Sunnyvale Municipal Code Chapter 3.16 is the Uniform Transient Occupancy Tax Ordinance of the City of Sunnyvale. The ordinance provides for the collection of transient occupancy taxes from those occupying hotel rooms in the City. Each hotel operator is required to collect and remit the tax. Transient occupancy taxes are an important source of City revenue. SMC Section 3.16.120 makes it the duty of every hotel operator "to keep and preserve, for a period of three years, all records as may be necessary to determine the amount of the tax." The tax administrator shall have the right to inspect records "at all reasonable times." The section also requires that "such records shall be maintained at the operator's premises or shall be available to the tax administrator within one week after request."

In November 1999, the Finance Department hired a consultant, James N. Thompson, of Tax Compliance Services (TCS) to perform a Transient Occupancy Tax (TOT) compliance audit of the hotels operating in the City. That audit covered all periods open within the statute of limitations, which included the fourth quarter of calendar 1996 through the third quarter of calendar 1999. In the course of performing this audit, Mr. Vinod Patel, owner of two hotels operating in Sunnyvale, failed to cooperate with Mr. Thompson. The two hotels are the Fair Oaks Inn and the Silicon Way Inn.

Mr. Patel and his attorney have challenged the City’s right to review the records. The City has a fiduciary responsibility to review operator records due to the fact that the tax collected represents public funds. Council needs to emphasize to all parts of the business community the importance of cooperating with the provision of tax records.

Repeated requests by the auditor and the City to Mr. Patel at the Fair Oaks Inn requesting pertinent business records have been ignored. The auditor estimated the audit deficiency at 15%, resulting in tax, penalties, and interest owed to the City in the amount of $21,641.49. The 15% estimate was recommended by the auditor and represents the average understatement of receipts that the auditor has seen in his years of experience as a Transient Occupancy Tax auditor. Should the hotel provide records, an appropriate adjustment will be made based on the documentation provided.

The auditor was able to obtain some of the pertinent business records concerning the Silicon Way Inn. The repeated requests by the auditor and the City for copies of bank statements containing deposit information, however, have been ignored. The information obtained by the auditor was used to calculate an audit deficiency of $1,477.29 in tax, penalties, and interest.

California Government Code Section 37104 states "The legislative body may issue subpoenas requiring the attendance of witnesses or production of books or other documents for evidence or testimony in any action or proceeding pending before it." Sunnyvale Charter Section 613 states: "[The City Council] shall have the power and authority to compel the attendance of witnesses, to examine them under oath, and to compel the production of evidence before it. Subpoenas may be issued in the name of the City and be attested by the City Clerk."

On January 27, 2000 subpoenas for information were served on the custodian of records for both hotels. The deadline for providing the requested information is the February 15, 2000 City Council meeting. The subpoenas stated that the material could be submitted in advance; if that occurs, the item will be pulled from the agenda.

If the material is not submitted in advance, and a representative of the hotels appears at the City Council meeting with the documents, then the person should be briefly queried by the Council on the following points:

Government Code Section 37106 states "If any person duly subpoenaed neglects or refuses to obey a subpoena, or, appearing, refuses to testify or answer any questions which a majority of the legislative body decide proper and pertinent, the Mayor shall report the fact to the judge of the superior court of the county."

If the material is not submitted in advance and no representative of the hotels appears at the City Council meeting with the documents, or if a representative appears but refuses to provide the documents, then the Council should confirm the propriety of the Mayor reporting the refusal to the Superior Court so that further action can be taken to obtain compliance.

State law authorizes the judge to issue to the sheriff what is called an attachment, which commands the sheriff to bring the individual to appear before the judge. An attachment is like a bench warrant and a person may be permitted to post bail to ensure a subsequent appearance. The person charged with contempt is afforded a hearing on the charge. The judge then determines whether the person is guilty of the contempt charged and if so, the person may be: (1) fined, (2) imprisoned, or (3) both fined and imprisoned. When the contempt consists of the omission to perform an act which is within the power of the person to perform (such as the submission of the requested records), the court may order the person imprisoned until the act is performed.

The City receives approximately $7.6 million in Transient Occupancy Tax annually, representing 8% of total General Fund revenues. Failure to enforce the provisions of the ordinance may result in a reduction in revenue if hotel operators are not compelled to comply with the Municipal Code.

1. If a representative of the hotels appears at the City Council meeting with the records, briefly query the representative as to his/her authority to submit the documents and whether the documents are true copies of all the records requested by the subpoena. Receive the documents provided.

2. If the material was not submitted in advance and a representative of the hotels does not appear at the City Council meeting with the documents, or appears but refuses to provide the documents, the Council should confirm the propriety of the Mayor reporting the failure to appear or refusal to comply to the Superior Court.

Prepared by:

Therese B. Balbo
Administrative Services Manager

Reviewed by:

Mary J. Bradley
Director of Finance

Approved by:

Robert S. LaSala
City Manager

1. Subpoena for Production of Business Records-Fair Oaks Inn
2. Subpoena for Production of Business Records-Silicon Way Inn