Facts

Plaintiffs were various airlines and San Francisco-based hotels. They filed lawsuits against the City and County of San Francisco for declaratory relief and a claim for refund of transient occupancy taxes.

PLAINTIFFS’ CONTENTIONS: Plaintiffs claimed that rent paid for hotel rooms rented to airline crew members was subject to a tax exemption for permanent residents that San Francisco's tax collection violated Proposition 218, and that imposition of penalties was unwarranted.

DEFENDANT’S CONTENTIONS: The City and County of San Francisco denied plaintiffs’ claims and asserted various affirmative defenses.

Result

The parties settled for $1,613,554.74. Previously, the court upheld San Francisco's position that airline crew rooms were not subject to the permanent resident exemption absent proof that the same hotel room was continuously occupied by airline crew members for more than 30 days. The court also ruled that the city's denial of tax exemption did not violate Proposition 218. Accordingly, the city would retain more than $10 million in previously collected back taxes and interest. However, the court ordered the city to refund tax penalties assessed against the hotels, in excess of $1 million. Plaintiffs appealed. While the case was on appeal, the parties settled, with the city issuing refunds of $1,613,554.74 and the plaintiffs agreeing to abide by the court's ruling going forward.