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Collecting Hotel Occupancy Tax remains problem for city

Monday, March 4, 2013 by Michael Kanin

City officials continue to struggle with their ability to fully collect Austin’s Hotel Occupancy Tax.


The office of City Auditor Ken Mory reports that all five of the anonymous hotels examined in a February 2013 audit were delinquent on some portion of the tax. All told, the lapses in payment cost the city more than $177,000, not including penalties.


This is not the first time a city audit of its Hotel Occupancy Tax collections has come back with concerning findings. Still, Council members have been reluctant to impose penalties on delinquent facilities – despite the fact that the hotel tax ordinance allows for such action.


The latest batch of worry brought Council Member Bill Spelman to a logical conclusion. “It seems to me there’s no reason for any (hotel operator) to pay their taxes at all,” he said about the lack of penalties. “You have to give them a reason to do it,” he said at last week’s Audit and Finance Committee meeting.


The Hotel Occupancy Tax is a 9 percent levy on most rooms within Austin’s city limits. According to the audit, there are roughly 450 establishments that qualify for the tax. The tax comes with some allowable exemptions.


Mory’s office selected the five hotels for the February 2013 audit from a pool of what it called “high risk” facilities – those that had filed for more tax exemptions than average. However, Assistant City Auditor Niki Raggi told Council members at the meeting that none of the hotels were subjects of prior audits.


Of the five hotels pegged by the auditor, one owes the city nearly $123,000 in missing taxes. The next highest delinquency was $32,715.


According to tax rules, city officials can impose a 5 percent penalty on un-reported taxes the day after they are due. That figure jumps by another 5 percent if the delinquent taxes are not remitted by the 60th day. The city can charge a 10 percent annual interest penalty each year the taxes are overdue.


City Controller Diana Thomas told Audit and Finance Committee members that Austin hadn’t sought to penalize hotel tax violators found out through past audits because “these taxes were not collected from the customers that these hotels had, so this money – from the audit side — is coming directly off their bottom line.”


That brought a quick response from Spelman. “Should I use that excuse with the IRS – this is coming off of my bottom line?”


When Thomas, tongue in cheek, noted that tactic probably wouldn’t work with the IRS, Spelman wondered why it should work with the city.


“I understand there ought to be a period when we waive penalties to give people a chance to get with the program, but this has been several years since we’ve been doing these audits,” he continued.


In response to Spelman’s call for immediate penalties, Council Member Laura Morrison suggested a more diplomatic approach. “I agree with you completely that if you start charging fines and make it very clear that there are going to be fines, you will get increased compliance,” she offered. “What I’d like to suggest is that we reach out to the hotel industry folks and tell them that we’re not seeing enough of an improvement, and (seeing if) they have another idea before we jump in and just ask these folks to start doing the penalty.”


Morrison noted that industry representatives had been very receptive to fixing the tax problem when contacted previously.


Spelman relented. “That sounds like a much more sensible approach,” he said.

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