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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