Building a University-owned hotel in downtown Berkeley will provide many benefits. In particular, the city stands to collect substantial tax revenue from the hotel.[1] Occupants of hotels in Berkeley are subject to the “transient occupancy tax.”[2] This tax requires occupants to pay 12% of the rent charged by the operator.[3] The tax revenue collected from the transient occupancy tax could run as high as $1 million annually, according to Mayor Tom Bates.[4] According to UC Berkeley’s own projections, which assumes an average room price of $130 and a 65 percent occupancy rate, the hotel would generate roughly $730,080 in hotel taxes in its first year of operation.[5]
The hotel, being university-owned, would be exempt from property taxes, but as a moneymaking venture, the complex would have to pay a less cumbersome possessory interest tax.[6] The possessory interest tax is levied on the owner’s investment income, as opposed to a fixed rate based on the value of the property.[7]
Apartments, on the other hand, are free from transient occupancy and related taxes collected from hotels that feed many hungry municipal treasuries.[8]
[1] Matthew Artz, UC-owned Hotel Raises Tax Issues, Berkeley Daily Planet, Nov 28, 2003 available at http://www.berkeleydailyplanet.com/article.cfm?storyID=17833.
[2] Berkeley Municipal Code § 7.36.030.
[3] Id.
[4] Artz.
[5] Id.
[6] Id.
[7] Id.
[8] When is an “Apartment” a “Hotel” and Who Cares?, Hotel Online, Sept 2001 available at http://www.hotel-online.com/News/PR2001_3rd/Sept01_Apartments.html.
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