In a family-run hotel business, two members, a mother and daughter, have each filed for bankruptcy, as reported by the Santa Cruz Sentinel, and both cite $1 million of disputed occupancy taxes in the filings.
The total amount of debt cited is $14.5 million.
M.P., the owner of the Torch Lite Inn and Motel Santa Cruz, filed for bankruptcy on May 19. Her daughter, S.P., the owner of Cypress Tree Inn, filed her bankruptcy a few days earlier on May 12.
M.P.'s hotels are in Santa Cruz and S.P.'s hotel is in Monterey.
The Sacramento-based attorney representing both women is W. Austin Cooper. Cooper said that the city's pursuit of unpaid transient occupancy tax is what has caused the two to file for bankruptcy.
Transient occupancy tax is a 10 percent fee paid by guests for every overnight stay and collected from each of the city's approximate 60 hotels. The tax is used to fund public safety and parks.
It can total more than $3 million a year in revenue for the city.
Cooper said, "The city has preceded with collection action, recording liens and interfering with business and operation of the motels. They had to file bankruptcy."
In response to Cooper, Mayor Coonerty said, "This is money they collected from visitors and were supposed to pass on and just didn't. Most of our hotels have been responsible. We need to make sure that we protect this community's money."
Both mother and daughter are included in the Santa Cruz County Superior Court's ruling that ordered them to pay the back taxes. Due to that fact, though S.P.'s hotel is in Monterey, she has included the tax debt in her bankruptcy filing as well.
As far back as 2006, and again in 2009, audits by the city found $822,000 in uncollected transient occupancy taxes. Santa Cruz Judge Timothy Volkmann ordered the family to pay the total sum, as well as all penalties and interest.
Santa Cruz has recorded liens on the hotel properties while the family is appealing the ruling.
The tax debt is listed as disputed in bankruptcy filings.
Forty percent of the penalty is for fraud. The city has alleged that the family did collect the bed tax but didn't turn over the sum to the city.
There was a foreclosure sale scheduled but the general belief is that it will be postponed due to the bankruptcy filing.
The family purchased the Torch Lite Inn in 1996 and the Motel Santa Cruz in 2003.
M.P. has listed $6.6 million in assets and $8.5 million in liabilities. S.P. reported $3.5 million in assets and $5.9 million in liabilities.
Both bankruptcies list loans on properties, credit advances and legal fees.
A new hotel, exceeding 100 rooms, is being considered by the City Council. If approved the occupancy taxes could garner the city $350,000 to $500,000 a year.
If you are weighed down with crushing debts, whether or not unpaid taxes are among them, contact a bankruptcy attorney for help. Filing for bankruptcy is the first step in rebuilding what has been lost.