Vacation rentals in Pismo Beach, Calif., will be included in a proposed Lodging Business Improvement District if the city forms an assessment district.

The 1% assessment, if adopted, would be charged to all businesses that pay transient occupancy tax, including hotels, motels, RV parks and vacation rentals. The fee would be assessed on the city’s gross lodging revenues, according to the Santa Maria Times.

With a 4-1 vote on June 2, the Pismo Beach City Council approved a resolution of intent to form the assessment district that would levy a new 1-percent fee on the city’s lodging industry.

Councilman Ted Ehring was the lone dissenter in the vote, stating the city’s numerous vacation rentals should be exempt from the proposed assessment.

“We don’t even have an ordinance for vacation rentals,” Ehring said. “Exempting vacation rentals would take care of a very big problem for us, and you aren’t going to lose very much.”

Vacation rentals contributed 3.5% of the transient occupancy tax collected in 2008 in Pismo; hotels accounted for 90% of the revenue, according to city staff.

Ehring also wanted to see hotels and motels with less than 15 units exempted from the fee.

However, the majority of the council believes Pismo’s vacation rentals must be part of the improvement district should the city form one later this summer.

“You create a slippery slope when you start adding exemptions,” said Councilman Ed Waage. “Vacation rental owners will benefit from this as well. They will get a free ride if they are exempt.”

Waage added that he supported creating the district and including vacation rentals for the potential financial benefit to Pismo Beach and not for that of the city’s hotels.

“I’m doing this to try to keep money flowing into the city,” he said. “If we do nothing, we will be hurt.”

“This isn’t a tax on the person staying there,” said City Attorney David Fleishman. “This is an assessment on the operator of the facility that they pay out of their revenue to promote tourism.”

The new revenue – an estimated $590,000 to $600,000 annually – would be used to increase the city’s tourism budget and fund new, multiday events, like a wine and waves festival, that would encourage longer stays in the city.

When the council adopted the resolution of intent Tuesday, it opened a 45-day protest period that allows any hotelier, motel operator and RV park or vacation rental owner to protest inclusion in the district. That period ends on July 21, when the council is required to hold a public protest hearing.

Assuming a majority doesn’t lodge a protest by or at the July 21 meeting, the ordinance establishing the assessment district would become law on Sept. 3 and the city could begin collecting the 1-percent fee in October.

The council also will hold a public hearing at its July 7 meeting to consider formation of the proposed Pismo Beach Lodging Business Improvement District, which has a three-year sunset clause.