On March 15, The San Juan Bautista City Council heard the first reading of an ordinance that would allow it to impose a lien on hotels, after Hacienda de Léal hotel accrued over $300,000 in unpaid Transient Occupancy Tax (TOT), penalties and interest.
While hotel owner Frank Léal has, as of February, paid all delinquent and current taxes to the city as part of a negotiation to get the penalties waived, the city did not waive the interest. Léal is appealing those charges.
In San Juan Bautista, hotels are required to collect a 12% TOT and hold that money in trust, paying it to the city every month. The tax is calculated solely on occupancy.
The proposed ordinance would allow the city, within three years after the tax due, to place a lien on the property that would last for 10 years and give the city priority of payment by the hotel.
City Manager Don Reynolds said the city does not now have the ability to place a lien on a hotel owner who does not turn the taxes over to the city in a timely manner. City Attorney Bob Rathie described it as “another tool to allow the city to enforce its transient occupancy tax.”
The reading of the ordinance was met by approval from the council, with Reynolds assuring Councilman John Freeman that it also covers vacation rentals such as Airbnb operating in the city.
The final vote is scheduled to take place at the council’s April meeting.
The City Council was also scheduled to consider an appeal by Léal concerning a $16,560 interest charge for late TOT payments. Léal, however, was not at the meeting. Reynolds reported that he had been sent a message saying lack of internet access made it impossible for Léal to join the Zoom session.
Reynolds told BenitoLink that the idea for the lien ordinance had been partly inspired by Léal’s late tax payments.
“There had been rumors that he was trying to sell the hotel,” Reynolds said. “That would have left us with no other recourse than to sue for the back taxes. Having the ordinance would make it much easier to collect the money that was owed.”
Reynolds shared spreadsheets showing Léal had not met his payment obligations starting in March 2020 and, by November 2021, owed the city $325,423 in back payments, penalties, and interest.
Figures released at the council meeting indicated that the hotel stopped making regular TOT payments in March 2020 and did not start again until July 2020, by which time the city began imposing a 10% late fee.
Starting in April 2020, the city also began adding 1% interest to the total balance due, which included the penalties. Of the total owed by Léal from April 2020 through November 2021, almost half consisted of interest and penalties.
- TOT due to the city: $178,529
- Penalties on monthly missed payments: $17,853
- Interest and penalties combined: $166.246
- Payments made by Leal: $37,205
At the meeting, Reynolds acknowledged the difficulties businesses face trying to survive during COVID, but characterized the lack of payment as “borrowing money without permission.”
After meeting with Léal in February, Reynolds said he agreed to waive the penalties as an acknowledgment of “COVID-related hardship” but insisted the interest on the taxes and penalties, amounting to $16,560, would still need to be paid. Léal has since paid the city $147,613, the full amount of the TOT tax due.
Leal also owed the city $23,000 on past due water bills, which has also now been paid.
With Léal absent, Reynolds left discussing the matter up to the City Council. City Attorney Bob Rathie offered his opinion that to make a decision without Léal having a chance to speak could be a violation of the Brown Act, which guarantees public participation in government meetings. As such, the matter was postponed until the April meeting.
Léal’s absence, however, caused frustration among the council. Councilmember Scott Freels suggested that the city inform Léal that if he did not attend the next meeting on this matter, the city would go ahead with imposing the fines.
“He has known about this meeting since February and suddenly he can’t find an internet connection?” Freels said. “He is kicking this can down the road one more time by not being here. If I go stay at the hotel and they tack on $12 for the city, it is not supposed to be put in his pocket or his bank account so it can fund some other program.”
Councilmember John Freeman characterized Léal as someone who “does not cooperate with the other valued merchants, restaurants, and bars in town. He’s not part of the city.”
Freeman added that he was not willing to give Léal more of a concession on his penalties beyond a payment plan.
“I am not trying to kill him, I want his business to do well,” Freeman said. “But I want him to be a good actor in town, too.”
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