The Regents Shouldn't be Shocked If Tax Problems Arise from the UCLA Hotel

As our previous blog post noted, final approval of the UCLA Hotel Super-Grande is to be rubber stamped at the Regents Sept. 11.  The business plan was previously approved in July (after being deemed unacceptable in March) so this approval is just for the architecture.  At Regents meetings and numerous other venues, the Regents and UCLA have been given public notice of the tax problems potentially embedded in the hotel plan.  There was an editorial on the subject in the LA Business Journal previously.  And this week there is an op ed in the same newspaper.  You can read an excerpt in italics below.

The problem is that the business plan doesn’t work without what appears to be commercial business to fill the 250 hotel rooms planned.  But such business is not permitted giving the financing plans and in any case would be subject to federal and local taxes.  If the hotel doesn’t cover costs, the subsidy it will need will be coming out of other campus resources – although, as we have also noted, is likely to be hidden because of the blending of this project with others.  Nonetheless, a cost is a cost, however hidden. 

No Room for Tax-Free Hotel at UCLA

Laura Lake, co-president of Save Westwood Village Inc., a business-community alliance to revitalize Westwood, September 3, 2012

For years, UCLA has operated hotels that compete with local hotels. The commercial hotels pay the city’s 14 percent hotel tax and federal corporate income tax; UCLA’s do not. Now, UCLA wants to expand its hospitality empire with a $162 million, seven-story, 250-room luxury inn, to be called the Luskin Hotel and Conference Center, and eliminate 754 parking spaces adjacent to Pauley Pavilion. The proposed hotel will charge $224 a night and, like other UCLA hotels, will neither pay the city hotel tax nor comply with federal requirements for a tax-exempt enterprise. Generally, rents from real estate property are excluded from federal “unrelated business income tax.” But there is an important exception: When rental of real property comes with personalized services such as maid or linen service, it is subject to federal unrelated business income tax… 

Full op ed at http://labusinessjournal.com/news/2012/sep/03/no-room-tax-free-hotel-ucla/.  The op ed notes the issue of local taxes, too. 

The Regents and UCLA are gambling that no one will notice and the tax man won’t come calling.  If he does, however, no one should be shocked.