has met the need for the time,” said Placer Revenue Services Manager Sandy Conte. “But, as the population growth occurred in Placer County, we realized that we needed to enhance that program.”
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Last year, the county collected $6.9 million in Transient Occupancy Taxes from unincorporated areas in District 5, which extends from the Tahoe Basin to North Auburn. Three-fifths of the tax revenue is invested in tourism marketing and promotions, while 40 percent help underwrite such county services as law enforcement, animal control or road maintenance.
Jennifer Merchant of the county’s Executive Office said the number of people paying the lodging tax has increased by 15 percent since the audits began in January.
Unclear tax definitions and eligibility requirements have limited the revenue stream that should be coming into the county, officials say. Half of the $1 million in underpaid taxes resulted from an “interpretation issue,” Sisk said.
Local lodgings are charging customers a series of fees on top of the flat room rental rate. Operators have not been applying the bed tax to those fees, but county officials say the fees fall under total rent and should be taxed.
Sisk recommended the county clearly define rent and account for the miscellaneous fees, so that every lodging operator is aware of what is subjected to the tax.
“You want to have a level playing field,” Sisk said. “It’s important to communicate that to the other operators.”
The rest of the underpayments came from accounting errors or incorrect returns, Sisk said.
The audits analyzed last year’s tax returns for 27 bed-tax operators in the area, 20 of which were selected randomly. The remaining seven were chosen because officials deemed the operators as “high risk.”
The 27 properties account for a combined three-fourths of the total Transient Occupancy Tax revenue from the 350 Placer County lodging rentals in the Tahoe area, Sisk said.
Beyond vague tax definitions, Placer County officials suspect that not every lodging or rental is accurately accounted for under the tax. Properties that are rented for periods of 30 days or less are subject to the Transient Occupancy Tax and are required to have a tax certificate number.
The Revenue Services Division sent out notices to 2,300 property owners in the Tahoe City area last week. The letters review the Transient Occupancy Tax code and ask the property owner if they are subjected to the tax or not.
The notification letters were sent to property owners who did not claim a homeowner’s exemption on their property taxes.
More than 22,000 properties will receive the notice throughout the county’s unincorporated areas, with 17,000 properties in District 5 alone. The first wave of notices were only sent to properties in Tahoe City.
“[The property owners] may not realize that they need to collect a Transient Occupancy Tax,” Conte said. “The program that we’re putting in place is a notification, an advisement … The information wasn’t out there enough. I think some people truly didn’t know that they needed to collect the tax.”
The notice recognizes that not all recipients will qualify for the tax. Those that do qualify are instructed to contact the Revenue Services Division and apply for a TOT certification number. The tax would be collected from the application date forward, Conte said.