TAX NEWS - 2010

California Tax: Council drops hotel tax hike measure in Petaluma

On the same night the City Council adopted a budget in which new revenue is sorely needed, council members shot down a possible tax increase for the city's hotels, saying it would likely not garner support and could ultimately harm the city.

Amid opposition from hotel owners, council members decided to drop a plan for a November ballot measure asking voters whether to increase the city's hotel tax rate from 10 percent to 12 percent.

"I don't think it's a good time to increase taxes," said Councilmember David Rabbitt.

"If you do choose to move forward, we will strongly oppose it," warned Tom Birdsall, co-owner of the Sheraton, the city's largest hotel tax generator. "I'd rather be spending my time marketing Petaluma (than opposing the measure), quite frankly."

Given the opposition from the Petaluma Lodging Association, the Petaluma Downtown Association and the Chamber of Commerce, council members doubted that the measure would pass and decided to table the issue.

"I would be willing to go forward if there would be votes. There are not," said Councilmember David Glass.

The tax, called the Transient Occupancy Tax, is charged to all overnight visitors at the seven hotels, inns and campgrounds within the city. Petaluma's tax rate is set at 10 percent, with an additional 2 percent charged to fund the county's Tourism Bureau. Nearby cities have hotel tax rates ranging from 9 to 12 percent, most charging the additional 2 percent for county tourism as well.

Petaluma's hotel tax generated $1.1 million last year and normally yields between $800,000 and $1.5 million per year, said City Manager John Brown. Every year, $1 million of the revenue automatically goes to the city's General Fund, with the remainder funding the visitors marketing and other programs.

Increasing the base tax rate from 10 to 12 percent would have raised an estimated $220,000 per year, said Brown.

A contingent of hotel and lodging owners showed up during the council meeting to oppose the tax, saying that it would result in fewer visitors to Petaluma, reduce spending at local businesses, and would affect local residents rather than just visitors.

Birdsall said that the increase would be "counter-productive" to increasing revenues because it would discourage people from visiting and spending money in Petaluma.

Colleen Wood, a co-owner of Petaluma's KOA campground, said that local residents use her campground for birthday parties and campouts, and that the view that the tax would be paid by out-of-towners who can afford to travel is mostly a myth. Other owners echoed her views, saying that local businesses use their hotels for conferences.

"It's not going to generate that much money," said Tim Cahill, manager of the Best Western Petaluma Inn.

Some council members indicated more of a willingness to consider the increase. Glass said the tax may be the least-harmful way to increase revenue in the short term, calling the increase "low-hanging fruit." Mayor Pam Torliatt supported passing the question on to voters, and reminded the council that no member of the general public had weighed in during public comment, only hotel owners.

In years past, hotel tax revenue that didn't go the General Fund helped fund community events like the Butter & Egg Days parade. Now, the money only goes to the General Fund and the Petaluma Visitors Program, which markets the city to tourists. Funding for the visitors program was recently increased from $80,000 to $140,000 and the contract for running the program was transferred from the Chamber of Commerce to the Petaluma Downtown Association.