WERDEGAR, J. —
The parties have not challenged the factual findings made by the hearing officer in the administrative proceedings. Accordingly, we accept that those findings are supported by substantial evidence (Environmental Protection Information Center v. California Dept. of Forestry & Fire Protection (2008) 44 Cal.4th 459, 479 [80 Cal.Rptr.3d 28, 187 P.3d 888]), while independently reviewing the legal determinations reached below (City of San Diego v. Board of Trustees of California State University (2015) 61 Cal.4th 945, 956 [190 Cal.Rptr.3d 319, 352 P.3d 883]), bearing in mind that an ambiguity in a tax statute will generally be resolved in favor of the taxpayer (Microsoft Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 759 [47 Cal.Rptr.3d 216, 139 P.3d 1169]; see Agnew v. State Bd. of Equalization (1999) 21 Cal.4th 310, 330 [87 Cal.Rptr.2d 423, 981 P.2d 52]).
We first describe the nature of the transactions at issue. OTCs publish on their websites comparative information about airlines, hotels, and car rental companies, and allow consumers to book reservations with these travel and hospitality providers. OTCs may do business under any of several business models; involved here is the one known as the merchant model.
We turn now to the ordinance at issue in this case. First enacted in 1964, it provides that "[f]or the privilege of Occupancy in any Hotel located in [San Diego], each Transient is subject to and shall pay a tax in the amount of six percent (6%) of the Rent charged by the Operator." (San Diego Mun. Code, § 35.0103.) Four times in subsequent years San Diego enacted increases in the tax rate without altering the ordinance's operative language. (Id., §§ 35.0104, 35.0105, 35.0106, 35.0108.) Proceeds of the tax are to be used for promoting San Diego, including by planning, building, and maintaining tourism-related cultural, recreational, and convention facilities, among other governmental purposes. (San Diego Mun. Code, § 35.0101, subd. (b).)
Other provisions define the ordinance's key terms. "`Occupancy' means the use or possession, or the right to the use or possession, of any room, or portion thereof, in any Hotel ... for dwelling, lodging, or sleeping purposes." (San Diego Mun. Code, § 35.0102.) "`Rent' means the total consideration charged to a Transient as shown on the guest receipt for the Occupancy of a room, or portion thereof, in a Hotel.... `Rent' includes charges for utility and sewer hookups, equipment, (such as rollaway beds, cribs and television sets, and similar items), and in-room services (such as movies and other services not subject to California taxes), valued in money, whether received or to be received in money, goods, labor, or otherwise. `Rent' includes all
The ordinance provides that "[e]ach Operator shall collect the tax ... to the same extent and at the same time as the Rent is collected from every Transient." (San Diego Mun. Code, § 35.0112, subd. (a).) "The amount of tax charged each Transient shall be separately stated from the amount of Rent charged, and each Transient shall receive a receipt for payment from the Operator." (Id., § 35.0112, subd. (c).) The operator must, among other remitting and reporting responsibilities, "remit monthly the full amount of taxes collected for the previous month with the appropriate approved return form available from the City Treasurer." (Id., § 35.0114, subd. (a).) The operator must "keep and preserve ... all business records as may be necessary to determine the amount of such tax for which the operator is liable for collection and payment to the City." (Id., § 35.0121.) The San Diego city treasurer may inspect the operator's business records and "apply auditing procedures necessary to determine the amount of tax due to the City." (Ibid.) If an operator "fail[s] or refuse[s] to collect" or remit the tax, the treasurer "shall forthwith assess the tax and penalties ... against the operator." (Id., § 35.0117, subd. (a).) An operator may challenge the assessment by requesting a hearing, and must be given notice of the final "determination and the amount of such tax and penalties" imposed. (Id., § 35.0118, subd. (a).)
In December 2004, the City of Los Angeles filed a putative class action on behalf of various California cities against various OTCs, alleging each such company was liable for transient occupancy tax as the "operator" of every hotel. In October 2007, putative class member San Diego began auditing the OTCs. Eventually it issued transient occupancy tax assessments against the OTCs, which each OTC timely appealed. A hearing officer conducted a consolidated administrative hearing to determine whether each OTC had obligations and liability under the tax. In May 2010 the officer issued a decision, finding that the OTCs owed tax on their markup in merchant model transactions. The OTCs challenged the hearing officer's determination by filing a petition for writ of mandate and cross-complaint seeking declaratory relief. After briefing and argument, the superior court granted the OTCs'
San Diego appealed. Noting the salient facts are undisputed and the case turns solely on the interpretation of the ordinance, the Court of Appeal affirmed. Like the superior court, it reasoned the ordinance imposed tax on "rent charged by the ... operator" and concluded that hotels, not the OTCs, are operators within the meaning of the ordinance.
San Diego petitioned for rehearing on the basis the Court of Appeal had improperly cited and relied on two unpublished decisions arising out of the same coordinated proceedings; the Court of Appeal granted rehearing and issued a new opinion again citing the same unpublished decisions, explaining the reliance was proper because the decisions were relevant as law of the case. (See Cal. Rules of Court, rule 8.1115(b).) Contending the Court of Appeal's law-of-the-case analysis was flawed, San Diego unsuccessfully petitioned for rehearing. We granted San Diego's petition for review.
San Diego contends the tax base for calculating the tax must be the full amount of the payment the customer is charged to obtain occupancy. In San Diego's view, the stated purpose of the tax — "It is the purpose and intent of the City Council that there shall be imposed a tax on Transients" (San Diego Mun. Code, § 35.0101, subd. (a)) — reflects a legislative focus on the transaction between the OTC and the customer. The statutory definition of rent — "the total consideration charged to a Transient as shown on the guest receipt for the Occupancy of a room" (San Diego Mun. Code, § 35.0102) — in San Diego's view, shows the tax base was intended to be the total amount quoted to, charged to, and paid by the customer, not the lesser amount the hotel has agreed to accept as its share of the rental proceeds; indeed, a customer cannot obtain the privilege of occupancy by paying only the amount the hotel nets on OTC transactions nor anything less than the total amount quoted and charged to him or her. Moreover, San Diego observes, the tax is determined and collected at the same time the room is booked (id., § 35.0112, subd. (a)) — the "taxable moment," as San Diego calls it.
San Diego contends the entire amount paid by the customer, presumably including any portion of the markup within the exclusive control of the OTC above that set by the hotel, is subject to the tax because that amount is charged "[f]or the privilege of Occupancy" within the meaning of the ordinance, and no lesser amount will gain that privilege for the customer. (San Diego Mun. Code, § 35.0103.) This contention, however, fails to acknowledge that the relevant ordinance identifies the taxable amount as the rent "charged by the Operator" (ibid.) — and the only such amount involved in online room rental transactions is, as we have seen, the wholesale room rate plus any portion of the markup set by the hotel pursuant to the contractual rate parity provisions or otherwise. Thus, it is the wholesale room rate plus the hotel-determined markup, exclusive of any discretionary markup set by the OTC, that is "charged by the Operator" and subject to the tax.
San Diego further contends that even though the OTCs do not qualify as operators within the meaning of the ordinance, they are liable for the tax under various contractual and statutory theories. We are unpersuaded.
San Diego first asserts the OTCs are liable for assessment of room tax because they are agents of the hotels for purposes of charging and collecting the tax. It points to the hearing officer's finding, unchallenged in this litigation, that "[t]he OTCs serve as the hotels' agents in assuming essentially (or absolutely) all of the marketing, reservation, room price collection, and customer service functions as to those Transients who book online through the OTCs." San Diego also cites the Court of Appeal's statement that "[t]he
That the OTCs act as hotels' agents or intermediaries for the limited purpose of charging and collecting the rent, however, does not subject the OTCs to assessment as an operator or make any undifferentiated portion of the charge representing the amount unilaterally set by the OTCs "Rent charged by the Operator." As noted, the hotels set the parity or floor rate the OTCs must charge the visitor, but do not control or determine any additional amount the OTCs may charge for their services, a circumstance that refutes any suggestion the OTCs are the hotels' agents for purposes of setting and collecting such discretionary additional charges.
San Diego also cites contractual provisions by which the OTCs agree to be responsible for any taxes assessed by any governmental authority on the markup, to collect and remit room tax, and to assume liability to San Diego for nonpayment or underpayment of the tax. These provisions allocate responsibility as between the hotels and the OTCs for properly assessed room taxes but, like the other contractual terms discussed above, they do not in themselves create such liability; only the ordinance can do that. The same reasoning defeats San Diego's assertion it is entitled as a third party beneficiary of the hotel-OTC contracts to tax the OTCs for the entire markup: Even assuming San Diego is a third party beneficiary of the contracts, a question we need not address, the contracts cannot expand room tax liability under the ordinance.
The judgment is affirmed.
Cantil-Sakauye, C. J., Chin, J., Corrigan, J., Liu, J., Cuéllar, J., and Kruger, J., concurred.