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Transient Occupancy Tax -TOT -Explained

Jul 30, 2017

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By Lowell Johnson, CHA, CTA

My interest in understanding Transient Occupancy Tax (TOT) coincided with discussions, back in the summer of 2014, about changes to the Vacation Rental Ordinance. Vacation rental homes were at the center of discussions regarding impacts of tourism on the local communities because the number of them had significantly increased.

I researched how many places there are to stay across the spectrum of every B&B, campground, cottage, guest ranch, hotel, inn, lodge, motel, resort, retreat center, RV park and vacation rental home within the county. For purposes of this discussion, I am limiting the scope to include only the unincorporated areas of the County as they are the only areas that collect and contribute Transient Occupancy Tax that goes to the Sonoma County budget. Cities (Cloverdale, Cotati, Healdsburg, Petaluma, Rohnert Park, Santa Rosa, Sebastopol, Sonoma and Windsor) have their own TOT used in different ways within their city limits.

In comparing data about every accommodation in the County, I studied quarterly TOT reports. Vacation management companies had argued that there were a number of rogue Vacation Rentals By Owner (VRBOs) that were not permitted to be in business, not collecting TOT, or both. 

As the majority of lodging establishments were complying, and historically had been faithfully submitting the tax to the County, the prevailing thinking was to create a level playing field that includes ALL properties that rent to visitors for lodging. You are expected, by County Ordinance, to charge customers and pay the county a Transient Occupancy Tax. My research found gaps in reporting, and problems with tying payments to individual properties. Clearly, TOT revenue has been missing.

By October 2014, I was surprised to learn that an internal audit of the TOT process was performed on the years from July 1, 2010 – June 30, 2013 that confirmed approximately $500,000. to $1.3 million dollars per year was slipping through the cracks, and our county was losing more money each year.

Prior to the 2014 audit recommendations, vacation management companies submitted one quarterly payment for all the properties the firm represented. It was impossible to break down the payment into individual properties managed by the company. But by mid-2015, vacation rental companies had registered each property and now filed by individual TOT number assigned to the parcel. This has proven to be an excellent improvement for accountability and transparency for tax collection. Then along came the County’s agreement with Airbnb*, which took us backward from associating payments with parcels, to one payment for all properties under contract with them.

After analyzing 2015 and 2016, 8 quarters of TOT submissions, we are still losing money through the cracks, in spite of spending over $500K per year for collections, audit and County Counsel to ferret out properties that had not paid required taxes for lodging. My conservative estimate is that the County has been losing at least $2M of lodging tax revenues annually from more than 600 non-reporting properties. The measures that were designed to improve TOT collections still are not in place two years after the recommendations were made in 2014.

That means we have missed out on money for roads, affordable housing, emergency services, etc. to the tune of somewhere between $3.3M and $8.7M between 2010-2016. My estimate pencils out that between the years of 2006-2015, the money we let slip by amounts to over $20M. 

When our Supervisors voted on how to spend increased TOT funds after voters approved Measure L last election, we saw that many programs that depend on TOT dollars did receive consideration and funding. If we had another $500K or $1.3M, or even $2.8M to spend every year by collecting TOT from EVERY property that rents lodging in our unincorporated communities, consider how much better our roads, emergency services, and ultimately Workforce Housing could be. There are flaws in our current system that can be fixed, so that every important tax dollar for our community is accounted for, collected and spent on the needs of Sonoma County.

*Airbnb is an online marketplace and hospitality service, enabling people to lease or rent short-term lodging including vacation rentals, apartment rentals, home stays, hostel beds, or hotel rooms.


Lowell Johnson served as President of the Sonoma County Lodging Association, and the Sonoma County Tourism board, as well as on their Governance and Finance & Legal committees.

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