Transient Occupancy Taxes in California: What’s Changing and What It Means for Hotel Owners

By Erik Ransdell & Mike Annunziata Strands Realty Group May 06, 2025

As cities across California continue to evaluate budget strategies in the post-pandemic recovery period, one approach has stood out for its political appeal and revenue-generating potential: increasing the Transient Occupancy Tax (TOT). Though often framed as a way to ensure visitors “pay their fair share,” TOT increases carry substantial operational and financial implications for hotel owners.

Over the past year, TOT changes have passed in several municipalities, while others were blocked by local voters. With new proposals on the horizon, it’s important for hotel operators, asset managers, and investors to stay informed—not just about what’s happening, but about what it means for their properties and bottom lines.

Newly Passed Increases and Active Proposals

Several cities and counties have implemented TOT increases or placed proposals into upcoming election cycles. Among the most high-profile changes is San Diego’s Measure C, which implemented a tiered TOT structure ranging from 11.75% to 13.75% depending on location. The added revenue has been designated for long-planned projects, including the convention center expansion, and citywide infrastructure and homelessness services.

Menlo Park voters approved Measure CC in November 2024, increasing the city’s TOT from 12% to 14% in 2025, with a second jump to 15.5% scheduled for 2026. The rationale there centered on infrastructure costs and long-term service funding needs for a growing city with a significant transient workforce.

Big Bear Lake followed suit with a phased increase from 8% to 10%, targeting road maintenance, public safety, and tourism-related services. San Francisco, already among the highest-taxed hotel markets in the U.S., raised Tourism Improvement District (TID) assessments in late 2024. While its core TOT remained unchanged, the combined effect of TOT and TID now pushes effective lodging tax rates beyond 16% in some areas of the city.

Santa Barbara County has proposed a 2% increase for TOT in unincorporated areas, scheduled for the November 2025 ballot. Rancho Cucamonga is also reviewing a potential increase, with discussions currently underway at the city level. These developments suggest that more California cities are likely to pursue similar actions in the near term.

Cities Where TOT Increases Were Rejected

Not all TOT measures have succeeded. In November 2024, voters in three California cities—Mission Viejo, Laguna Beach, and Hollister—rejected proposals to raise their local TOT rates.

In Mission Viejo, the proposed increase was tied to general city service funding. Despite support from local officials, voters declined the measure, citing limited tourism traffic and concern about potential consequences for small businesses.

Laguna Beach’s ballot initiative aimed to raise funds for coastal maintenance and public safety. Although tourism is central to the city’s economy, residents voiced concerns about the cumulative cost of TOT on overnight stays and the potential impact on repeat visitor demand. The measure was defeated.

Hollister, a smaller city with more limited hotel inventory, also failed to pass a TOT increase. Voters questioned whether the proposed increase aligned with the city’s tourism profile and long-term goals. In all three cases, opposition campaigns—often led by local hotel operators and business owners—played a role in shaping public opinion.

Operational Impact: What These Changes Mean for Hotels

TOT may appear on the guest’s bill, but its impact is rarely confined to the customer. When TOT rates increase, properties are often forced to navigate new pricing challenges, guest perception issues, and impacts to group and corporate sales strategies.

For independent and midscale hotels, even modest increases in TOT can result in price sensitivity among guests. A room rate of $179 per night becomes $206.25 with a 15.25% TOT—a total that may drive travelers to consider alternative accommodations or nearby jurisdictions with lower rates.

For flagged and full-service properties competing in multi-state RFPs, a higher effective tax rate can reduce a property's competitiveness for large group or convention bookings. These clients often evaluate destinations based on all-in cost, and California cities with increasing TOT rates may find themselves losing business to markets like Phoenix, Las Vegas, or Denver.

Operators are also reporting an uptick in rate abandonment on direct booking channels and OTAs when total price, including taxes and fees, is finally revealed. This trend can affect conversion rates and overall revenue capture.

Group Contracts and Sales Strategy

For group business and contract clients, hotels should carefully review their agreement language to ensure it allows for rate renegotiation in the event of tax changes. With many TOT increases occurring between RFP submission and event dates, operators must have flexibility built into their pricing structure.

Hotels that regularly host multi-day conferences or large events may also consider bundling approaches—offering a total package rate that smooths over the tax rate changes and allows for cleaner client budgeting, even when tax conditions evolve.

Sales teams should be equipped with tools to explain TOT and how it is applied. When communicated clearly and early, guests and clients are more likely to accept and understand the cost. Surprises at checkout or during reconciliation can damage relationships and affect repeat business.

Financial and Investment Implications

Beyond daily operations, TOT increases can have an impact on financial performance, underwriting assumptions, and asset valuation. When a property's TOT rate increases, the effect on gross revenue and NOI can be subtle or significant, depending on the asset’s rate strategy and market positioning.

Lenders and investors are beginning to factor TOT volatility into their models, especially in municipalities with recent or pending ballot measures. Some acquisition analyses now include sensitivity scenarios that account for future TOT rate movement, especially in urban or destination markets.

While TOT is typically a pass-through item, rate resistance or demand erosion caused by tax changes can affect RevPAR and ADR stability, which in turn affects projected cash flow and valuation multiples. In a rising interest rate environment, any additional risk factor—even one as politically driven as TOT—can impact deal flow and pricing.

Short-Term Rentals and Enforcement Gaps

A persistent challenge for hoteliers is the uneven enforcement of TOT regulations across lodging types. Hotels are required to remit TOT under strict timelines and reporting guidelines, but short-term rental (STR) operators may not always face the same requirements or enforcement levels.

In some jurisdictions, STR platforms like Airbnb collect and remit TOT on behalf of hosts. In others, collection is voluntary or poorly enforced. This creates a pricing imbalance, especially in markets where STRs compete directly with hotels for nightly business.

Owners have expressed concern that TOT increases, when not applied and enforced equitably, put traditional hotel operations at a disadvantage. Moving forward, many in the industry are calling for city governments to pair any TOT increase with a commitment to improved STR registration, tracking, and enforcement measures.

What Hotel Owners Can Do Now

For owners and operators, preparation and engagement are key. Even if your property is not currently subject to a proposed TOT increase, understanding the political landscape and staying informed on local discussions is essential.

1. Monitor local agendas and budget processes – TOT proposals often originate at city staff or committee levels well before they appear on ballots or in public hearings. Early awareness allows for more meaningful engagement.

2. Join or form local coalitions – Working with chambers of commerce, local hotel associations, or regional business groups can help amplify your voice and ensure balanced representation in TOT discussions.

3. Engage in constructive dialogue – While opposing a measure outright is sometimes necessary, many hotel owners have found success in working with city leaders to ensure revenue use is aligned with tourism goals, or to suggest phased implementation to minimize operational disruption.

4. Review group sales contracts – Ensure that your sales agreements allow for tax flexibility and protect the property from being locked into fixed net rates when TOT increases unexpectedly.

5. Educate your staff and sales teams – Front desk, reservations, and event sales staff should be able to clearly explain the breakdown of rates, including TOT, and assist guests or clients who may have questions about the added cost.

   
   

Staying Focused on Reinvestment and Accountability

While TOT increases often draw concern from operators, some hotel owners have used the opportunity to advocate for responsible reinvestment. By working with city officials and DMOs, owners can propose specific uses for new TOT revenue—such as safety improvements near hotels, beautification projects, or targeted destination marketing.

Such efforts can help mitigate the impact of tax increases by ensuring the funds are used in ways that support visitation and improve the guest experience. In some markets, these partnerships have helped foster greater collaboration and transparency, and have allowed hotels to influence how future tourism policies are developed.

Outlook for the Remainder of 2025

With several measures passed and others pending, the California TOT landscape will continue to shift throughout 2025. Hotel owners should anticipate more cities evaluating their own TOT structures and be ready to participate in those discussions.

As always, preparation is the best defense. Whether you’re operating in a market where a measure has already passed, or one where a proposal is on the horizon, understanding your exposure and engaging early is the best way to protect your property’s long-term performance.

At Strands, we continue to monitor TOT trends, ballot developments, and market implications across California. If you need guidance on what’s happening in your market or support in navigating a potential TOT change, our team is here to help.