Measure B: County Transient Occupancy Tax explained

Hotel room
(Via Shutterstock)

Proponents view the measure as an opportunity to use Santa Cruz County’s large tourism revenue stream to fund essential services vital to the community’s well being, but some in the hospitality industry see the industry split as unfair.

Anyone who has spent even a little bit of time in Santa Cruz can tell you that it is, to the fullest extent, a tourist town. As a matter of fact, tourism generated a whopping $1 billion in 2019, according to Visit Santa Cruz County — a massive revenue stream for one of California’s smallest counties. It is one of the two largest industries in the county and vies for the top spot with agriculture on any given year.

The pandemic hit the industry hard, and in 2020, direct travel spending plummeted by 53%. Now, with tourism largely back in full force, the Santa Cruz County Board of Supervisors has put a transient occupancy tax (TOT) measure on the June 7 ballot.

Proposed by county staff and approved by the board, the measure sets out to increase revenue for the county as government costs increase. The measure applies to all hotels/motels/inns and for vacation rentals in the unincorporated areas of the county; each of the county’s four cities separately assesses its own TOT tax. Santa Cruz and Scotts Valley have an 11% TOT, while Capitola’s and Watsonville’s are 12%.

As it currently stands, the county’s transient occupancy tax is 11%. This June, voters will decide whether or not to raise that rate.

A “yes” vote will authorize the county to raise the transient occupancy tax to 12% for hotels/motels/inns and to 14% for vacation rental properties in unincorporated areas of the county, raising about $2.3 million annually. The extra revenue would go into the county’s general fund, and the board of supervisors will determine where to allocate the money.

A “no” vote will reject the tax hike, and keep the rate at 11% for both hotels/motels/inns and for vacation rentals.

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What does the measure do?

The measure — unanimously approved by the Board of Supervisors on a motion by 5th District Supervisor Bruce McPherson — is designed to assist in recovery and fund essential programs like affordable housing, mental health services, wildfire prevention and more. However, since the money will go to the general fund, the board will ultimately decide how the generated revenue is used if the measure passes.

What money is involved?

The proposed tax hike would add approximately $2.3 million to the general fund, which is currently estimated to be $680.7 million for the 2022-23 fiscal year.

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Who supports the measure?

Measure B proponents believe that the measure will secure local funding for essential services including climate change and wildfire mitigation and address the effects of vacation rentals on the county’s neighborhoods — all without raising taxes on locals.

Monica Martinez, CEO of Encompass Community Services and signer of the argument for Measure B, says her organization has seen a greater need for behavioral health services and believes the measure could be a solid first step in tackling the issue.

“We’re seeing this among the youth and unhoused, and we recognize that Measure B will be able to help increase funding for these critical areas,” she said.

She believes that the tourism-generated revenue should be used to serve the most vulnerable, especially given the effects of tourism in the county.

“We all recognize the importance of lodging and tourism on our local economy, but I think you also have to recognize the impact that vacation rentals have on our neighborhoods,” she said. “This is really an opportunity to ensure that vacation rentals are helping to address some of these big issues.”

Jon Showalter, executive director of the Association of Faith Communities and an Airbnb operator who also signed the argument for Measure B, agrees and understands why vacation rentals may see a larger hike.

“It’s a license to print money, you already have your space and now you’re making income off of it,” he said. “I don’t have staff, additional property tax, benefit cost or food costs like a hotel would, so the idea of taxing that resource a bit higher makes logical sense to me.”

Who is against Measure B?

Though there is no officially named group opposing the measure, some are not so pleased, largely due to the splitting of the industry.

Mickey Holzman, CEO of Pajaro Dunes Resort — which is treated as a vacation rental — has been in discussion with local leaders regarding the measure, and has been vocal in his concern.

He sees the measure as an easy cash grab for the county and thinks that the two parts of the industry — hotels on the one hand and vacation rentals on the other — should be taxed equally.

“I’m disappointed mainly because it’s splitting the industry, but also I’m aware that it’s low-hanging fruit from the governmental side, because those that pay the money don’t vote for the tax,” he said. “It seems logical to me that they should charge everyone 2%.”

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Holzman added that he does not believe that the history of vacation rentals backs up the county’s reasoning.

“Historically, vacation rentals that are professionally managed do not cause the same problems that are caused from individual homeowners who aren’t near the property and can’t police the property in any way,” he said.

In all, Holzman thinks that the reasoning is unfair no matter which way one cuts it.

“I was on a call with the county administrator and his people where they tried to explain raising the vacation rentals more than hotels, and they said that the county didn’t get the amount of money out of their fees because they weren’t billed as a commercial venture when the vacation homes were originally built,” he said.

“So really the county is just saying that they didn’t get the amount of money it should have gotten if it were billed differently, and I find that very weak,” said Holzman. “They’ve never had a complaint from us like they have with some others that aren’t properly managed, so I think it’s just not a well-thought out program.”