A taxing question

Clermont Hotel issues rebates to long-time customers

Wednesday September 25, 2002 12:04 am EDT

There are a million stories and then some behind the brick-and-plaster walls of the Clermont Hotel. Earlier this month, a dozen or so of these tales of hope and squalor were provided happy endings, written on the lines that follow, "Pay to the order of ..."

At least, that's the account being offered by a cautious attorney for the Ponce de Leon landmark, which has found itself in a supremely unusual legal predicament ever since a whistle-blower revealed that the 62-year-old hotel had been wrongfully overcharging its longtime residents, probably as far back as the mid-1970s.

Beginning in early summer, Clermont owners and management have been operating in code-orange, damage-control mode: cutting rents, practicing their friendliest smiles, breaking out the checkbook and, of course, devising a strategy to best cover their collective ass — and to avoid paying some old-timers back in full.

The excrement hit the proverbial cooling device back in May, when a front-desk clerk told several residents just before she quit that the hotel was ripping them off to the tune of about $1,000 a year.

That news flash certainly got Bob's attention. The two-year Clermont resident (who fears retaliation if his real name is used) researched the matter, became properly cheesed off and sent the hotel a formal letter demanding a full refund.

"They owed me money and I was determined to get it," he says.

Central to the Clermont imbroglio are a couple of tricky tariffs — Atlanta's hotel/motel tax, commonly known as a "bed tax," and the state sales tax. Every hotel in Atlanta, from the Four Seasons on down, is responsible for charging its guests the bed tax — 7 percent of the total room rate — and sending the money to the city's business-license office. That's in addition to Fulton and DeKalb counties' 7-percent sales tax, which is turned over to the state Department of Revenue.

What few hotel guests realize is that, after the first 10 days of their stay in a particular hotel, they no longer are required to pay the bed tax and should see a 7-percent drop in their bill. The rationale follows thusly: Essentially a tax on tourists and conventioneers, the bed tax helps support the tourism industry in Atlanta. And if someone stays in a hotel for more than 10 days, it's doubtful he's there as a tourist. (That goes double for the Clermont.)

The bed tax receipts — approximately $35 million in Atlanta last year — are divided among the Georgia World Congress Center, the Georgia Dome, the city government and the Atlanta Convention and Visitor's Bureau.

After 90 consecutive days in the same hotel, a guest should likewise see the sales tax disappear. Explains Gregory Pierce, chief financial officer for the convention bureau: "At that point, the state considers that person to be a de facto tenant." And tenants don't pay sales tax on their rent.

Pierce recalls an out-of-town friend who called him during an extended business visit to Atlanta to say she just realized she'd been improperly charged the bed tax. The money was quickly rebated after Pierce made a call to the hotel, a fairly upscale establishment that almost certainly knew better than to make that kind of accounting error, he says.

"These kinds of lapses are the exception rather than the rule," he speculates, "but it does happen."

Initially, Bob says, the Clermont management seemed inclined to brush off his request for compensation. But then they made a swift about-face, sending him a letter he describes as "apologetic" and cutting him a check for more than $2,000 that covered the full amount owed. To collect, he had to sign an agreement not to sue the hotel or attempt to claim any additional money, such as lost interest, but Bob says he was satisfied simply to get his money back without a legal battle.

"I expected a fight, but they were surprisingly nice about it," he says.

If other Clermont residents hadn't already heard about the chronic overcharging, word spread fast after Bob received his check — and after the hotel informed folks it was reducing their weekly bills, cryptically explaining it was "because of taxes," says "Joe," who's been a Clermont resident for well over 10 years.

When Joe gingerly asked for his own refund, however, hotel manager Susan Blauvelt told him in a tersely worded letter that the Clermont was only "liable for up to fours years on a tax refund." In other words, they were offering to give back only a small portion of his money they had pocketed over the years. Take it or leave it.

Joe contacted Atlanta Legal Aid for free advice, but ended up missing two appointments with an attorney. On the morning of Sept. 12, he found himself sitting in the hotel lobby with a crowd of fellow residents, waiting for his turn to collect his check and sign the paper that would release the Clermont from any further obligation. He was still debating what to do when his name was called. He walked into the office, signed on the dotted line and walked out with more than $4,000.

"I'd have been standing there, the only one not to go along," says Joe, who still second-guesses his decision. "I'd have stood out like a sore thumb."

Laurie Scott, director of tenant services with Atlanta Legal Aid, says it's not uncommon for people who are lacking in formal education and legal sophistication — a description that includes the bulk of Clermont residents — to be reluctant to deal with lawyers and judges, even if it's clear they're being short-changed.

In a case like Joe's, she says, negotiation alone likely would be sufficient to yield a satisfactory result. "At a minimum, you'd want all the money back, plus some damages to compensate you for the loss of your money for that time," she says. She adds, however, that once the liability waiver is signed, the deal is final.

Bob says it pained him to watch several longtime Clermonters accept the four-year offer, giving up on thousands of dollars they had lost. One resident reportedly has lived in the hotel for 26 years, just a few months shy of how long the bed tax has been in effect. Still, Bob explains that he understands the mindset.

"They owed me for two years and they paid me for two years. But if they owed me for 10 or 12 years, there's no way in hell I'd have sat still for that," he says. "But this is Georgia and you've got some old-time colored folk who remember a time when they could beat your ass for standing on the sidewalk."

So how did the hotel decide to refund only up to four years, anyway?

Pierce Hardwick, a partner in McGee and Oxford, which represents the Clermont, says the cutoff point may sound arbitrary, but it isn't.

"We had to find some way of dealing with the problem that's reasonable," he says. "There's a statute of limitation of four years on implied contacts on the Georgia Code that we believe covers our liability."

Hardwick also confirmed that at least one former hotel guest has asked for a refund, but has been told he needs to bring receipts to document his stay — a standard request, to be sure, but who's likely to keep hotel receipts as souvenirs of one's years at the Clermont?

And he adds: "If their stay wasn't during the last four years, we're not liable to pay."

Hardwick is speaking of civil liability. Fraud charges are unlikely, at least not by the city. A quick survey of Atlanta's hotel/motel tax-collection process reveals a system that's light on enforcement and accountability.

Jerome Bodiford, who heads the business license division, says the city no longer performs its own audits of suspected tax cheats. Instead, it has farmed that duty out to a private firm that does spot-checking and pulls audits on hotels whose tax revenue has suffered an unexplained drop.

He estimates that 95 percent of the hotel accounts are accurate, but concedes that "there's no way to verify gross receipts" reported by a hotel without a comprehensive audit. In other words, his department largely relies on hotels to police themselves. Businesses caught under-reporting gross receipts are assessed a 10-percent penalty.

Besides, as long as the city gets its tax money, why would it go looking for hotels that overcharge their residents? The police sergeant in charge of business license investigations says he's never heard a complaint from a hotel resident claiming he was illegally overcharged, and he isn't sure how such a case would be handled. A staff attorney for the city says he'd probably just tell the victim to sue.

"It's very difficult to make a fraud case because you have to show intent," explains Legal Aid's Scott.

But the owner of the Ponce de Leon Hotel, probably the Clermont's closest competitor, says there's little chance that a hotelier wouldn't understand when to apply the tax and when not to. "Everybody in the hotel industry should know about it," says Edwin Porterfield.

When he returned to run the Ponce Hotel after years of leasing it, Porterfield says he was told by holdover desk clerks that guests had always been charged the additional 14-percent, no matter how long they'd lived there.

The problem may not be limited to intown hotels taking advantage of poorly educated customers. Edward Powers, executive director of Traveler's Aid of Metro Atlanta, a United Way agency that lodges homeless newcomers in local hotels, was shocked to hear about the tax rules.

"We're sure we've always been charged the full hotel rate after 10 days," he says. "We've never gotten this discount" from any hotel.

Although Traveler's Aid deals with a number of hotels, the Clermont has traditionally received the bulk of the agency's business, up to $30,000 annually in recent years, he says.

"The Clermont provides just the right amount of disincentive to remaining homeless," Powers says.

Which brings us to the $64,000 question: What possible explanation could the Clermont have for overcharging customers tens of thousands of dollars over the past two-and-a-half decades?

When contacted by phone, Blauvelt, who is the daughter of Clermont owner Lillian Loudermilk, refused to respond to CL's questions, asking, "Why don't you leave us alone? We're just a quiet hotel."

Hardwick says the hotel has dutifully paid the applicable taxes to the city and state, but admits that he doesn't know why the Clermont then kept the charges in place, quietly pocketing the proceeds.

"I've never asked my client, 'Were you trying to bilk these people out of their money?'" he says. "I assume it's been going on forever."


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