HomeMy WebLinkAbout27 - PORT CommitteeNEWPORT BEACH CITY COUNCIL
January 25, 2000 Regular Meeting
TO. Members of the Newport Beach City Council
FROM: Dave Kiff, Deputy City Manager
SUBJECT: Final Report of the Policies on Resort Taxation (PORT) Committee
RECOMMENDED
ACTIONS:
1. Direct staff to return to the City Council with amendments to the City's
UTOT and VSF ordinances that reflect the PORT Committee's
recommendations.
2. Set January 31, 2000 as the termination date for the PORT Committee.
ITEM 27
EXECUTIVE The Policies on Resort Taxation (PORT) ad hoc Committee has completed its work
SUMMARY: and presents this Final Report to the full City Council. In early 1999, the City
Council asked the Committee to complete the following tasks:
1 - Review California law and case law relating to cities' ability to levy transient
occupancy tax (TOT) on privately -owned resort units or timeshares; and
2 - Review the City's procedures and ordinances regarding TOT as it applies to
resort uses, including timeshares and extended stay hotels; and
3 - Examine the TOT - related impacts of current and anticipated land uses that may
be subject to TOT; and
4 - Report back to the City Council on potential changes to the City's ordinances
and/or suggested changes to State law regarding TOT, timeshare uses, and
extended stay hotels.
The Final Report - included as Attachment A - addresses these tasks. A later
Agenda Item will amend the City's TOT and Visitor Service Fee (VSF) ordinances
to reflect the PORT Committee's recommendations (assuming Council
concurrence with the Committee's Report).
BACKGROUND: The hotel bed tax -or TOT -is a tax levied on visitors' accommodations in the
city if the visitor remains here for 30 days or less. The TOT attempts to recoup
the costs to the City of the visitor's use of municipal facilities, including police
and fire services, refuse collection and disposal, and more. TOT is the City's 3rd
highest revenue source (at about $7.45 million each year), with property taxes
($22 million annually) and sales and use taxes ($17.25 million) surpassing TOT as
the City's major general fund revenue sources.
The City's TOT is 9% of the nightly room rental rate associated with a visitor's
hotel stay. The City also levies an additional 1% "visitor service fee' (VSF) on
. behalf of the Newport Beach Conference and Visitor's Bureau ( NBCVB). While
the City places its TOT revenue in the General Fund, the NBCVB uses its share of
the TOT to promote the city as a visitor and conference destination.
Newport Beach City Council
Page 2
BACKGROUND: In early 1999, the City Council learned of at least two developments that would .
(cont'd) bring either timeshare uses (where individuals own an "interval" of time at a
hotel or resort) or extended stay hotels (where businesspersons and others may
stay at a hotel for more than 30 days) to Newport Beach. Concerned about the
potential impacts on the community of these uses, the Council formed the
Policies on Resort Taxation (PORT) Committee. Initially known as the "Ad Hoc
Committee on Resort Tax Policies" (Resolution 99 -11, 2 -22 -99 -see Attachment
B), the Council asked the Committee to examine ways to ensure that the uses'
revenue adequately compensates the City for the uses' expenses.
The PORT Committee -which included Mayor John Noyes, Council Members
Tod Ridgeway and Tom Thomson, and NBCVB President/ CEO Rosalind
Williams -met over a series of months since March 1999. The Committee
concluded its work in mid- January 2000 with the preparation of the attached
Final Report.
In brief, the Committee has recommended changes to the City's TOT and VSF
Ordinances which would provide that:
1 -- the City WOULD collect TOT /VSF on:
• Stays of up to and including 30 days in any extended stay hotel,
traditional hotel, or rented residence (unless subject to a qualifying
rental agreement -see Attachment A).
• All rentals of timeshare rooms placed in the nightly rental pool.
2 -- the City WOULD NOT collect TOT /VSF on: •
• Owners' uses of their timeshare intervals
• Stays of guests or family members of a timeshare owner if the guest or
family member did not compensate the owner for the stay.
• Stays of persons who stay in a Newport Beach timeshare via an
"exchange" program if the timeshare developer has entered into a
Development Agreement (DA) with the City. Typically, the DA would
require a "development agreement fee" applied to exchangers that is
somewhat less than a TOT /VSF equivalent. For properties in the
Newport Coast, a development with a DA that pre-dates 1/1/2000
would also not be subject to the fee or to a TOT / VSF on exchangers
unless a later action amends the DA.
3 -the management companies of timeshare owners' associations must
provide specific rent- related data to the City to facilitate the City's
collection of TOT / VSF on those stays subject to TOT / VSF.
City staff will bring the ordinance changes that reflect the PORT Committee's
suggestions to the City Council at a later date. For more information about the
Committee's findings and conclusions, please see Attachment A.
ATTACHMENTS: Attachment A -Final Report of the PORT Committee
Attachment B -Ad Hoc Committee on Resort Tax Policies Page from Boards,
Committees, and Commissions Manual .
. Attachment A
Policies on Resort Taxation (PORT)
Committee
-- Final Report --
January 17, 2000
Timeshares and TOT/VSF
Two visitors arrive in Newport Beach for a vacation stay -one stays for a week at the Hyatt
Newporter, paying $170 a night for seven nights. The other stays at the new Newport Dunes timeshare
resort, "exchanging" her timeshare interval in Del Boca Vista, Florida for a week at the Dunes. While
the City collects $107.10 from the Hyatt Newporter visitor, the timeshare exchanger may not pay
anything to the City -even though they both may use an identical amount of municipal services.
Is this fair to the City and its permanent residents?
. This the heart of the question that the City Council asked itself in February 1999 as it learned of plans to
place a timeshare resort at the Newport Dunes and an extended stay hotel near John Wayne Airport. In
response, the City Council formed the Policies on Report Taxation or "PORT" Committee. The Council
asked the Committee to:
1 - Review California law and case law relating to cities' ability to levy TOT on privately -owned
resort units or timeshares;
2 - Review the City's procedures and ordinances regarding TOT as it applies to resort uses, including
timeshares and extended stay hotels;
3 - Examine the TOT - related impacts of current and anticipated land uses that may be subject to TOT;
4 - Report back to the City Council on potential changes to the City's ordinances and /or suggested
changes to State law regarding TOT, timeshare uses, and extended stay hotels.
After meeting several times in 1999 and in early 2000, the Committee reports back the following four
findings and conclusions:
I - Arguably, State California state law (Revenue and Taxation Code, §7280 et seq.) allows "the
Law Allows a legislative body of any city or county" to levy a tax upon "the privilege of
Charter City to occupying a room or rooms" if the occupancy is for 30 days or less. But
Apply a TOT to "occupying a room" expressly does not include an owner of a timeshare
Timeshare Uses estate or the guest of that owner.
"Guest of the owner" is defined as a person accompanying the owner of a
timeshare estate or who "exercises that owner's right of occupancy without
• payment" of any compensation to the owner. It also specifically includes "a
person occupying a timeshare unit ...pursuant to any form of exchange
program."
Newport Beach City Council
Given that the Office of Senate Floor Analysis raised the issue of application to
charter cities, the Legislature had the chance to apply AB 1037 (and thus R &T
§7280) to charter cities but chose not to do so.
Arguably, a charter city like Newport Beach has the right to apply a TOT on
any timeshare use as long as the TOT is not based upon the assessed value of
the timeshare. All cities are precluded from levying an ad valorem -based tax by
the California Constitution (Article XIIIA, §4), which in part states that "cities
... may impose special taxes .,. except ad valorem taxes on real property
Case law, including City of Palm Springs v. Palm Springs Tennis Club Owners
Association, generally holds that general law cities are bound by both Revenue
and Taxation Code §7280 and by Article XIIIA, §4 of the California
Constitution. In 1989, the 4th District Court of Appeal held that the City of
Palm Springs was "without statutory authority" to levy a TOT on timeshares
(as a general law city) and that the TOT itself was unconstitutional because
Palm Springs based its timeshare TOT in part upon the timeshares value.
II -The City's The Newport Beach Municipal Code contains at least three chapters relating to
Codes Regarding timeshares and TOT:
Timeshares and
TOT Should be Chapter 3.16 - Uniform Transient Occupancy Tax
Amended and Chapter 3.16 defines a transient as any person who occupies a lodging for 30
Updated days or less. If a person stays in a hotel for more than 30 days, he or she is a
"transient" until the 31st day unless there is a "qualifying rental agreement"
(QRA) that provides for a longer occupancy. This qualifying rental
agreement is a written contract between the landlord and tenant for a stay of
31 days or more ( §3.16.020).
The City's TOT is 9% of the room rent ( §3.16.030). We exempt certain foreign
government officers and employees of airline companies if the companies
have entered into a QRA ( §3.16.040). The hotel operator must register his or .
her hotel with the City and collect the TOT (( §3.16.050 -060).
Page 4
I - Arguably, State
The bill that exempted the owners of timeshare estates, guests of owners, and .
Law Allows a
exchangers from a TOT was AB 1037 (Hannigan, 1985). In the bill analysis
Charter City to
done by the Office of Senate Floor Analyses, the bill analyst raised the
Apply a TOT to
following written comment as the bill was to be heard by the Senate Floor:
Timeshare Uses
(cont'd)
"Bill May Affect Only General Law Cities and Counties. Can the
Legislature prevent by statute charter cities from imposing
hotel /motel taxes on time -share units? Cities have contended that
charter cities have constitutional authorization to levy certain local
taxes. Despite the fact that the State prohibited cities from levying
cigarette taxes in 1959, by the mid -60s, a number of cities had
imposed such a tax under their charter authority, and the tax was
upheld in the courts. Two cities with large numbers of timeshare
estates -Palm Springs and South Lake Tahoe -are both general law
cities."
Given that the Office of Senate Floor Analysis raised the issue of application to
charter cities, the Legislature had the chance to apply AB 1037 (and thus R &T
§7280) to charter cities but chose not to do so.
Arguably, a charter city like Newport Beach has the right to apply a TOT on
any timeshare use as long as the TOT is not based upon the assessed value of
the timeshare. All cities are precluded from levying an ad valorem -based tax by
the California Constitution (Article XIIIA, §4), which in part states that "cities
... may impose special taxes .,. except ad valorem taxes on real property
Case law, including City of Palm Springs v. Palm Springs Tennis Club Owners
Association, generally holds that general law cities are bound by both Revenue
and Taxation Code §7280 and by Article XIIIA, §4 of the California
Constitution. In 1989, the 4th District Court of Appeal held that the City of
Palm Springs was "without statutory authority" to levy a TOT on timeshares
(as a general law city) and that the TOT itself was unconstitutional because
Palm Springs based its timeshare TOT in part upon the timeshares value.
II -The City's The Newport Beach Municipal Code contains at least three chapters relating to
Codes Regarding timeshares and TOT:
Timeshares and
TOT Should be Chapter 3.16 - Uniform Transient Occupancy Tax
Amended and Chapter 3.16 defines a transient as any person who occupies a lodging for 30
Updated days or less. If a person stays in a hotel for more than 30 days, he or she is a
"transient" until the 31st day unless there is a "qualifying rental agreement"
(QRA) that provides for a longer occupancy. This qualifying rental
agreement is a written contract between the landlord and tenant for a stay of
31 days or more ( §3.16.020).
The City's TOT is 9% of the room rent ( §3.16.030). We exempt certain foreign
government officers and employees of airline companies if the companies
have entered into a QRA ( §3.16.040). The hotel operator must register his or .
her hotel with the City and collect the TOT (( §3.16.050 -060).
Further, any timeshare must be at least 100 units and may not be converted
from existing dwelling units. The Code requires at least 1.2 parking spaces
per timeshare unit plus one space for each 50 square feet of meeting area.
Each timeshare project must have "substantial recreational amenities,"
including golf courses, tennis courts, and swimming pools. The Planning
Commission or the City Council may waive these requirements ( §20.84.060).
Several aspects of Chapters 3.16 and 3.28 will need to be amended and updated
in order to address the Committee's interests in:
• Exempting specific owner - occupied uses from any TOT /VSF.
• Applying a TOT /VSF to nightly rentals of timeshare uses
• Providing for adequate reporting of timeshare uses and users to the City's
Administrative Services Department; and
• Providing for development agreements which specify how the City may
apply a development agreement fee that would recoup, in part, the
municipal expenses associated with an "exchanger's" stay in a timeshare
unit. Developments in the Newport Coast with DAs dated before
1/1/2000 would not pay the fee unless a later action amends the DA to
require the fee.
The Committee has directed the City Attorney and the Revenue Manager to
prepare these amendments to the Newport Beach Municipal Code and to bring
the proposed amendments to the City Council for consideration and adoption.
III - Timeshares The Committee met with representatives of the Newport Dunes Hotel/
Are Good Revenue Timeshare Resort and of the Marriott Newport Coast Villas. City staff
Raisers, but Not as conducted a relatively extensive Fiscal Impact Analysis of the Newport Dunes
Good as Hotels proposal. After considering the FIA and talking to the representatives of the
Dunes and the Marriott Villas, the Committee concluded that:
• Timeshares are Fairly Good Property Tax Generators -the County
Assessor values most timeshares "virtually as ownerships" and assigns a
sales -based value on each interval. One 2 BD timeshare suite, then, may
. have 51 owners' names appear on the Assessment Roll, each paying the
1% "Basic Levy" on the tax bill. The City gets about 17% of the 1% levy.
Page 5
• II -The City's
Chapter 3.28 - Visitor Service Fee
Codes Regarding
The City collects a 1% ' Visitor Service Fee' in order to "develop, plan, carry
Timeshares and
out, and supervise a program to serve the needs of visitors to, and promote
TOT Should be
tourism in, the City of Newport Beach" ( §3.28.015 -020). The Visitor Service
Amended and
Fee ordinance is written with the same exemptions, registration, and
Updated
reporting requirements as the Uniform Transient Occupancy Tax. The
(cont'd)
Newport Beach Conference and Visitors Bureau (NBCVB) administers the
visitor's program on behalf of the City.
Chapter 20.84 - Time -Share Developments
Chapter 20.84 permits timeshares only in commercial districts ( §20.84.030)
and requires a use permit, a sales plan, a management plan, a contingency
plan (if the project fails), and a development agreement "relating to the
amount of tax payable to the City by any time -share owner for the right of
occupancy of a time -share unit ( §20.84.040 -050).
Further, any timeshare must be at least 100 units and may not be converted
from existing dwelling units. The Code requires at least 1.2 parking spaces
per timeshare unit plus one space for each 50 square feet of meeting area.
Each timeshare project must have "substantial recreational amenities,"
including golf courses, tennis courts, and swimming pools. The Planning
Commission or the City Council may waive these requirements ( §20.84.060).
Several aspects of Chapters 3.16 and 3.28 will need to be amended and updated
in order to address the Committee's interests in:
• Exempting specific owner - occupied uses from any TOT /VSF.
• Applying a TOT /VSF to nightly rentals of timeshare uses
• Providing for adequate reporting of timeshare uses and users to the City's
Administrative Services Department; and
• Providing for development agreements which specify how the City may
apply a development agreement fee that would recoup, in part, the
municipal expenses associated with an "exchanger's" stay in a timeshare
unit. Developments in the Newport Coast with DAs dated before
1/1/2000 would not pay the fee unless a later action amends the DA to
require the fee.
The Committee has directed the City Attorney and the Revenue Manager to
prepare these amendments to the Newport Beach Municipal Code and to bring
the proposed amendments to the City Council for consideration and adoption.
III - Timeshares The Committee met with representatives of the Newport Dunes Hotel/
Are Good Revenue Timeshare Resort and of the Marriott Newport Coast Villas. City staff
Raisers, but Not as conducted a relatively extensive Fiscal Impact Analysis of the Newport Dunes
Good as Hotels proposal. After considering the FIA and talking to the representatives of the
Dunes and the Marriott Villas, the Committee concluded that:
• Timeshares are Fairly Good Property Tax Generators -the County
Assessor values most timeshares "virtually as ownerships" and assigns a
sales -based value on each interval. One 2 BD timeshare suite, then, may
. have 51 owners' names appear on the Assessment Roll, each paying the
1% "Basic Levy" on the tax bill. The City gets about 17% of the 1% levy.
Page 6
III - Timeshares • But TOT is Substantially Reduced from Hotel Uses. Our research •
Are Good Revenue shows that about 30 -80% of a timeshare resort will be used by owners.
Raisers, but Not as The wide variation depends upon the timeshare development's:
Good as Hotels ✓ Age (new buyers may spend their first few vacations at "their"
(cont'd) timeshare before exchanging for other sites);
✓ Quality, Management and Amenities;
✓ Participation in worldwide" exchange" clubs
The percentage of use by owners -and by exchangers - determines the
amount of timeshare units that become available on any one night for
persons interested in nightly lodging. As such, it is difficult to accurately
project how much TOT a timeshare development's nightly rentals might
generate -TOT from a pure hotel use is much simpler to estimate. On a
room -by -room basis, a non - timeshare hotel will generate more gross
revenue (TOT and property tax) than most timeshare developments.
• See Fiscal Impact Analyses for Additional Data. Revenue projections
relating to the Extended Stay America Hotel, the Newport Dunes
Timeshare/ Resort, and the Marriott Newport Coast Villas are complete
and have been or will be presented to the City Council per the PORT
Committees direction.
IV -Committee The PORT Committee has asked City staff to pursue the following course of
Conclusions action relating to timeshares, TOT /VSF, and extended stay hotels:
1. Amendments. Prepare an Agenda Item that will amend the City's UTOT
and Visitor Service Fee ordinances to:
✓ Collect a 9% TOT and a 1% VSF on all nightly rentals of timeshares.
✓ Exempt timeshare owners from any TOT/ VSF.
✓ Exempt guests or family of owners from any TOT/ VSF when the guest or
family member does not compensate the owner for the stay.
✓ Exempt persons who own timeshares in other locations but stay in Newport
Beach via an"exchange° program from TOT / VSF if the City and the
timeshare developer have entered into a Development Agreement (DA) that
applies a fee on an exchanger's timeshare use.
✓
Exempts 'exchangers" from TOT /VSF in developments with DAs approved
prior to 1/1/2000 unless a later action amends the DA to allow for a
development agreement fee.
✓ Require timeshare operators to provide the statistical data and records that
will allow the City to collect TOT / VSF on stays subject to TOT / VSF.
2. Dunes DA. Prepare a Development Agreement with the Newport Dunes
which provides for, among other things, a Development Agreement Fee
on persons who stay in a Dunes timeshare under an exchange program.
The Fee shall be paid by timeshare exchangers and collected by the
timeshare management. The Fee shall equal 10% of the daily
maintenance fee associated with the timeshare unit.
3. Record - Keeping and Reporting. Ensure that all hotel and timeshare
developments - including extended stay hotels - comply with City
ordinances relating to record - keeping, reporting, and the preparation of
qualifying rental agreements. .
•
0
Fr1KNM6ar 6
AD HOC COMMITTEE ON RESORT TAX POLICIES
AUTHORIZATION: Established by Resolution No. 99 -11, adopted on 2- 22 -99.
MEMBERSHIP: Three City Council Members appointed by the Mayor as
voting members, a representative of the Newport Beach
Conference and Visitors Bureau (NBCVB) as an ex officio
member, and appropriate staff as determined and assigned
by the City Manager.
TERM: The committee shall terminate 120 days after its
establishment (June 22, 1999), unless extended by the City
Council.
PURPOSE &
RESPOSIBILITIES: The Committee shall review State law and the City's current
ordinances relating to Transient Occupancy Tax ( "TOT ")
administration and collection on resort uses, including
timeshares and extended stay hotels. The Committee shall
evaluate these issues in the context of the hotel and
timeshare component of the proposed expansion of the
Newport Dunes Resort and discuss with the Dunes
representatives possible terms and conditions of the
development agreement or zoning ordinance that could
serve as a model for future timeshare projects. After
completion of this review, the committee shall return to the
full City Council with recommendations for ordinance
amendments and /or changes to the Dunes' development
agreement or zoning documents as the Committee deems
appropriate.
Section III — Page 7
3 -24 -99