City of Santa Barbara to Spend $276,000 on Audit of Cannabis and Tourism Taxes

[Updated: Tue., Nov. 7, 2023, 9:15pm]

The City of Santa Barbara collects about $30 million a year in tourism-related taxes, and another $1.4 million from cannabis businesses, but much of those numbers are self-reported by the operators. Now the city plans to conduct an audit to ensure that all tourism and cannabis taxes are being reported accurately and that revenues are maximized to their full potential.

The City Council voted this Tuesday to authorize a $276,000 contract with Hinderliter, de Llamas & Associates to conduct the three-year audit into the Transient Occupancy Tax (TOT) and cannabis business tax from fiscal years 2021 through 2023.

Tourism taxes, which bring in $30 million annually through 68 hotels, motels, and inns in Santa Barbara, have undergone similar audits in previous years, though the newer revenues from the six permitted cannabis businesses within city limits have not yet been audited for standards and accuracy. In 2023, the six businesses combined for $1.4 million in tax revenue.

The auditing services will cost about $146,000 for tourism taxes ($2,150 per hotel) and $120,000 for cannabis taxes (about $20,000 per business), which will come partly from the city’s adopted budget and partly through the cannabis businesses themselves, since each contributes a renewal fee each year toward audits on cannabis sales in the city.

The city already set aside $180,000 for the audit program in its fiscal year 2024 budget, which should support “at least the first year of auditing services,” according to the staff report prepared by Assistant Finance Director Lyndsay Maas.

While the city is unable to estimate how much, if any, extra revenue may be collected as a result of these audits, any additional money could be redistributed according to city council discretion in future budget cycles.