Title
Consider the Appeal of the Pebble Beach Company's Request for Refund of $130,287.67 in Assessed Penalties for Delinquent Transient Occupancy Tax Remittances.
Report
RECOMMENDATION:
It is recommended that the Board of Supervisors Deny the appeal of the Pebble Beach Company's request for refund of $130,287.67 in assessed penalties for delinquent Transient Occupancy Tax remittances.
SUMMARY:
The Tax Collector is charged with the duty of enforcing the County of Monterey Uniform Transient Occupancy Tax (TOT) Ordinance. The ordinance states in part that the Tax Collector shall assess penalties and interest to operators whenever reports or remittances are delinquent and shall enforce collections (Ord. 5.40.065). Transient Occupancy Taxes for the third quarter of 2011-12 were due on March 31, and became delinquent on April 30. The Pebble Beach Company failed to remit the required quarterly reports and payments ($1,302,876.63) for both the Inn at Spanish Bay and The Lodge at Pebble Beach. Only after being contacted by County Tax Collector staff, was overdue payment made, on May 8. The tax payment was followed with a request by Pebble Beach that the applicable penalty be waived. After consideration of the facts presented by Pebble Beach, and prior to the payment of the penalty, the Tax Collector denied the penalty waiver request. Pursuant to Section 5.40.130 of the TOT ordinance, the Pebble Beach Company may appeal the decision of the Tax Collector to the Board of Supervisors. It is recommended that the appeal be denied.
DISCUSSION:
State statute permits a local entity to impose a Transient Occupancy Tax to be collected on behalf of the entity by local operators of hotels/motels/resorts from occupants of those establishments for the privilege of occupying temporary lodging (Revenue and Taxation Code section 7280). Transient Occupancy Taxes are then remitted by operators on a quarterly basis to the Tax Collector. Pursuant to the Ordinance, originally enacted in 1965, remittances are required to the made "
on or before the last day of the month following the close of each calendar quarter" (Ord. 5.40.080). In this instance, the quarter ended on March 31, 2012, and Pebble Beach Company had until April 30, 2012, to make a timely (and penalty free) remittance of the TOT it had collected since January 1, 2012.
On May 7, 2012 County Tax Collector staff began to prepare TOT reports for the third quarter of FY 2011-2012 and noticed remittances for the Inn at Spanish Bay & the Lodge at Pebble Beach had not been received. Staff immediately telephoned the Pebble Beach Company to remind it that taxes were due. A TOT payment of $1,302,876.63 was received the following day. During staff's conversation with the Pebble Beach Company, it was informed that the applicable late penalty had been assessed and was immediately due and payable and that any penalty waiver request would have to be in writing and accompanied by the penalty payment. The written request for a waiver of penalty was received by the County on May 8th and the subsequent payment of $130,287.67 in penalties was received by the Tax Collector on May 24th.
On May 16th, despite the fact that penalty payment had not yet been made, the Tax Collector reviewed the written request for a waiver of penalties. The reasons for the overdue payment provided at that time and as stated by Mr. Lapso, Pebble Beach VP and Controller, were due to an oversight and "health concerns" of a Pebble Beach staff member. The Tax Collector utilized California Revenue & Taxation Code Section 4985.2, which governs cancellation of tax penalties generally, for the standards to evaluate the waiver request. This section states in part, that "any penalty, costs, or other charges resulting from tax delinquency may be canceled by the auditor or the tax collector upon a finding of any of the following: (a) Failure to make a timely payment is due to reasonable cause and circumstances beyond the taxpayer's control, and occurred notwithstanding the exercise of ordinary care in the absence of willful neglect
(b) There was an inadvertent error in the amount of payment made by the taxpayer, provided the principal payment for the proper amount of the tax due is made within 10 days after the notice of shortage is mailed by the tax collector."
After a careful and complete review of the applicable documentation and information available, the Tax Collector determined subdivision (b) did not apply because Pebble Beach did not make an inadvertent error in the amount of payment; but, instead failed to make a timely payment in any amount. Subdivision (a) also did not apply because the Pebble Beach Company is a sophisticated taxpayer with numerous resources available to insure payment of financial obligations. Pebble Beach has been aware of the requirement of these quarterly payments for many years, and, as a sophisticated company must be expected to be able to function without the claimed loss of one employee. The processing of timely payments is very much under the control of the Pebble Beach Company, as is assigning staff to perform such duties. In addition, the payment owed the County would have been timely if received any time during the month of April 2012 giving Pebble Beach 25 days to remit payment prior to the reputed "critical staffing levels" problem. It is also significant that Pebble Beach made no independent effort to contact the County, either prior to or after the delinquency date, to request an extension of time.
Recent case law also supports the Tax Collector's findings and decision. In three recent decisions, California Court of Appeals have also provided similar opinions regarding similar arguments by applicants for waivers of late fees and penalties based on administrative and staffing errors. In Avalon Bay Communities, Inc. v. County of Los Angeles (2011) 197 Cal.App.4th 890, the court ruled "the taxpayer was not entitled to relief
because the late payment was caused by the taxpayer's cash manager overlooking a wire transfer request that had been authorized by its upper management. The taxpayer failed to institute proper control mechanisms, which could have prevented the late payment." In First American Commercial Real Estate Services, Inc. v County of San Diego (2011) 196 Cal.App.4th 218, the court ruled in part "the tax services company was not entitled to relief
because the error was within the company's control and could have been avoided". And in ZC Real Estate Tax Solutions Ltd. v. Ford (2010) 191 Cal.App. 4th 378, the court ruled in part: "Service provider failed to establish that it had an adequate system in place to prevent and timely discover this type of clerical mistake. A higher level of ordinary care applies to a professional office providing tax payment services than to an individual taxpayer."
Based on the totality of this information, the Tax Collector determined the request did not meet specific criteria and there was no factual nor legal basis for a penalty waiver. While it can be agreed this oversight may not have been intentional, it does not excuse the requirement for an organization such as the Pebble Beach Company to take reasonable care in assuring tax payments are made in a timely fashion. Finally, granting a penalty waiver in this instance would establish a precedent regarding similar waivers from other operators claiming inadequate resources or controls in place to assure timely payments and/or raise questions as to whether or not special considerations are extended to taxpayers perceived to be well-connected.
The Tax Collector therefore recommends the Board deny the appeal of the Pebble Beach Company regarding the imposition of the applicable TOT delinquency penalty.
OTHER AGENCY INVOLVEMENT:
County Counsel has reviewed the cases cited in this report and finds them to be correct statements of the law.
FINANCING:
There is no negative impact to the General Fund arising from the recommended action. If the recommendation is not accepted, the General Fund will lose $130,287.67 of discretionary revenue.
Prepared by: Mary A. Zeeb, Monterey County Treasurer Tax Collector, x 5474
Attachments:
TOT remittance and penalty payments
5-8-12 Pebble Beach Company, Request for Penalty Waiver
5-16-12 Administrative Denial of Penalty Waiver Request
7-10-12 Appeal of Administrative Denial of Penalty Waiver
cc: Jerrold Malkin, Deputy County Counsel