The major airlines that serve the Bay Area, with the help of the Hotel Council of San Francisco, are trying to get out of paying millions of dollars in taxes to the city by claiming the right to use a law that was designed to help San Francisco's poorest residents. And they're threatening to prevent their employees from staying in the city if the Board of Supervisors doesn't acquiesce to the corporate welfare demand.
At issue is the city's 14 percent Transient Occupancy Tax, which is paid by hotel guests. It is the third-largest source of local tax revenue, after property taxes and payroll taxes, bringing in $177 million in the last fiscal year. The only major exemption from the tax is for permanent hotel residents, generally those on the brink of homelessness who live in the run-down single-room-occupancy hotels for months or even years on end.
Major airlines house hundreds of their employees in San Francisco's hotels each night. They are arguing that because of past court rulings on corporate personhood — in which judges have deemed that corporations have the same rights as individuals — the airlines should be exempt from paying the tax when they rent blocks of rooms for their employees.
The airlines, in collusion with some hotels in the city, have long used the exemption to avoid paying taxes on many of the rooms they rent (about two-thirds, according to the Hotel Council, which translates into millions in lost city revenue every year). A few years ago city officials told the corporations that the exemption didn't apply to them and that they should be paying the tax.
Enacted in 1960, the Permanent Resident Exclusion exempts from the tax individuals who occupy or have the right to occupy the same hotel room for at least 30 consecutive days. "We looked at the legislative history, and it was clearly put there to help formerly homeless people," Treasurer José Cisneros told the Guardian. "The city has always said that 30 consecutive one-night stays are not the same as a 30-night stay by an individual."
The hotels and airlines challenged that interpretation and had their case thrown out of court. So now they've turned to the Board of Supervisors in the hope that they can win this chunk of corporate welfare by using threats of an economic exodus.
In October 2004, American Airlines and the San Francisco Hilton filed a lawsuit against the city arguing that airline crew members staying in San Francisco hotels qualified for an exemption from the hotel tax. The lawsuit was dismissed in May 2006 without going to trial, with Superior Court Judge James Warren ruling that the plaintiffs "did not assert and did not present any evidence that any particular room at the Hilton was continuously registered to American Airlines for more than 30 days."
To clarify any ambiguity in the law, Cisneros in May issued an interpretation stating, "Although an agreement between a person and a hotel may require that the person pay the hotel for a minimum number of 'guaranteed' daily reservations for the person's employees over a period of time longer than 30 days, such an agreement does not create any permanent resident exemption for any guest rooms unless the above criteria are satisfied," referring to criteria that include "a person is a registered hotel guest" and "that person or any of that person's employees continuously occupy or have the right to occupy the same room for 30 days or more."
Yet now, at the request of Sup. Michela Alioto-Pier, the Board of Supervisors' Government Oversight and Auditing Committee has scheduled a Nov. 19 hearing for the purpose of "explor[ing] the unintended consequences of this decision, including the loss of revenue to the City when the airlines inevitably move their crews to another location in the Bay Area where room rates are more competitive."