A typical B&B owes an average of less than $60 a month, yet the minimum fine for late payment has been $500.
The New Orleans City Council had a small but welcome Christmas present this month for operators of the city's bed-and-breakfasts. It reduced the penalty they will have to pay if they file some of their monthly taxes late.
In the past, the penalty has often been far higher than the amount of tax due. That will no longer be the case, although the penalty will still be large enough to give operators an incentive to pay on time.
Brian Furness is a licensed French Quarter bed-and-breakfast owner who has supported efforts to get the city to enforce its rules against illegal short-term rentals. He was photographed in March 2011 The change was proposed by council President Stacy Head and was supported by Mayor Mitch Landrieu's administration.
Just like owners of regular hotels, bed-and-breakfast operators owe the city a "hotel occupancy privilege tax." Some also owe regular sales tax.
For hotels with 300 or more rooms, the occupancy tax is $1 a day for each occupied room. For those with fewer than 300 rooms, including B&Bs, it is 50 cents a day. Establishments with only one or two guest rooms owe no tax.
The penalty for paying the tax late has been 20 percent of the amount due plus interest, or $500, whichever is greater. A typical B&B, the council was told, owes an average of less than $60 a month, yet the fine for late payment has been the $500 minimum, or several times the amount actually owed.
Calling that "an onerous burden on bed-and-breakfasts if they paid their taxes even one day late," Head proposed eliminating the $500 minimum for establishments with up to nine guest rooms, which is the legal limit for B&Bs. The $500 minimum fine will remain in effect for establishments with 10 or more rooms.
The council approved the change 7-0.
Bonnie Rabe, a B&B operator and president of the Professional Innkeepers Association of New Orleans, said operators paying their fees electronically are charged the late fee if the day the tax is due falls on a weekend and they pay it on that day. Thus, even if they file their payment on time on Saturday or Sunday, she said, it is not credited until Monday, meaning they are assessed the penalty for late payment. The ordinance approved by the council does not deal with that problem.
It also does not deal with another issue raised by Head. Repeating a complaint that New Orleans officials have made for many years, she said lots of small guest houses and B&Bs operate outside the law, often advertising openly but not paying taxes and not getting proper permits or safety inspections.
She suggested posting a list of authorized B&Bs on the city's website so residents and visitors can know which establishments are operating illegally.
The council actually passed a law in 2004 requiring the administration to create and post such a list and otherwise to crack down on people in the French Quarter and other neighborhoods who rent rooms, apartments or houses to visitors by the night or week in violation of zoning laws and without paying hotel taxes or passing city inspections.
However, the law seemed to have little effect on the illegal operations. The council was told in 2005 that even though violation notices had been sent to owners of 19 buildings, warning them to stop renting their premises to visitors, no cases had been referred to the city attorney's office for prosecution, and it was unclear whether any of the operations had shut down. A few months later, Hurricane Katrina hit, diverting attention from the problem for several years.
The existence of illegal bed-and-breakfasts and guest houses, especially in the French Quarter, has been an open secret for years. But even though many of the operations openly advertised for customers, the city found it hard to shut them down because of the need to produce evidence in court that money had changed hands. Few if any visitors were eager to testify about such a transaction.
The law the council passed in 2004 embodied a new approach that officials hoped would prove more efficient. The new idea was to go after Internet and other advertisements for unlicensed rental units by making it "unlawful for any person to rent or to knowingly offer to rent" any unlicensed premises anywhere in the city for less than 30 days. In the French Quarter, rentals of less than 60 days were prohibited.
The new law said the mere existence of "any offer to rent appearing in any periodical or electronic media" was deemed evidence that the owner or lessee of the premises and the person paying for the ad were guilty. But the law appeared to have limited effectiveness.
In early 2011, Landrieu administration officials said they were aware of the problem of illegal short-term rentals and would step up enforcement efforts.
Among those caught in the new push was businessman Henry Coaxum, Landrieu's hand-picked chairman of the New Orleans Business Alliance, who was offering to rent a five-bedroom home in the Kenilworth subdivision for $600 a night. Officials demanded he shut it down, and he complied, saying he had not been aware his actions were illegal. He said the house had been rented only a handful of times.