---

---

An innkeeper’s request to defer remitting his transient occupancy tax to the city prompted Councilors to explore what COVID-19’s potential impact may be on its general fund.

Bhanu Patel, owner of Best Western Plus Northwoods Inn, also brought up processing costs he must pay to accept credit cards from his customers. Patel asked the city to allow him to keep 3 percent of the TOT he remits to the city to cover those costs.

“In the neighboring city, Brookings has 7 percent TOT and we have 10 percent,” Patel told Councilors via a letter on Monday. “(Brookings) allows the deduction of credit card fees, but in Crescent City I cannot pay the TOT collected by my credit card as my city is avoiding the same fees I’ve been burdened with.”

City Councilors favored deferring TOT payments for local lodging facilities, including Airbnbs and vacation rentals, with Crescent City Mayor Blake Inscore noting that those payments may need to be delayed until October. He asked staff to get input from Patel and other innkeepers on how long those deferrals should be.

Since the Crescent City Municipal Code establishes tax due dates and penalties, allowing business owners to defer TOT payment would require updating an ordinance, Finance Director Linda Leaver said.

Councilors also allowed that the city should accept TOT from hoteliers via credit card, with Mayor Pro Tem Heidi Kime stating that if having to pay processing fees is the “cost of doing business,” Crescent City should assume that cost as well.

“In my own business if someone’s insurance company is paying for their reimbursement, sometimes these sneaky guys send me a virtual credit card, which I then have to pay 2 or 3 percent like Mr. Patel is saying,” said Kime, who owns Pacific Northwest Physical Therapy. “That’s 2 or 3 percent less reimbursement than I should be getting, but that is the cost of doing business.”

Transiency occupancy taxes are imposed on a guest staying in a local lodging facility, Leaver said, it’s not an income tax on the innkeeper. In Crescent City, which has a TOT of 10 percent, that revenue makes up approximately 24-25 percent, or roughly $1.5 million, of the general fund, she said.

TOT is already city property, City Attorney Martha Rice told Councilors. Waiving the remittance of those taxes for hoteliers could constitute a gift of public funds, she said.

Any deferral or relief program the city creates as a result of the COVID-19 emergency must also be applied to every business that’s in need, Rice said.

“We can’t just say this business made a request so we’ll grant it,” she said. “We need to have it either apply to everybody or there’s some kind of criteria which the applicant must meet for any type of program, regardless of exactly what it does.”

Even if Public Health Officer Dr. Warren Rehwaldt hadn’t issued an order barring short-term stays at lodging facilities, Leaver said the pandemic has already prompted a decline in travel. She noted that airline travel is down 96 percent from this time last year. The impacts to Crescent City is expected to be significant, she said.

Crescent City typically anticipates receiving about $200,000 in TOT for the January to March quarter, Leaver said. This year, though staff expect TOT revenue for that quarter to be lower than budgeted for, they still anticipate some TOT because travel was still happening in January and February, Leaver said.

Between April and June, though the city typically projects receiving $400,000 in TOT, staff expect it to be lower, though they’re not yet sure how low that will be, Leaver said.

July through September is Crescent City’s biggest quarter when it comes to travel, generating at least $600,000 in TOT revenue, Leaver said.

“Depending on how long this goes on, those revenues are going to be specifically impacted,” Leaver said.

Patel has been the only hotelier to request relief from his TOT remittance to the city, Leaver said.

Initially Patel asked the city to forgive the TOT revenue between January and June, according to Leaver. Patel then asked the city to defer his TOT remittance through the quarter ending in September, making them due on Oct. 31, Leaver said.

Leaver said Patel also asked the city to allow him the 3 percent credit card processing fee, taking it off of the TOT revenue he remits to the city. Leaver noted that the merchant fee to process credit card payments is a percentage of the total business transaction.

Speaking to Councilors via Zoom on Monday, Patel estimated that he has collected more than $7 million in TOT in the last 33 years he has operated hotels in Crescent City, having to pay $250,000 in credit card processing fees.

In 2015, he expanded the Best Western Northwoods Inn in Crescent City and in 2017 added an extra story to Northwoods Restaurant. Patel said those upgrades cost him about $2.5 million.

“It costs me $10,000 a year now to collect taxes for the city from the total that Linda (Leaver) mentioned,” he told Councilors. “I think I’m almost paying 1/5th of the whole TOT in the city.”

Giving a hypothetical example of what he meant when asking to be reimbursed for the credit card fees he pays, Patel said if his guests pay $300,000 in TOT through his hotel, it costs him $10,000 to collect those taxes.

Rice, saying she initially misunderstood Patel’s request, said the city could allow a refund for credit card processing fees.

Recapping the Council’s direction, City Manager Eric Wier said TOT deferral and late fees would have to be established via an emergency ordinance before April 30. The business owner requesting the deferral must demonstrate need, he said.

The deferral would apply to the months of January through June 2020 with repayments starting Oct. 1, Wier said. The repayment plan would consist of equal payments over a year, he said.

Wier also noted that the innkeeper requesting a deferment must remain current on TOT remittances as well as the deferral payments.

Kime, however, noted that the Council may need to revisit TOT deferrals at a June meeting if Rehwaldt’s order regarding short-term rentals isn’t lifted by July.

“If we’re not open for business, how can we expect someone commit to this deferral and 12-month equal payment?” Kime asked. “That is not realistic.”

Rice said since TOT for the July through September quarter isn’t due until Oct 31, the city would have time to take further action if hotels aren’t open.

Wier said that since lodging facilities only pay on the TOT they collect, if they’re not open, they won’t be collecting and remitting TOT. The city would then have to revisit the payment schedule, he said.

Greenough asked how an innkeeper would prove need for deferring TOT payments to the city.

According to Rice, adopting the urgency ordinance to defer payments, the City Council would make that finding that there is a financial need that applies across the board.

“It’s a deferral and payment program upon anyone that wants to take advantage of it would be my suggestion,” Rice said.

Sales Tax revenue
Leaver’s presentation also included impacts to the city’s sales tax revenue, which also makes up about 25 percent — or $1.5 million — of its general fund. Citing Gov. Gavin Newsom’s executive orders, businesses that generate less than $1 million in sales tax can defer their first quarter payment for 90 days.

Businesses remit sales tax revenue collected between January and March by April 30, Leaver said. Now, if they generate less than $1 million, they can remit that sales tax revenue by July 31, she said.

Businesses can also defer up to $50,000 in sales tax revenue and begin paying it in August, making 12 equal payments with no interest, Leaver said. Businesses that qualify for both relief measures wouldn’t have to begin paying that January-March sales tax until August and wouldn’t be charged interest or penalties.

“Of course, that will directly impact the city,” Leaver said. “Normally we would have received all of those tax revenues by the end of April.”

She noted, however, that the city would already experience a loss in sales tax revenue regardless of Newsom’s executive orders because of a decline in consumer spending as a result of the COVID-19 emergency.

It’s also uncertain if the state or federal government will offer direct assistance to small cities and counties to offset those lost revenues, Leaver said.

---

SHARE →