Board of Supervisors*

The most recurring items of noncompliance were the lack of acceptable records and underreporting of gross receipts by the operators. Response, County Auditor-Controller. The County Auditor-Controller agrees with this finding. In most cases the underreporting of gross receipts is not material and is corrected going forward. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector agrees with this finding based on the operator audit reports performed by the County Auditor- Controller's Department. Response, County Board of Supervisors. The Board of Supervisors concurs with the County Treasurer-Tax Collector's and County Auditor-Controller's responses.

Not every local governmental agency provides adequate information to a new operator. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector disagrees with this finding with regard to Napa County. New operators are given an Application for Certificate Registration form to be completed upon receiving a permit from the Planning Department. When the form has been completed and returned, the operator is issued a Certificate of Authority to Collect Transient Occupancy Tax, along with a copy of the complete TOT Ordinance. This registration must be renewed annually in January. Prior to each quarterly payment date, each operator is sent a Return on Transient Room Tax which indicates the covered time period and payment due date; a self-addressed envelope is included for returning the completed return and remittance. Napa County permits very few new developments; thus most new operators are a result of ownership changes to existing permitted establishments. Also see response to

There is a lack of communication between the Finance Departments and the licensing departments of the local governmental agencies. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector disagrees with this finding with regard to Napa County. The County does not issue business licenses, however the tax administrator does not issue a new Certificate of Authority to collect TOT until verification is received from the Planning Department that a use permit exists or has been issued. In addition, the tax administrator requests that Planning Department staff review the list of Transient Operators on a regular basis. Also see response to Recommendation #2. Response, County Auditor-Controller. The County Auditor-Controller disagrees with this finding. Communication is mainly between the Treasurer-Tax Collector and Planning Departments. For auditing purposes, the County Auditor-Controller requests an updated list of the Transient Operators in the County unincorporated area from the tax administrator. To enhance the process for all future audits, the department will be verifying the number of permitted rooms per establishment with the Planning Department prior to conducting an audit. Also see response to Recommendation #2. Response, County Board of Supervisors. The Board of Supervisors concurs with the County Treasurer-Tax Collector's and County Auditor-Controller's responses.

Provisions in the municipal codes/ordinances for interest and penalties are not being executed. Response, County Treasurer - Tax Collector. The County Treasurer-Tax Collector disagrees with this finding. The tax administrator's current procedure is to invoice any and all penalties and interest on any delinquent or understated quarterly remittance, in accordance with Section 3.32.090(A) of the TOT Ordinance. Further, if any additional amounts are found to be due, as the result of an audit performed by the County Auditor- Controller's Department, an invoice is sent to the operator including penalty and interest through the date of the audit. Section 3.32.090(B) of the TOT Ordinance gives the tax administrator discretion to review the original amounts determined to be due and to change any tax, interest or penalties based on further evidence provided by the operator. This has in the past, on occasion, resulted in the reduction of amounts due on a case by case basis, including some items identified by audit. Also see response to Recommendation #3. Response, County Auditor-Controller. The County Auditor-Controller disagrees with this finding. The County Auditor-Controller applies all interest and penalties due per the County's ordinance. Interest is applied at 1.5% per month as of the day the taxes become delinquent (30 days after the quarter). Penalties are applied at 10% of tax, when tax becomes delinquent and then an additional 10% penalty is applied when the delinquency exceeds 30 days. Also see response to Recommendation #3. Response, County Board of Supervisors. The Board of Supervisors concurs with the County Treasurer-Tax Collector's and County Auditor-Controller's responses.

The tax administrator has sole discretion to waive TOT and/or interest and penalties due local governments. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector disagrees with this finding with regard to the County. The tax administrator does not have sole discretion to waive TOT, interest and/or penalties. If an operator does not agree with the assessed tax, penalties or interest, Section 3.32.090 of the County TOT Ordinance allows for a review hearing with the tax administrator to offer evidence that the amounts assessed were incorrectly computed. After this hearing, the tax administrator shall determine the proper tax to be remitted, considering any evidence presented by the operator. If the operator does not agree with the final determination of the tax administrator, Section 3.32.100 of the County TOT Ordinance provides for an appeal procedure allowing the operator to request a hearing by the Board of Supervisors. If such a hearing is held, the findings of the Board of Supervisors are final and conclusive. Response, County Counsel. County Counsel disagrees with this finding. The tax administrator does not have sole discretion to waive Transient Occupancy Tax, interest or penalties. The tax administrator can review Transient Occupancy Tax, interest and penalties and if the operator can demonstrate that they were incorrectly computed, the Tax Administrator can waive them to the extent permitted by law. After a hearing before the tax administrator, any operator aggrieved by the tax administrator's decision has the opportunity to appeal the decision to the Board of Supervisors. The Board of Supervisor's findings are final and conclusive. Response, County Board of Supervisors. The Board of Supervisors concurs with County Counsel's response.

Audits provided by the Cities and the County of Napa show past due TOT has not been collected from 2005 to the present. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector disagrees with this finding with regard to the County. All shortages identified by the County Auditor-Controller's Department in the audits performed during this period have been collected or dismissed, and are not overdue. At the time of the Grand Jury review, there were three items which have been subsequently invoiced and collected by the time of this response. Following are the total findings based on the audits performed and resulting collections were as follows: Total of Findings Total Collected Total Outstanding $ 5,214.64 $5,214.64 $ 0.00 FY05/06 $ 0.00 $7,241.41 FY06/07* $12,449.75 * In FY06-07 $5,208.34 was dismissed by the Treasurer-Tax Collector after operator provided additional supporting evidence, in accordance with the TOT ordinance. It should also be noted that the audit resulted in a finding of an overpayment in the amount of $5,095, for which the operator is unable to identify transients to be refunded, therefore the funds remain with the County. $6,637.26 $ 0.00 $ 40,122.00 FY07/08 In accordance with the County TOT Ordinance, an operator may challenge the amount of TOT assessed and have a hearing with the Treasurer-Tax Collector to present additional information to demonstrate that the amount assessed is incorrect. This occurred in this instance which addressed energy surcharges that were added to the room charges. TOT was not collected on the energy surcharge amounts, and due to the ambiguity of the County TOT ordinance, the tax administrator dismissed the tax, penalty, and interest in the amount of $33,484.74 until clarification notices were sent to all operators, who now include this type of charge in TOT calculations. $ 17,964.80 $ 17,964.80 FY08/09 $ 0.00 At the time of the Grand Jury review there were outstanding items which have since been collected in full. It should also be noted that the audit resulted in a finding of an overpayment of $136.00, for which the operator has not yet filed a refund request. Response, County Auditor-Controller. The County Auditor-Controller disagrees with this finding. Department's records show that establishments have paid the delinquent TOT. Uncollected funds are due to the Treasurer-Tax Collector dismissing the penalties and/or interest and are not overdue. Response, County Board of Supervisors. The Board of Supervisors concurs with the County Treasurer-Tax Collector's and County Auditor-Controller's responses.

The City of Napa does not have an adequate method of tracking its TOT revenue, relying in part on an out-of-date manual accounting system Response, Not applicable for the County of Napa.

Most local governmental agencies do not have an accurate record of how many rooms are available for transient occupancy. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector disagrees with this finding with regard to legally established transient occupancies in the unincorporated areas of the county. The tax administrator maintains a listing of all legally permitted entities which includes the number of rooms for which each operator has been approved to collect TOT. This listing is provided to the Planning Department for review on a regular basis, and the information is shared with the County Auditor- Controller's Department for their use in preparing their audit plans. The Planning Department's code enforcement unit identifies violations of County Code, including illegally established vacation rentals, and seeks to abate those violations with assistance from County Counsel and the District Attorney. We do not know the number of illegally established vacation rentals, and do not collect TOT on occupancies which have not been properly permitted. Response, County Auditor-Controller. The County Auditor-Controller disagrees with this finding and is in concurrence with the Treasurer-Tax Collector's response. The department relies on data provided by the tax administrator. Our audit process includes determining if the revenues collected are reasonable for the number of rooms provided by the tax administrator. If there is evidence or appearance of additional rooms, this would be communicated to the Planning Department's code enforcement unit for abatement of the associated code violation (s). Response, County Board of Supervisors. The Board of Supervisors concurs with the County Treasurer-Tax Collector's response.

The Cities and County do not conduct audits with any degree of frequency or regularity. Response, County Auditor-Controller. The County Auditor-Controller partially agrees with this finding. The number of audits and frequency of audits performed is related to available staff resources to conduct the audits. In earlier years, staff vacancies slowed the auditing efforts. The goal of the department is to perform audits on the larger agencies with the most revenue potential every three years. Smaller entities are randomly chosen each year and the goal is to visit each upon change of ownership and then at least once every seven years. This goal depends on staffing resources available to complete the amount of work involved. Also see response to Recommendation #7. Response, County Board of Supervisors. The Board of Supervisors concurs with the County Auditor-Controller's response.

Potential revenue from uncollected TOT, interest, and penalties in the millions of dollars is being lost throughout the County. Response, County Auditor-Controller. The County Auditor-Controller disagrees with this finding with regard to the County. Although audits are not conducted on every agency every year, because of our current process in place, each entity is aware that they could be audited at any time. As reported in the performance measures in the County's budget book for the Auditor-Controller, the findings of these audits are mostly due to non-monetary issues. For the most part, very minimal taxes are found to be due. If large dollars are found, this is usually due to a specific misunderstanding of what TOT should be charged for. Additionally, we receive annually a report from the tax administrator that records revenues by entities on a quarterly basis, which allows the tax administrator to monitor revenues. The County Auditor-Controller uses this data in developing our audit plan and determining the reasonableness of the revenues reported for the operators selected within the plan. The purpose of our audits is to not only ensure operators are remitting the right amount of TOT, but also to assist them in their understanding of TOT rules and regulations in order to increase the likelihood that correct taxes are collected and paid. Furthermore, if any agency is found to be greatly underreporting revenues, a follow up audit is conducted within 2 years. Therefore, overall it is the opinion of the County Auditor-Controller that our audits are sufficient to ensure that minimal dollars are lost in actual TOT collections. Of course, with additional staffing for this purpose, more agencies could be audited more frequently to make these dollars even less. Response, County Treasurer-Tax Collector. The County Treasurer-Tax Collector disagrees with this finding in regards to the County, due to the degree of potential revenue cited. Over the last four fiscal years, a total net of $70,500.19 was found to have been under-collected. Of this, $38,693.08 was dismissed and $37,058.11 collected; $5,251 has been over-collected pending identification of transients to be refunded. The County Treasurer-Tax Collector cannot speak to potential lost revenue on non- permitted rooms, as this type of activity is considered illegal and as such is beyond the scope of the tax administrator's authority to collect. Response, County Board of Supervisors. The Board of Supervisors concurs with the County Treasurer-Tax Collector's and County Auditor-Controller's responses. * *