Three hotels potentially underpaid Palo Alto $7,398, audit finds
by Peter Gauvin
A city audit has found that three Palo Alto hotels potentially underpaid the city $7,398 in hotel taxes and penalties because of some lax accounting practices, but the hotel operators say they were never notified of any reporting deficiencies. The report by City Auditor Bill Vinson examined the transient occupancy taxes paid by three hotels--Dinah's Garden Hotel, Hyatt Rickeys, and the Best Western Creekside Inn--from July 1993 through June 1995.
While the audit points out some shortcomings in accounting and documentation, Vinson emphasized that the city is not accusing the hotels of any intentional wrongdoing.
"What the audit tries to do is really point out some fundamental accounting issues the hotels need to work out," Vinson said. For example, "we're asking the hotels to improve their documentation for exemptions from the tax. We want to work with the hotels to let them know what's expected. But we don't see this as any sort of deliberate action on their part."
Under Palo Alto's municipal code, people who stay at hotels for 30 days or less pay taxes of 10 percent of the rent charge by hotels. In addition, hotels are required to file transient occupancy tax returns with the city's Revenue Collections Office on a monthly basis. The municipal code also assesses penalties on hotels which fail to remit taxes on time and requires hotels to maintain records for three years.
Exemptions from the hotel tax are allowed for federal or state employees traveling on official business with proper documentation, but the audit found that that exemptions were not always properly supported, resulting in potential underpayments of $6,725 and penalties of at least $673.
One hotel--the audit does not identify which one--potentially underpaid the city $440 for taxes that it collected for special guest room package promotions but failed to report to the city.
The audit recommends that the collections office follow up with the hotels regarding the exemptions to see if there is any subsequent justification to support them, and, if not, pursue collection of the taxes and penalties owed.
The three hotels were chosen because they are three of the largest contributors of the occupancy tax, Vinson said. The Holiday Inn, another large contributor, has been looked at before, he said.
"I don't think it's a seriously systemic problem or anything like that," Vinson said. "I just think it shows a need for closer attention to detail."
Lynn Wilson, owner of Best Western Creekside, is irritated by the uncooperative nature of the city's audit.
"We just received the results, and I think they're taking a very adversarial position for a pretty insignificant amount of money," Wilson said last week. "It seems like a waste of time when they only come up with $7,000 among three hotels; we pay them $30,000 a month and we're a small hotel. It's just a misunderstanding of procedures. We've never heard a word that we were doing something wrong until now. You'd think they would try to be more business friendly."
Jerry Matters, general manager of Dinah's Garden, said there have been no penalties assessed against his hotel. "We don't owe (the city) anything. If there have been mistakes they've been on both sides. It's a wash."
Sue Collins, the controller at Hyatt Rickeys, said corporate policy prevented her from commenting on the audit.
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