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13310-13311 Revenue Retrieval: Case Histories

13310. THOUSAND TRAILS
Thousand Trails (TT) rents campsites to travel trailer owners, most of whom are members. In this instance, a nearby small mobilehome park, which also rented a few spaces to travel trailer owners, complained that TT rented company-owned trailers to the public.

Upon investigation, TT initially denied that it rented trailers to the public. The main office (out of state) contended that the trailers were used solely for promotional purposes, whereby potential members were allowed to use the trailers at minimal or no cost. However, literature acquired at the various parks and discussions with park staff indicated that the trailers were for rent to the general public or guests of members, who required accommodations because they did not own a travel trailer.

TT then changed its approach, stating that the ordinance did not specifically list the type of trailer that the company rented as a "hotel" and therefore they were not assessable. 

The county auditor was asked to perform an audit, which determined that $40,000 was due the county in TOT. TT was delivered a demand for payment of the back tax, along with registration and remittance forms for future TOT. TT then requested an appeal from the tax collector. A hearing was held and the decision was that TT owed the tax. TT then requested a hearing with the board of supervisors to request exemption from the tax.

TT, through its attorney, again argued that the trailer type was not specifically listed in the ordinance. County counsel argued that the ordinance listed various types of "hotels" but that the listing was never intended to be all-inclusive and there was nothing in the ordinance that exempted this type of trailer.

The board found that TT owed the tax. TT immediately paid the back tax with penalties and interest, and it has been reporting and paying promptly since then.

13311. WARNER SPRINGS RANCH
Warner Springs Ranch (WSR) is a resort in which owners each purchase a 1/2,000th ownership in the entire ranch, including the land, main buildings, rooms, swimming pools, golf course, exercise equipment, and restaurants.

When WSR opened in the early 1980s, it requested an exemption because only owners would be occupying the rooms. The exemption was granted. WSR subsequently went through some difficult financial times involving bankruptcy and a change in ownership. In early 1994, the tax collector became aware that WSR was advertising room and golf packages to the general public in local newspapers. Members of the tax collector’s staff made several visits to WSR in an attempt to register the company for TOT. However, WSR insisted that it was an ownership resort and not subject to the tax, even when shown its ads for renting to the public. 

The tax collector requested that the county auditor perform an audit. The auditor determined that WSR had six different room rates, depending on the classification of the person renting the room. Following is a list of the categories:

1) Owner

2) Owner guest

3) Owner with extended family

4) Owner group

5) Golf package (public) 

6) Ranch group (public)

The auditor originally determined that TOT was owed for all 6 categories and that the total back tax due was almost $1 million. WSR was presented with a demand for that amount, and it immediately appealed to the tax collector. WSR stipulated that categories 4, 5 and 6 (above) were subject to the tax. In question were the owner and the owner-related rentals. WSR legal counsel, the auditor staff, county counsel, and the tax collector’s staff presented legal research, recorded documentation, audit papers and testimony.

The decision was that categories 1, 2, and 3 qualify as timeshare owners as defined by Revenue and Taxation Code section 7280 and Business and Professions Code section 11003.5.

That decision was based on the fact that each owner had purchased a 1/2,000th undivided tenancy-in-common interest in the entire project. The owners pay real property taxes on their interests. To define an owner as a transient is contradictory.

There was no question that each owner purchased a right for use of occupancy of a lot, parcel, unit or segment of real property, as required of timeshares by the Business and Professions Code. Each owner had occupancy rights to a room for up to the entire year, based on availability. The occupancy periods were divided into 91,250 units (time periods), or 250 units times 365 days. This approach to occupancy periods is different from that of most timeshares, but it still meets the code.

The daily rate for an owner (category 1) was $28, or less than the cost of cleaning the room. The deficit in cleaning costs was recovered in higher rates to every other category. The auditor contended that WSR was subject to the tax because of the manner in which it reported the cleaning costs as daily rates. However, WSR could have changed the reporting of these cleaning costs to maintenance fees and avoided the auditor's concerns entirely.

Since it was found that WSR met the timeshare requirement for owners, it followed that it met the criteria of Revenue and Taxation Code section 7280 for categories 2 and 3 as it applies to guests and family. Revenue and Taxation Code section 7280 states that a guest is not taxable if occupying a unit with an owner or exercising the owner’s right of occupancy. The code also exempts a guest of an owner who is participating in any form of exchange program. WSR owners would be personally liable for TOT only if they charged their guests for use of their right to occupy. 

The difference between category 3 (guest) and category 4 (owner groups) is that an owner can give only his/her right to occupy. A group implies several rooms, and an owner doesn’t have a right to several rooms at one time.

Categories 1, 2 and 3 are exempt. Categories 4, 5 and 6 are taxable.

WSR immediately paid $67,000 in back taxes, penalty and interest. It is currently reporting and remitting on a timely basis.

WSR is a unique business; there may be only one or two more ownership resorts like it in the entire United States. It isn’t a resort/hotel as commonly understood, nor is it a traditional timeshare.

The key factors in the decision to classify WSR as a timeshare were the ownership interest, the owners’ responsibility to pay real property taxes, and the occupancy rights.