Anaheim Calls on Hilton to Pay Up : Dispute: City Council upholds audit finding that hotel owes $243,000 in taxes and penalties for underreported revenue.

The city’s largest hotel complex, the Anaheim Hilton Hotel and Towers, underreported revenues by $1.2 million and must pay $243,000 in room taxes, interest and penalties, the City Council decided Tuesday.

By a 3-2 vote, the council upheld the findings of a city audit of the hotel’s revenues for a three-year period.

“This is money due the city,” Councilman Tom Daly said before the 3-2 vote. “We should be operating like a bank in this case. Rules are rules.”

The council’s decision to uphold the audit caps a dispute between the Hilton and the city that has lasted more than a year.

The audit examined the hotel’s revenues from August, 1987, to October, 1990, and originally had concluded that the Hilton owed the city $340,000. Hotel executives appealed, and city officials reduced the bill to $243,000.

According to the city’s findings, which were confirmed in an administrative hearing last August by retired Superior Court judge Norman R. Dowds, the Hilton will be charged $123,077 in back taxes, $58,410 in interest payments and $61,539 in penalties, for a total of $243,026.

During the three-year audit period, documents showed, the Hilton paid more than $10 million in room taxes to the city, on total revenues of $110.4 million.

“What we are talking about is a very minute portion” of taxes paid, said Vince B. Shroff, Hilton’s director of tax planning and compliance.

Anaheim Mayor Fred Hunter and Councilman Bob D. Simpson proposed dismissing the penalty portion of the hotel’s payment, but that offer was defeated by a council majority lead by Irv Pickler.

“Ignorance of the law is no excuse,” Pickler said. “I don’t think they were out there trying to cheat us, but they know about the ordinance. They could have come earlier and said they had a problem with this, but they didn’t.”

Councilman William D. Ehrle called the council’s action “a business decision.”

“We all know the Hilton has done a magnificent job and will be a good corporate friend to the city, but we’re here to make a business decision, not a decision based on friendship.”

But hotel executives say the amount still is inflated because the city is including “special packages” offered by the hotel which include food and theme park ticket costs in addition to room rents.

In documents filed with the city, Hilton officials said they could not comply with the city’s ordinance that requires a breakdown of package-deal benefits offered by hotels for room tax purposes.

“We end up paying tax on fictional rent,” Shroff said.

The routine audit, performed every three years, comes as the city tries to maintain a steady income from tax dollars during a recession that has slowed the local tourism industry. Last year, the Anaheim Hilton and Towers tussled with the city when hotel officials missed the deadline for payment of its November hotel tax by two days and was assessed a $34,121 late fee. The City Council later refused the hotel’s request to forgive that late fee.