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13260-13265 Ordinance Enactment Considerations: Enforcement Collections

13260. INTRODUCTION
Collections vary by county, as defined by ordinance. The following sections (M-13261 - M-13265) describe collection techniques that are of a more severe nature and should be attempted only if they are defined in the ordinance. They are included in this reference manual for information only.

The county must institute an action to collect unpaid transient occupancy taxes within four years of the date the taxes were required to be paid. An exception is made for cases of fraud or if the property owner has failed to file a transient occupancy tax return.

13261. LIABILITY OF SUCCESSOR OWNER
A purchaser can be required to withhold from the sale price of the hotel (to a maximum of the sale price) any unpaid TOT owed by the seller. Upon request of the purchaser or the seller, the tax collector must either issue a tax clearance certificate or audit the records of the current owner within 90 days and then issue a tax clearance certificate within 30 days of the audit.

NOTE: Charter counties may issue tax clearance certificates but are not required to.

The purchaser, transferee, or other person or entity who obtains ownership may rely upon the tax clearance certificate as conclusive evidence of the tax liability as of the date specified on the certificate.

Any purchaser, transferee, or other person or entity who obtains ownership without obtaining a tax clearance certificate, or obtains a tax clearance certificate that shows a tax liability and fails to withhold sufficient funds in the escrow account, shall be held liable for the amount of the tax due.

13262. CERTIFICATES OF TAX LIEN
Certificates of Tax Liens for delinquent TOT should be recorded with the county recorder. The lien format is similar to that of an unsecured lien. The lien may be defined to have the same effect as a judgment and to attach to real property (similar to an unsecured lien). The lien should be issued in the name of the person or entity responsible for collecting, reporting and owing the TOT tax to the county. This is usually the operator. The operator may or may not be the owner of the real property. A lien should not be recorded against the owner of the real property (hotel) if the owner is not the person responsible for collecting, reporting and owing the tax.

EXAMPLE: If the owner of land builds a hotel and leases it to another company to operate, the owner should not have a lien recorded against him/her. A lien should not be recorded against the manager, unless the manager is also the operator collecting, reporting, and owing the tax. A lien should not be recorded against the mortgage holder of the real property (hotel).

13263. SEIZURE AND SALE
Seizure and sale may be defined by ordinance as similar to unsecured seizures. The seizure would be served on the delinquent TOT operator, with either personal or real property being seized (by ordinance). An administrative hearing should be part of the seizure and sale process. If necessary, the assets seized should be sold to recover the tax.

The following list describes the different types of seizures available.

1) Bank Account - The seizure document is served at the taxpayer’s bank and any or all funds are seized, up to the amount owed.

2) Note Seizure - This is a variation of the bank account seizure. The tax collector should research the county recorder's records for any notes payable to the operator as beneficiary. Usually this would be the operator carrying back a loan on a piece of property he/she previously sold. Seizure is served on the person making payments to the operator. 

3) Physical Seizure - The seizure document is served on the operator and the hotel is seized, including any money, funds, rents, and personal or real property.

This type of seizure may be completed in any of several different ways.

a. The tax collector can institute a till tap, taking cash from the register as it is received. The tax collector can also require that all rentals be paid in cash. This type of seizure is most effective in hotels that have high occupancy levels. However, if the occupancy level is low, a till tap can be very time-consuming and expensive. 

b. The tax collector can take possession of the hotel but allow the operator to continue to operate while he/she attempts to locate the funds from another source. This is especially effective if the operator is advised that the business will be closed unless the deadline for paying the tax is met. If the seizure is early in the morning, a good deadline is 5 pm the same day (to allow the operator sufficient time to locate funds). The deadline can always be extended.

c. The tax collector can take possession of the hotel and close the business until the taxpayer pays or the county sells the hotel. This should be a last resort. Remember, the idea is to get the money with the least amount of effort.

13264. MISDEMEANOR
Some county ordinances contain language stating that any person in violation of the ordinance is guilty of a misdemeanor, punishable by a fine (usually $500 or less) and/or imprisonment in the county jail for a period of time (usually not more than 6 months).

13265. TITLE COMPANIES
Some counties have agreements with title companies to collect the TOT tax when a change of hotel ownership occurs.