Laguna Beach Shelves Hotel Tax Hike, Pivots to 2028 Sales Tax Plan
After months of polling and study, the city council walked away from putting a transient occupancy tax increase on the 2026 ballot and directed staff toward a one-cent sales tax for 2028 instead.
Laguna Beach will not ask voters to raise the hotel tax this November. At its July 7 session, the city council accepted a recommendation from its Revenue Ad Hoc Committee to step back from all 2026 revenue measures and instead develop a one-cent sales tax for the November 3, 2028 general municipal election.
The shelved proposal would have raised the city’s transient occupancy tax, the tax paid by hotel and short-term rental guests, from 12% to 14%. The city estimated the two-point increase would generate about $3.0 million a year. Combined with the existing 2% Tourism Marketing District assessment, guests would have paid a 16% lodging tax.
Polling suggested voters would have approved it. Probolsky Research surveyed 400 likely November 2026 voters in May, and found 74% initially said they would vote yes, rising to 75% after hearing positive and negative messages, according to a city report. The strongest selling point, that the tax is paid by visitors rather than residents, moved 68% of voters.
At a June 9 study session, the council had directed staff to draft the hotel-tax ordinance and to test a business license tax increase on restaurants and bars, a proposal estimated to bring in about $8.6 million a year. But after a second round of polling on the business license tax, the ad hoc committee concluded none of the measures had the right combination of revenue and winnability for 2026.
The committee instead recommended focusing development, outreach and polling on a single measure: a one-cent transactions and use tax that would lift the local sales tax rate to 8.75% from 7.75%, estimated to generate about $7.8 million annually. City data shows roughly 55% of the sales tax collected in Laguna Beach is paid by tourists and visitors from outside the city.
The fiscal backdrop is a multi-year squeeze. Finance Director Michelle Bennigan told the council the general fund grew roughly $34 million in revenues since the 2015-16 fiscal year while expenditures rose about $37 million over the same period, and the city’s discretionary balance fell from about $6.9 million to an estimated $2.0 million this fiscal year.
For the lodging industry, the decision keeps Laguna Beach’s base hotel tax at 12%, for a combined 14% with the marketing district, already in the upper range among Orange County cities, where most levy between 8% and 10%. City materials noted the proposed 14% rate would have stayed below Anaheim and Garden Grove at 15%.
The council also directed staff to pursue organizational efficiencies while the 2028 sales tax measure is developed. For hotel operators, the question now moves from November’s ballot to how the city markets a tax paid largely by visitors when the time comes.
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