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California City Solutions: Mammoth Lakes Creates Multi-Departmental Approach for TOT Enforcement and Collection

May 29, 2014
This story is part of an ongoing series featuring Helen Putnam Award entries.
 
These entries are also now available on the League’s website as a resource for cities in a searchable database called California City Solutions. Mammoth Lakes’ TOT Enforcement & Revenue Collection Program was submitted in 2013 for the Internal Administration award category.

The town of Mammoth Lakes is a resort community within the Inyo National Forest in southwestern Mono County and includes one of the finest ski resorts in the western United States. Mammoth Mountain Ski Area is just five miles away. With a small resident population of approximately 8,000, the town has an estimated average of 2.8 million visits annually. With budget constraints from the declining economy, the town decided it was time to create a strategy for effective tax enforcement and collection based on the tourism industry.
 
Because Mammoth Lakes' economy is primarily based on tourism, industry related taxes are a significant portion of the town’s revenue. Recently, when the town faced serious budget shortfalls brought on by a legal settlement and the effects of the recession, it became crucial for the town to implement a successful multi-departmental tax enforcement and collection program.
 
Mammoth Lakes is home to more than 4,774 rental units. With such a large number of rental units available, the transient occupancy tax (TOT), which is set at 13 percent, generates about 60 percent of the town's annual General Fund. This critical revenue source funds public safety, snow removal and road maintenance, recreational programming, parks maintenance and marketing and more, providing a safe and enjoyable experience for the community and traveling public.
 
Historically a significant amount of Mammoth Lakes’ TOT revenue has gone uncollected because of the prevalence of illegal transient rentals and an inefficient collection and monitoring processes. Depleted staff resources caused by budget constraints made it difficult for the finance department to conduct the tax enforcement efforts necessary. The town’s outdated software caused triplicate data entry during some processes of TOT collection. When Mammoth Lakes reached a large settlement agreement in August 2012 (amounting to payments of $2 million over a 23 year period) the city found its resources and staff to collect TOT strained.
 
The town faced a challenge in identifying the level of transient occupancy and tax requirements. According to the Mammoth Lakes Housing Element 2007-2014, “an estimated 57.5 percent of the entire housing stock is dedicated to seasonal, recreational or occasional use, reflecting the popularity of Mammoth Lakes as a location for second-home ownership.” These second homeowners viewed renting as a way to supplement their mortgage payments when the housing market crashed in 2007 without having knowledge of local zoning regulations and tax laws.
 
In order to make up for budget shortfalls, Mammoth Lakes implemented an aggressive TOT Enforcement & Revenue Collection Program in August 2011. The program’s objective is to establish a sustainable TOT enforcement program that includes code compliance, tax assessments, and audits in order to increase the town’s General Fund by preventing illegal rentals/zoning violations, collecting past due TOT, and educating the public to ensure future compliance.
 
The Community & Economic Development Department contributed 1.85 full-time equivalent employees to the program. Although tax collection was traditionally a finance function, the town realized that a multi-departmental approach was necessary to collect the taxes.
 
Program staff engaged the community by forming a TOT oversight committee comprising local lodging association members, nonprofit organizations, and council members. These community partners conduct public outreach and provide political support. The committee meets monthly to direct initiatives that streamline enforcement efforts, bolster the public outreach campaign, and lead technology updates that will facilitate online tax remittance.
 
Public Outreach
 
The extensive public outreach campaign featured a revamped webpage that included general information, frequently asked questions and related forms. A local option disclosure form is also available on the webpage in an effort to make home-buyers aware of whether or not transient rentals are permitted before purchasing a property. An anonymous hotline and a TOT-specific email account are now available to facilitate communication with the community. Mammoth Lakes now provides a quarterly newsletter through the town’s e-news and social media sites. The program conducts multiple workshops and informational sessions with local community groups and sends informational packets and letters to second homeowners, real estate agents, and homeowners’ associations. During peak tourism seasons, advertisements are placed in local publications explaining the importance of TOT and its collection program.
 
Tax Assessment
 
The tax assessment component of the program collects past due taxes, penalties, and interest from operators of illegal or noncompliant transient occupancy facilities. An assessment consists of an estimate of taxes due based on the property’s actual rental calendars from online advertisements or a comparable property’s rental activities. A typical assessment includes time spent reviewing case evidence, preparing and mailing the assessment, tracking, an appeal hearing process, and coordination with the finance department on responses and payments.
 
Audits
 
In the past, TOT audits have been conducted only sporadically due to a lack of available staff members. Currently program staff leads an audit schedule with the goal of conducting audits on all TOT remitters, both large and small, every three years.
 
Technology Upgrades
 
Working closely with the Mammoth Lakes’ Geographic Information Systems Coordinator, the team inspired technological upgrades that have improved staff work flow, developed an online portal for tax remittance and other services, and created reliable revenue projecting and reporting capabilities.
 
This program has been the driving force behind technological advancements in tax remittance and service delivery. Online tax reporting simplifies the remitting process for transient facility operators, reduces data entry for staff and facilitates revenue reporting. These advancements inspired an initiative to utilize the online portal to moderate a variety of other town permits.
 
Another initiative led by the program is the collection of critical data related to all transient occupancy units. This data illustrates the town’s stock of nightly rental units providing a multitude of benefits including occupancy rate reports. Accurate and timely occupancy data is critical for a successful tourist economy and has been traditionally provided by a third party, on a sample basis only, at a high cost (approximately $25,000 annually).
 
Live internal data will allow town staff and local nonprofits such as Mammoth Lakes Tourism to disseminate more detailed information regarding occupancy rates which will help local business owners when ordering supplies and scheduling staff. With this precise data the town can more accurately project revenue and provide transparency regarding revenue fluctuations.
 
The new TOT Enforcement & Revenue Collection Program has made significant milestones since its 2011 launch including municipal code updates that allow the town to recover legal costs, completion of the TOT Audit Procedures Manual, and ongoing software upgrades to facilitate TOT remittance. These efforts have had a direct impact on the town’s ability to provide services by generating more than $500,000 in new revenue since the program began. As of April 2013 more than 72 percent of the FY 2012-13 goal of $500,000 was generated from newly collected TOT.
 
More than 230 code compliance cases have been filed against zoning (unpermitted rentals) and revenue violations (non-remittance). The program replaced the cost of hiring a private consulting firm to do similar work which would have charged a fee per new case identified or a percentage of TOT gained from enforcement efforts. Additionally, 150 new remitters have registered through the program compared to 10 annually, increasing the General Fund contributions.
 
This program exemplifies a multi-departmental and sustainable approach to tax enforcement for cities that need innovative internal administration techniques to address tax compliance. The town’s local planning and finance departments work closely together alongside their private partners on efforts that promote strategic priorities such as transparency and fiscal integrity.


 
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