Okay, so it's during my 30 minutes. All right, thank you. All right, so I'll proceed with the merits. I respectfully submit this forward to orient you, orient your evaluation of the briefs, analysis, and evidence filed in connection with my appeal. To the tax collectors' determinations for Casa Ojai and Sunido Inn, I am combining the two here for expediency. The pages that follow present detailed legal and evidentiary arguments. This forward summarizes the core issues so that Council may evaluate those agreements with a clear framework in mind.
Do I understand that the Council did receive my casework and has process read the casework? I do not come before you to deny that TOT is owed on room rent, nor to challenge the City's authority to conduct audits. I conceded a specific identified reporting error for Sunido, and I paid for it. What I contest is whether the methodology used by the tax collector to assess the disputed amounts reflected To assess the disputed amounts reflects the law as written, whether the audit findings evidence meets the standard that the law requires, and whether the enforcement process afforded the basic fairness that any administrative proceeding demands.
Dear Mayor and Council Members, Before I address the specific audit findings, I want to be clear about why I am here. This appeal is not about avoiding the roughly $13,000, $14,000. I have spent far more time, energy, and business attention to this matter that would make sense if this were merely about avoiding a payment. I am not here because I object to fulfilling my duties as a hotel operator. I understand that operator obligations under the City's Transit Occupancy Tax Coordinate, and I have always tried to comply with those obligations in good faith.
I am here because this has become a matter of principle, process, and the rule of law. The City is asking operators to comply strictly to its taut rule. While the City itself has not consistently followed, explained, or demonstrated command of those rules, the City has imposed harsh retroactive consequences based on interpretations that were not clearly stated in the ordinance, not published in guidelines, and not consistently communicated to operators.
That is deeply troubling. The Ojai Municipal Code imposes the tax for the privilege of occupancy. Rent is the measure used to convert that occupancy into a monetary tax base upon which tax can be computed, 15%. But rent cannot be interpreted so broadly that occupancy becomes meaningless. Nor should the City impose penalties on an operator for failing to follow an interpretive methodology that was not clearly set out in the Code and was not provided through clear, prospective guidance.
It's also deeply troubling to me to be asked to pay tax debt that the Code identifies as the debt of the transient. particularly where the tax was never collected from the train. And particularly because the city requires the operator's duty and entrusts in the operator interpretive, implicit interpretive role in determining how to apply the tax. And that's especially true when the city has not provided guideline per se.
The code distinguishes between tax owed by a transient and tax collected by an operator but not remitted. And I want to emphasize that. There is a distinction in the code that is very clear between tax owed by the transient and tax collected by the operator but not remitted. I do not believe the City can simply collapse that distinction after the fact and treat uncollected guest tax as operator debt. After all, I think it's Section 410 essentially says that the transient's debt can only be extinguished by payment to the operator. It does not give the City the right to extinguish the transient's debt by collecting it from the operator.
The only time it has that right is if the operator elected the tax and didn't remit it. And that's why Section 438 specifically says the tax is the debt of the transient, and collected tax is the debt of the operator. Collected unremitted tax is the debt of the operator. So, the question before Council is not merely whether it is administratively convenient to uphold the tax collector's determination. The question is whether the City will apply its own ordinance as written, follow a fair process, and require evidence before imposing tax penalties and interest. If the City believes its ordinance should tax broader categories of hotel-related charges, it can clarify that ordinance prospectively.
My predecessor, Jeff Wells from OHG, said exactly this to the Council in 2019, and yet no prospective guidelines, no change to the definition of occupancy. But operators should not be punished retroactively for the City's failure to provide clear rules, fair notice, and consistent methodology. What I'm asking for is not special treatment. I'm asking for the City's top procedures and interpretations to align with the Ordinance's due process, fair notice, and basic evidentiary fairness. Council now has a choice. It can uphold the tax collector's determination as a practical matter, despite these defects, or it can insist that the City follow its own rules before enforcing them against others.
I respectfully ask Council to choose the rule of law. Now I'll proceed to the foreword that I did submit to Council, although one day late, which summarizes my overall brief, because there's no way I could read through all of that brief, and I'm hoping and relying on the fact that you have read through it, or at least familiarized yourself with it. The ordinance taxes occupancy, not hotel revenue generally.
The Ojai Municipal Code imposes this taut on the privilege of occupancy. The use, possession, or right to use or possess a hotel room for dwelling, lodging, or sleeping. Not a freestanding tax base. This structure matters because it means not every charge in a hotel imposed on a guest is automatically taxable. Only those that constitute consideration for occupancy of space in a hotel for lodging purposes. That's the definition.
The City's audit methodology, as reflected in Auditor Communications, preceded in the opposite direction. It defined revenue categories from trial balance summaries and treated them as taxable rent. It assumed that gross revenue reported on trial balances should be taxed in its entirety, assuming that gross revenue is equal to rent revenue. It then took any deviance between those two balances and considered that amount taxable, regardless, without investigating the actual underlying data that resulted in that The correct approach under the OMC is to begin with occupancy, identify a specific transaction in which a transient paid for the right to use a room, and then determine whether the disputed charge was consideration for that occupancy.
The auditors applied informal tests not found in the ordinance. Anything room related, mandatory, cannot opt out, pass through charges, these were all identified by HDL auditors as their tests and their rules for determining whether a summary category would fall under tax. None of these appear in the OMC. All our charges are rent unless exempted presumptions.
When the operator, myself, directly asked what ordinance text supported those tests, no citation was provided. An assessment cannot stand on standards the ordinance does not contain. Measure C. Confirmed pre-existing methodology. Measure C, as the City stated earlier, does not expand the definition of the ordinance or the definition of rent. It clarifies and confirms the definition as the pre-existing tax methodology of the City.
Measure C amended the definition of rent to expressly include cancellation fees, resort fees, parking, and other fees tied to occupancy. The City now relies on this amended language To justify the disputed assessment. However, Ordinance 907, the ordinance that enacted Measure C, contains a dispositive preamble recital that constrains the reading. It says, whereas this ordinance clarifies the term rent and its definition consistent with the City's existing interpretation and method of assessment, and thereby confirms the existing applicable definition of rent. So in other words, the definition of rent didn't change.
They just added some clarifying details to it. So if an operator was doing his job, he could assume that the interpretive framework that he was using to determine whether something was taxable would be the same before and after Measure C, because according to this, it's the same meaning. And to continue and therefore confirms existing application of rent in a matter that is declaratory of existing law and the City's existing tax policy.
A declaratory confirmation amended does not change the law, it restates it. The City, therefore, cannot simultaneously argue that Measure C merely confirmed pre-existing methodology and use the amended language to assess charges that were not taxed under pre-existing methodology. Both cannot be true. And as I've provided to you in evidence, My predecessor, OHG, under Jeff Wells, did not tax for these items. We have folio data that I've provided to you demonstrating that cited charges or categories that were Thank you. Thank you, Mr. Chairman.
Numerous operators undergoing audits being assessed for these tax categories indicating that they believed that they were not taxable and that only after Measure C, after the audit, retroactively, were they being enforced, which is a due process issue. The pre-2019 and 2020 evidence is directly relevant here. Pre-Measure C hotel property management records show that pet fees, crib fees, cleaning fees, roll-away beds, and deposit forfeitures were not subject to TOT. That is evidence in your possession.
The prior operator, Jeff Wells, testified that he did not tax those categories because he did not interpret them as rent under the then-existing code, and his understanding was consistent with the City communications at the time, which I've provided to you, which focused the Measure C discussion on resort and amenity fees. Resort and amenity fees are not among the fees for which I have been assessed.
Not the ancillary categories now in dispute. In those categories, if those categories were not taxed before Measure C, they were not part of the existing methodology as stated in the ordinance and in Measure C ballot. Taxing them now using Measure C language is not confirmation, it's expansion. And if it is expansion, it must be evaluated as such, narrowly with ambiguity resolved against the taxing authority as deemed per law, and without retroactive penalties imposed on operators who acted consistently with prior practice.
Now, this raises, of course, my CRPA record request concerns, for which I requested from the City any evidence that they could provide of prior audit material. They denied one of my requests for such information on the basis that it was a privacy concern and qualified for a privacy exemption. However, nothing, I had asked for redacted information and no operator level information need be submitted, only evidence that such taxes were collected prior to Measure C.
I was refused. I modified my CRP requests. You have them all before you. There are also outstanding CRP requests for which the City claimed that it had responsive information pertaining to emails between the City, HDL, Council members, etc. And yet, although they acknowledged they had the information, they failed to provide it. Another due process issue. And a procedural issue, which is why proceeding with this hearing is probably unfounded, in my opinion, until those issues are addressed in full.
The audits lacked transaction-level evidence. Both audits were constructed from trial balance categories, year-to-date revenue summaries, and variance Thank you, Mr. Chairman. And two, TOT was not collected on that specific transaction. A trial balance category shows that revenue existed in a particular accounting bucket. It does not show that any individual charge was for, whether it constituted taxable rent, or whether TOT was or was not collected.
HDL's own initial audit request letter, which called for sample The final audit methodology departed from that framework. The auditor divided year-to-date category amount by 12 and distributed them evenly across months and used a plug figure where categories did not reconcile to the alleged understatement. The tax collector upheld these category-based findings without requiring the City to supply the missing transaction-level proof.
Council should not compound that error by confirming a determination that assumes what should have been proven. It's not the operator's job to prove that the audit was done correctly. It's the city's job to ensure that the audit is performed correctly in the first place. Deposit forfeitures and cancellation fees. Potential rent is not taxable rent. Potential rent is not taxable rent.
The tax collector's determination treats all forfeited deposits as taxable rent on the theory that paying a deposit secures the right to occupy a room, making the payment consideration for occupancy. This analysis fails to engage what actually happens at the moment of forfeiture, where a guest cancels before arrival, the room is released to inventory, and the operator retains the deposit, no occupancy has occurred, no enforceable right to occupancy survived the cancellation, and the retained amount is Is contract damages for the breach or non-performant? It is not consideration for the right to occupy. A deposit with the potential to be applied to future rent, as the tax collector's own determination phrases it, is not taxable rent.
Potential rent is not rent. It's not found as described in the OMC. There was a group folio that is a concrete illustration. I provided it. A film production company booked a room block, canceled before arrival. Rooms were released to inventory, and a nonrefundable deposit was retained for damages. The tax collector's broad rule that paying the deposit automatically creates a taxable event would not require top collection on the deposit, even if it subsequently refunded it, producing an absurd—oh, I'm sorry.
The tax collector's broad rule that paying a deposit automatically creates a taxable occupancy event would require tot collection on the deposit. Does the city require tot collection on deposits? I don't believe they do. They've never asserted such. The OMC doesn't state it. In fact, the OMC talks about Thank you, Mr. Chairman. That then is converted to a payment. So they go under the term of advanced deposits, the liability owed to the individual making the payment.
And then if they forfeit that, it gets placed into a revenue category that is non-occupancy. If they follow through and apply the deposit to rent, at that moment it becomes rent or occupancy and is taxable. The distinction that matters is this. Did the transient retain an enforceable right to occupy the room when the disputed amount was charged or retained? If yes, the charge may be taxable. If no, the right was revoked, canceled, never matured.
It's payment for damages, not rent. The OMC does not transfer uncollected transient debt to the operator. There is no section in the ordinance that provides for that or justifies it. A structural issue runs through both determinations that the City has never squarely resolved. The OMC imposes tot on the transient. The operator's duty is to collect that tax from the transient and remit what is collected. Only tax actually collected by an operator and not remitted becomes operator debt, according to Section 438.
Uncollected tax remains a debt of the transient. The City relies on 412 and 425 to hold the operator liable for allegedly uncollected amounts. Section 412 establishes a duty to collect. Section 425 is an assessment mechanism. Not a debt transfer mechanism. Neither provision read in context constitutes a clear transfer of the transient's tax debt to the operator. Reading 425 as debt transfer clause would render 438's careful distinction between transient debt tax and operator liability for collected but unremitted tax largely meaningless.
The duty to collect is not the same as liability for the tax if collection does not occur. If the City wishes to impose that liability, the ordinance must say so clearly. Under settled law, ambiguity is resolved against the taxing authority and in favor of the taxpayer. The City has not produced a clear textual basis for the debt transfer. It is seeking to accomplish, and the Council should not supply one by implication.
I passed out to you one of the slides that addresses this issue, and it's the closed loop slide. If the City should seek to collect tax from the operator, which the operator has never collected, it leaves the tax debt on the transient, and that loop is never closed. The many sections, several sections, make it clear that in order to close the loop, the tax must be collected. So either the city collects the tax, or either the operator remits collected tax, that has been, that extinguishes the debt from the transient, they collect the tax, they remit it to the city, that closes the loop. The other option is the transient never pays the tax to the operator. It is uncollected tax. It doesn't matter why it wasn't collected.
It's because it doesn't state, the ordinance doesn't address that, but it does address the fact that if, for whatever reason, it is uncollected, the city may collect it from the transient directly. That closes the loop. Those are the only two options that can be read harmoniously within the ordinance. Otherwise, you have a remaining, unextinguished debt by the transient.
Case law supports narrow ordinance-specific construction. The City has invoked BAT v. City of San Francisco to support a broad reading of top taxability. That reliance is misplaced. As the California Court of Appeal explained in Regarding Transient Occupancy Tax Cases, BAT's result That parking charges were taxable depended on San Francisco's broader definition of occupancy, which expressly covers the furnishings or the services and accommodations accompanying the use and possession of those rooms. That is a very broad definition of occupancy. It clearly contemplates a broader tax than Ojai's very narrow tax on a room for lodging.
OHAI's occupancy tax does not contain that language, and OHAI, or the City of OHAI, cannot borrow that language. They must be governed by the OMC. The same court stated the governing principle plainly. In every case involving the interpretation of statutes levying taxes, it is the established rule not to extend their provisions by implication beyond the clear import and language use.
In cases of doubt, they are construed most strongly against the government and in favor of the citizens. If the City wishes to tax services, furnishings, and accommodations as occupancy, as San Francisco does, it must broaden Ojai's occupancy definition to say so, to not import San Francisco's broader language through case law without enacting it. The City knew guidelines were needed and they didn't issue them. Before Measure C was adopted, Mr. Wells testified in November 2019 to the City Council that amending the definition of rent without correspondingly broadening occupancy would create a structural ambiguity and that operators needed clear written guidelines before new definitions were enforced. The city acknowledged the guidelines, that guidelines could address the gaps.
The city manager scheduled an operator meeting for March 2020 to discuss the definition, and he canceled it. No written guidance was ever issued. HDL confirmed in writing that it applied only the municipal code and that no city guidelines existed. Operators were left to interpret an amended ordinance. The city itself had been warned was ambiguous and no administrative guidance and no binding published standards. I'm gonna
