Auckland ratepayers have forked out more than $1 million in legal costs to defend the council's bed tax, which the Court of Appeal has ruled invalid.
The bed tax was the brainchild of mayor Phil Goff, who imposed it on hotels and other accommodation providers as an alternative to rates to fund tourism promotion and major event work by the council's events arm, Auckland Unlimited.
The tax, or accommodation provider targeted rate (APTR), raises about $13m a year to broaden the council's revenue base. Before it was introduced, it was estimated to add up to $10 on a hotel bill.
Goff has declined to comment on the court's damning judgment, which could see the council stung for legal costs of more than $1m, having to pay back tens of millions of dollars to the accommodation sector and forgo tens of millions of dollars in future revenue.
"Auckland Council is currently reviewing the court's judgment, which was received on Wednesday and which was a complete reversal of the decision made previously by the High Court. The parties have 20 working days to file any appeal. It would not be appropriate to comment further at this time," a mayoral spokesman said yesterday.
The spokesman added any decision to appeal the judgment would be made by chief executive Jim Stabback and chief finance officer Peter Gudsell on advice from the council's legal team.
The Court of Appeal found the council had "reverse engineered" justification for the bed tax.
The court said it did not have the power to target visitors directly through a bed tax or visitor levy, saying there was "virtually no assessment" from the council on the benefits to the targeted group.
"The council's failure to adequately consider this mandatory relevant consideration was an error of law going to the heart of the decision," the judgment said.
The decision has turned the tables on Goff, who was disappointed when a group of hotel and motel owners decided to appeal a "clear-cut and strong decision in the High Court" in March last year.
"The legal action has already cost ratepayers over a million dollars and the council is seeking costs from the legal action taken to date.
"I don't think Aucklanders will have much sympathy for accommodation providers who directly benefit from council spending but want ratepayers to pick up the tab for marketing the city," he said at the time.
More than 18 months later and having overturned the High Court decision, the group Commercial Accommodation Rate Payers (Carp), is in the box seat in terms of seeking legal costs and leaving ratepayers to pay the council's legal bill.
Carp steering committee chairman Terry Ngan said the group suspects the council may appeal to the Supreme Court given the mayor's previous statements.
"Given that the tourism and accommodation industries have yet to recover from the pandemic and council's finances are stretched, we hope that commonsense will prevail and that they don't," he said.
Ngan has called on the mayor and council to channel their efforts into working with the industry on a solution that reflects the Court of Appeal decision, and is fair and equitable to all concerned at an appropriate time.
The appeal court said the issues of "consequential relief" in respect of the targeted rate will be determined by the High Court if the parties cannot agree.
The Appeal Court also said the council must pay costs to the appellants for "a complex appeal" and for earlier costs in the High Court to be determined by that court.