Forward-Thinking TOT Auditing Overcomes Underreporting Hurdles

Each year, California is a vacation and business destination for tourists and other travelers who spend more than $100 billion on lodging, food and other expenses. While more than $4 billion in local taxes is collected each year on this spending, some local revenue may go uncollected when hotel operators underreport occupancy statistics.

The City of Rancho Cucamonga, 30 miles east of Los Angeles, has addressed the potential negative impact of this lost revenue by partnering with MuniServices, one of the nation’s leading providers of tax auditing and revenue recovery services for local municipalities, to modernize their Transient Occupancy Tax (TOT) ordinances with routine auditing standards and procedures.

“I am quite pleased with the result of our TOT audit,” says Rancho Cucamonga City Manager John Gillison. “We have collected additional revenue to which the City is entitled and, beyond that, we have established a procedure for doing regular audits in the future.”

Passed into law in 1971, the TOT gave California’s cities and counties the ability to apply an eight to 14 percent tax on room rentals at hotels, inns and vacation homes. Local municipalities are empowered to create and enforce their own ordinances, terminology, standards and procedures, which can create environments in which appropriately auditing hotel operators becomes burdensome.

“TOT revenue is a big deal to California’s cities and counties. When you see the need for more police officers on the streets, repairs to utility infrastructure and dilapidated roads, you take a lot of pride and honor in protecting this revenue source,” says Julia Erdkamp, client services manager for MuniServices. “A robust audit could add tens of thousands to millions of dollars to a municipality’s general fund. This is money that local communities need to thrive.”

By updating its TOT auditing standards and procedures, helping ensure lodging operators comply with the tax requirements, the City has collected tens of thousands in additional TOT revenue over the past 12 months. Moving forward, their new ordinance will incorporate not only hotels but also short-term vacation rentals from providers like Airbnb.

“Our hotels can now expect and prepare for audits as a regular course of business,” says Gillison. “That will place us in a better position to make sure new businesses know the City’s requirements from the beginning are prepared.”