Hotel Room Tax Description The Hotel Room Tax (or transient occupancy tax ) is a 14 percent tax levied on hotel room charges. The tax is collected by hotel operators from guests and remitted to the Treasurer/Tax Collector. Many local governments impose this tax to recover some of the costs of governmental services associated with nonresidents. When the hotel tax was introduced in 1961, the tax rate was 6 percent, and it has increased incrementally to the current rate of 14 percent, established in August 1996. Authorizing Statute(s) Article 7, Sections 501-515.2 of the Business Tax and Regulation Code (Municipal Code). Annual Appropriation Ordinance Administrative Provisions (FY 2003-04, Sec. 11.13-11.14, FY2004-05, Sec. 11.11-11.12). Amount & Allocation FY 2004-05 FY 2004-05 Municipal Code Adopted Budget $ Allocation % $ Allocation % General Fund Unallocated (discretionary) $ 57,537,000 40.2% $ 70,149,632 49.0% Moscone / Convention Facilities $ 31,917,971 22.3% $ 26,751,459 18.7% Grants for the Arts $ 14,670,000 10.3% $ 12,651,115 8.8% War Memorial & Performing Arts $ 8,911,000 6.2% $ 8,407,000 5.9% Convention & Visitors Bureau $ 7,760,000 5.4% $ 7,321,000 5.1% Yerba Buena Gardens (SFRA) $ 5,620,029 3.9% $ 5,620,029 3.9% Low-Income Housing Programs $ 5,735,000 4.0% $ 600,000 0.4% Fine Arts Museum $ 4,707,000 3.3% $ 4,440,000 3.1% Cultural Centers $ 2,217,000 1.5% $ 2,091,000 1.5% Cultural Equity Endowment $ 2,054,000 1.4% $ 1,938,000 1.4% Asian Art Museum $ 1,867,000 1.3% $ 1,761,000 1.2% Steinhart Aquarium $ - 0.0% $ 1,272,765 0.9% Administration (Tax Collector) $ 125,000 0.1% $ 118,000 0.1% TOTAL $ 143,121,000 100.0% $ 143,121,000 100.0% Budgeted in General Fund $ 83,177,000 58.1% $ 94,421,512 66.0% Budgeted outside of the General Fund 59,944,000 41.9% 48,699,488 34.0% TOTAL $ 143,121,000 100.0% $ 143,121,000 100.0% NOTES FY 2004-05 AAO Section 11.11 Hotel Tax Reallocations: [1] $3,041,512 from Moscone Convention Facilities to General Fund Unallocated Fund (discretionary). [2] $1,188,885 from Grants for the Arts to General Fund Unallocated (discretionary). [3] $5,135,000 from Low-Income Housing Programs to General Fund Unallocated (discretionary). [4] $1,272,765 from General Fund Unallocated (discretionary) to Steinhart Aquarium. Page 1 of 7
HOTEL ROOM TAX - REVENUE ALLOCATION FY 2004-05 Adopted Budget Cultural Equity Endowment Cultural Centers 1.4% 1.2% Asian Art Museum 1.2% Steinhart Aquarium 0.9% Administration (Tax Collector) 0.1% Fine Arts Museum 3.1% Low-Income Housing Programs 0.4% Yerba Buena Gardens (SFRA) 3.9% Convention & Visitors Bureau 5.1% War Memorial & Performing Arts 5.9% General Fund Unallocated (discretionary) 49.0% Grants for the Arts 9.1% Moscone / Convention Facilities 18.7% This compared to FY 2003-04 budgeted allocation as follows: Cultural Equity Endowment 1.4% Cultural Centers (1) 1.5% Fine Arts Museum 3.3% Low-Income Housing Programs 0.4% Yerba Buena Gardens (SFRA) 4.1% Convention & Visitors Bureau 5.4% HOTEL ROOM TAX - REVENUE ALLOCATION FY 2003-04 Adopted Budget Asian Art Museum 1.3% Administration (Tax Collector) 0.1% General Fund Unallocated (discretionary) 47.2% War Memorial & Performing Arts 3.1% Grants for the Arts (1) 10.0% Moscone / Convention Facilities 22.1% Page 2 of 7
Hotel Room Tax revenues are cyclical and dependent upon economic activity, including convention bookings, business travel and tourism. The recovery assumed in the FY 2002-03 budget did not materialize and by June 30, 2003 only $128.6 million was actually received and recognized for FY 2002-03 compared to the $160.2 million assumed in the budget. As illustrated in the table below, Hotel Room Tax revenue grew rapidly up until FY 2000-01. During the 1990s, total Hotel Room Tax revenues nearly tripled. Since FY 1978-79, this single source of revenue grew from $19.0 million to $188.4 million in FY 2000-01. The economic downturn that began in late 2000 / early 2001 resulted in a steep decline in business travel, causing occupancy rates in the Financial District in particular to decline. Compounding that downward pressure, the September 11th attacks caused a sharp decrease in air travel and related tourism, exacerbating sagging occupancy rates and triggering steep discounting in average daily room rates. In FY 2001-02, hotel room tax revenue declined by 29.8 percent from the prior fiscal year. Since then, the prolonged downturn and lackluster recovery have resulted in relative revenue weakness, with revenues off nearly one-third from the FY 2000-01 peak of $188.4 million. Total Hotel Tax Fiscal Year Revenue ($1,000s) FY 1978-79 $ 19,014 FY 1979-80 23,819 FY 1980-81 32,558 FY 1981-82 36,858 FY 1982-83 35,272 FY 1983-84 38,323 FY 1984-85 44,711 FY 1985-86 47,981 FY 1986-87 53,099 FY 1987-88 60,921 FY 1988-89 67,102 FY 1989-90 63,414 FY 1990-91 69,557 FY 1991-92 72,032 FY 1992-93 76,246 FY 1993-94 86,481 FY 1994-95 94,101 FY 1995-96 102,960 FY 1996-97 137,649 FY 1997-98 150,163 FY 1998-99 161,518 FY 1999-00 182,102 FY 2000-01 188,377 FY 2001-02 132,226 FY 2002-03 128,590 FY 2003-04 148,231 Budget FY 2004-05 143,121 6-Month Projection FY 2004-05 154,351 $ Change ($1,000s) Annual Growth % Change % Adjusted for Tax Rate Change $ $ 4,805 25.3% 25.3% $ $ 8,739 36.7% 14.8% $ $ 4,301 13.2% 13.2% $ $ (1,587) (4.3%) (4.3%) $ $ 3,051 8.7% 8.7% $ $ 6,388 16.7% 16.7% $ $ 3,270 7.3% 7.3% $ $ 5,119 10.7% 4.3% $ $ 7,821 14.7% 8.7% $ $ 6,181 10.1% 10.1% $ $ (3,688) (5.5%) (5.5%) $ $ 6,143 9.7% 9.7% $ $ 2,475 3.6% 3.6% $ $ 4,214 5.9% 5.9% $ $ 10,235 13.4% 5.5% $ $ 7,620 8.8% 7.8% $ $ 8,859 9.4% 9.4% $ $ 34,689 33.7% 18.4% $ $ 12,514 9.1% 7.9% $ $ 11,355 7.6% 7.6% $ $ 20,584 12.7% 12.7% $ $ 6,275 3.4% 3.4% $ $ (56,152) (29.8%) (29.8%) $ $ (3,635) (2.7%) (2.7%) $ $ 19,641 15.3% 15.3% $ $ (5,110) (3.4%) (3.4%) $ $ 6,120 4.1% 4.1% Page 3 of 7
Collection Method & Issues Hotel Room Tax is collected by hotel operators from guests and remitted to the Treasurer/Tax Collector according to rules established by the Treasurer/Tax Collector. An operator who fails to collect the hotel room tax from guests will be liable to the City for all unpaid taxes. All operators must file quarterly hotel room tax returns according to the schedule below and must make prepayments each of the first two months of the quarter. Quarterly Hotel Room Tax Return Filing Schedule Quarter Due Date Delinquent On Jan-Feb-Mar April 1-30 May 1 Apr-May-Jun July 1-30 August 1 Jul-Aug-Sep October 1-30 November 1 Oct-Nov-Dec January 1-31 February 1 The hotel operator may choose to remit actual monthly taxes due or make prepayments for the first and second month of each quarter equal to 30 percent of the tax liability from the immediately preceding quarter, as calculated by the Treasurer/Tax Collector. Due dates are shown in the table below. Hotel Room Tax Payment Schedule Month Due Date Delinquent On January February 1-28 March 1 February March 1-31 April 1 March (1 st quarter clean-up) April 1-30 May 1 April May 1-31 June 1 May June 1-30 July 1 June (2 nd quarter clean-up) July 1-31 August 1 July August 1-31 September 1 August September 1-30 October 1 September (3 rd quarter clean-up) October 1-31 November 1 October November 1-30 December 1 November December 1-31 January 1 December (4 th quarter clean-up) January 1-31 February 1 Page 4 of 7
Tax/Rate Structure At its introduction in 1961, the Hotel Room Tax rate was 6.00 percent, and has increased incrementally to the current rate of 14.00 percent, established in August 1996. Hotel Room Tax Rate History Effective Dates Rate August 1961 through June 1978 6.00% July 1978 through June 1980 8.00% July 1980 through December 1986 9.75% January 1987 through August 1993 11.00% August 1993 through July 1996 12.00% August 1996 to date 14.00% San Francisco s Hotel Room Tax rate is on the upper end of the tax rate spectrum. The table below summarizes a survey of Hotel Room Tax rates that the conducted in October 2003 of the 10 largest cities in California as well as San Francisco s neighboring cities. Hotel Room Tax - Rate Comparisons 10 Largest California Cities Population[1] Tax Rate[3] Neighboring Cities Tax Rate[3] Anaheim 328,014 15.00% San Francisco 14.00% Los Angeles 3,694,820 14.00% Berkeley 12.00% San Francisco 776,733 14.00% Emeryville 12.00% Long Beach 461,522 12.00% Oakland 11.00% Fresno 427,652 12.00% Hayward 10.50% Sacramento 407,018 12.00% Concord 10.00% Oakland 399,484 11.00% Palo Alto 10.00% San Diego 1,223,400 10.50% San Jose 10.00% San Jose 894,943 10.00% San Leandro 10.00% Santa Ana 337,977 9.00% Fremont 8.00% Average (Mean) of 10 Largest Cities 11.95% Average (Mean) of Neighboring Cities 10.75% Median of Largest Cities 12.00% Median of Neighboring Cities 10.25% Source Data & Notes [1] 2000 Census Data from CA Dept. of Finance Website (10/21/2003) [3] Survey Comparison Completed 10/21/2003 using AAA TourBook - 2003 Edition, City of Hayward (2 parts) Page 5 of 7
Exemptions Guests who occupy a hotel room for 30 consecutive days, such as many Single Room Occupancy (SRO) residents, are exempt from paying the tax, as are guests in dormitory-style arrangements who pay under $30 per day or $100 per week. Employees of nonprofit organizations and government agencies are exempt when travelling on business if charges are paid by the employer. Foreign diplomatic and consular personnel and their dependents are exempt as well. Trends & Projections Three factors directly impact Hotel Room Tax revenue: (1) the average daily room rates (ADRs), (2) occupancy rates, and (3) the overall supply of rooms. Today the total number of rooms generating hotel room tax revenue is approximately 32,000. Over time, room supply has expanded to meet increased demand. The tables on the next page summarize overall trends by fiscal year for ADR and occupancy rates for San Francisco. ADRs have increased from $73 back in 1980 to a high of $176 in FY 2000-01, with a particularly steep rise from calendar year 1997 to 2000. Average annual occupancy levels have tracked economic trends, dipping in the early 1990s to 66 percent, and reaching an all-time high of 80.9 percent in FY 1999-00. Recent activity shows that Occupancy Rates are increasing, but continued aggressive price discounting is making total revenue (and related tax revenue) growth around 5 percent for FY 2003-04 as compared to FY 2002-03. Page 6 of 7
HOTEL OCCUPANCY RATES MONTH FY 1999-00 FY 2000-01 FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 July 88.0% 87.5% 75.4% 68.7% 77.0% 80.9% August 81.3% 90.2% 80.8% 74.7% 83.5% 81.1% Some September 86.9% 88.5% 58.3% 68.1% 75.0% 81.3% Strengthening October 82.7% 87.9% 61.1% 73.7% 76.1% 83.0% November 74.1% 72.7% 53.9% 60.9% 69.8% 64.0% then Weaker December 62.1% 64.4% 50.0% 55.6% 55.9% 57.9% January 67.0% 63.5% 50.3% 51.3% 54.3% 55.9% February 79.7% 70.4% 56.9% 57.9% 63.6% 64.0% March 88.6% 72.9% 60.7% 59.4% 71.2% Significant 68.5% Estimated April 84.7% 70.7% 67.8% 62.8% 70.2% Strengthening 72.1% May 84.4% 76.9% 65.7% 68.7% 78.6% in SF Market 76.3% June 91.7% 80.0% 74.5% 72.9% 80.1% by Fiscal 81.6% Year-End AVG. OCCUPANCY RATE 80.9% 77.1% 63.0% 64.6% 71.3% 72.2% Occ. % Rate Chg from PY 1.1% -3.8% -14.2% 1.6% 6.7% 0.9% % Change from PY 1.4% -4.7% -18.4% 2.6% 10.4% 1.3% Fiscal Year Peak Recovery Taking Hold Estimated NOTE: Actuals based on a PKF industry sample representing 70-80% of all rooms and revenue. AVERAGE DAILY ROOM RATES (ADRs) MONTH FY 1999-00 FY 2000-01 FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 July $ 154.98 $ 175.56 $ 156.14 $ 140.65 $ 136.72 $ 138.35 August $ 150.06 $ 165.89 $ 159.01 $ 134.34 $ 133.63 $ 136.73 Prices September $ 158.09 $ 180.33 $ 157.35 $ 140.18 $ 141.04 Year-over-Year $ 145.14 Firming October $ 153.22 $ 191.46 $ 166.56 $ 156.21 $ 158.28 Pricing $ 161.71 November $ 148.02 $ 169.40 $ 151.08 $ 140.01 $ 141.82 Pressure $ 138.50 then Weaker December $ 146.22 $ 162.24 $ 136.65 $ 129.56 $ 123.62 Continued $ 128.62 January $ 153.17 $ 174.24 $ 146.41 $ 140.60 $ 134.37 During $ 139.07 February $ 156.25 $ 181.78 $ 146.09 $ 143.65 $ 135.45 Much of the $ 140.37 March $ 164.96 $ 179.18 $ 143.95 $ 138.06 $ 150.83 Fiscal Year $ 143.05 Estimated April $ 164.39 $ 168.79 $ 156.06 $ 140.30 $ 139.73 $ 143.80 May $ 168.41 $ 191.63 $ 152.38 $ 149.66 $ 150.39 $ 149.46 June $ 175.50 $ 173.72 $ 160.85 $ 135.91 $ 145.69 then, Improvement $ 150.00 AVERAGE ADR $ 157.77 $ 176.19 $ 152.71 $ 140.76 $ 140.96 $ 142.90 ADR $ Change from PY $ 10.25 $ 18.41 $ (23.47) $ (11.95) $ 0.20 $ 1.94 % Change from PY 6.9% 11.7% -13.3% -7.8% 0.1% 1.4% Fiscal Year Peak Estimated NOTE: Actuals based on a PKF industry sample representing 70-80% of all rooms and revenue. Page 7 of 7