Since January 2013, San Diego's hoteliers have paid outside attorneys $2.1 million in hotel-tax revenues, according to numbers released by San Diego's Tourism Marketing District pursuant to a public records request.
That number will increase, as the Tourism Marketing District's attorneys are now in court defending the legality of the transit occupancy tax as challenged in a lawsuit from San Diegans for Open Government.
A Tourism Marketing District Is Born
In 2007, a group of San Diego's largest hoteliers created the Tourism Marketing District. Currently, there are 78 such districts throughout the state. Creation of the district allows hotel owners to add a 2 percent surcharge on hotel-room bills. A nonprofit, run by volunteer hotel owners, then spends the revenue — upward of $30 million per year — on ad campaigns promoting San Diego. The promotions are said to strengthen the hotel industry, create new hotel jobs, and entice people to visit the city, thus generating sales-tax revenues.
In 2012, after the first five-year contract lapsed, city councilmembers renewed the district for 39.5 years.
“Tax” or “Assessment”?
In December 2012, Cory Briggs, representing San Diegans for Open Government, sued the city and San Diego's Tourism Marketing District for violating the state constitution by imposing a tax on hotel guests without a public vote.
The district and the city argue that the 2 percent charge is an assessment, one paid by visitors and not San Diego residents. The distinction allows hoteliers to skirt state constitutional requirements. The marketing district and the city have defended the lawsuit ever since.
For the Tourism Marketing District, that means, so far, shelling out $2.1 million on lawyers.
Tourism Marketing District on Trial
The trial over the hotel tax began on November 9. In arguing their side of the case, attorneys hired by the district have attempted to turn the tables on San Diegans for Open Government. They argue that the group does not have proper standing to sue the district because none of its members are hotel owners.
Attorneys from Sacramento-based Colantuono, Highsmith & Whatley assert that San Diegans for Open Government is nothing more than an alter ego of attorney Cory Briggs, a vehicle that enables him to file lawsuits and receive attorney's fees.
Since the trial began, Tourism Marketing District attorney Jennifer Pancake and her colleague Michael Colantuono have gone to lengths to show that the group has no real members and is guilty of doctoring membership forms in order to proceed with the case.
In court, Pancake said Briggs has used the nonprofit to protect himself against judgments.
Now moving into the second week of trial, the Tourism Marketing District and the city will soon rest their case. On November 17, Briggs is expected to call his first witnesses.
San Diego Superior Court judge Joel Wohlfeil will then decide whether San Diegans for Open Government has proper standing to sue. If so, that means the merits of the lawsuit — whether the 2 percent fee is a tax or an assessment — will be litigated. If not, hoteliers will continue to collect the revenues and promote San Diego (after paying what's sure to be thousands more in legal expenses).