Auckland hotels and accommodation providers are taking court action to challenge the legality of a "bed tax" championed by Mayor Phil Goff in his first budget last year.

They have united under the name of Commercial Accommodation Rate Payers (CARP) and commenced a judicial review in the High Court at Auckland challenging the legality of the council's accommodation provider targeted rate.

Goff's targeted rate has been called a "bed tax" since it was first mooted in late 2016, although the difference between a bed tax and the targeted rate is a bed tax is charged on a per-room night basis and the targeted rate is charged on the capital value of the property.

The rate came into effect in July last year to help funding for Auckland Tourism, Events and Economic Development and other infrastructure projects.

The financial impact on the council would be immaterial in the event of any adverse findings against the council.

The council budgeted to raise $13.45 million from the targeted rate in the 2017-2018 financial year, but this was adjusted down to $13.1m in February this year because of a change in property data.

CARP is made up of a number of hotels, motels and serviced apartments seeking to rescind the targeted rate "due to its unfairness and the lack of consultation by Auckland Council".

In a statement issued today, members of the group said that they had taken the action reluctantly but felt they had no choice.

They noted the targeted rate was imposed only on commercial accommodation providers, who receive less than 9 per cent of the total visitor spend in Auckland, according to information from the Ministry of Business, Innovation and Employment (MBIE).

Other industry sectors received a greater proportion of the visitor spend, but were not subject to the targeted rate, the statement said.

Among other things, the proceedings allege that:

• The council's decision to introduce the targeted rate was unreasonable. The cost imposed on commercial accommodation providers is vastly disproportionate to the benefit they receive. This is particularly unreasonable in circumstances where the targeted rate cannot economically be passed on to guests, and when the targeted rate is not imposed on all participants in the market;

• In breach of the Local Government Act 2002, the council failed properly to make an assessment of the benefits of the activities funded by the targeted rate; and

• The council breached the Local Government Act by failing to properly consult on the differential application of the targeted rate to different tiers of accommodation in different locations, or on the application of the rates remission policy for the purpose of the targeted rate;

• The council breached the Local Government (Ratings) Act and the Local Government Act by not following the special consultative procedure required when amending the Long-Term Plan.

CARP said the judicial review proceedings were supported by the vast majority of large and small commercial accommodation providers in Auckland and many in the wider tourism industry, including Tourism Industry Aotearoa and Hospitality New Zealand.

Auckland Mayor Phil Goff.
Auckland Mayor Phil Goff.

Goff's office responded to questions about the court action by saying council would defend the action and releasing a statement the council made to the New Zealand Stock Exchange, which said legal proceedings began early this month (May 4) and had been foreshadowed for some time.

Council general counsel James Hassall said as the matter was before the court the council was unable to make any further comment at this time.

"However, as the claim only concerns the Accommodation Provider Targeted Rate (APTR), the financial impact on the council would be immaterial in the event of any adverse findings against the council," the statement said.

In May last year, a mayoral spokesman said: "The mayor has received legal and technical advice throughout the development of the proposal and is confident the council is legally entitled to levy the targeted rate."