A City Council committee recommended approval Monday of an ordinance that aims to close a loophole allowing hotels in Los Angeles to avoid paying taxes.
Currently, hotels could bypass paying the city’s transient occupancy tax via a “secondary operator” that would collect the tax on the hotel’s behalf, but the city would have no method of collecting the tax if the secondary operator does not “have any assets and fails to collect the tax,” according to a September motion.
The proposed ordinance would amend language in the city code to address the loophole.
Daniel Whitley, deputy city attorney, told the council’s Budget, Finance and Innovation committee that one hotel using the loophole has already cost the city around $1 million in taxes that it failed to collect.
The city is projected to collect $263 million from transient occupancy taxes in the current fiscal year, according to the motion.
“Our concern is that this will become a more prominent thing now that people are aware it exists,” Whitley said. “I don’t think it was on people’s radar. But it’s known, and it’s an ongoing concern.”
Whitley said he spoke to two local hotel associations, who relayed concerns that the proposed ordinance would not prevent hotels from entering into contracts with secondary operators for collections of other fees and taxes beyond the transit occupancy tax.