Newport Beach hotels will likely no longer have to pay taxes on complimentary hotel rooms.
A majority of City Council members said during a study session Tuesday they wanted to grant hoteliers an exception.
Any such exception, however, still faces formal adoption by the council.
City policy requires hotels to pay transient occupancy tax when people stay overnight, whether or not the businesses collect payment. After a hotel recently was found to be skipping tax payments for so-called "comped" rooms, its management challenged the policy, and hotel industry representatives appear to have successfully lobbied the council to change the rule.
"I think it's important to be business-friendly," said Councilman Rush Hill, a two-time Newport Beach Chamber of Commerce president.
Hotels sometimes give free rooms to meeting planners, disgruntled guests, hotel employees and charitable groups. Tourism leaders contend that meeting planners later book rooms throughout the city and generate tax revenue.
"It's one of our most important sales tools," said Gary Sherwin, president of Visit Newport Beach, the city's tourism bureau.
He added that Laguna Beach and Huntington Beach do not collect taxes on free rooms.
Councilman Mike Henn said he understood the utility of accommodating meeting planners and charities, but questioned whether the city should exempt disgruntled guests and employees.
Those are just a small fraction of the complimentary rooms, Sherwin replied.
When the Finance Department audited the Fairmont Newport Beach hotel about six months ago, it found that the hotel had not paid taxes or fees on comped rooms. The Fairmont challenged the rule, and the city prevailed in an independent hearing.
After that ruling, members of the Visit Newport Beach executive committee lobbied council members; the Finance Department staff was asked to quickly prepare a possible change to the rule, Finance Director Tracy McCraner said.
Henn, Hill, Mayor Pro Tem Keith Curry and Councilman Ed Selich all said they supported the entire exemption.
Council members did not know exactly how much the city would lose out in tax revenue. The Finance Department gave a rough estimate of $100,000 per year, and McCraner said she would have liked to study the issue more, but the four council members said they didn't need more information.
Hotel bed taxes are mainly used for general city services like police and lifeguards, while some are used for marketing the city. In fiscal year 2010-11, hotels generated about $13 million in taxes.
Mayor Nancy Gardner said she was skeptical that the city would be able to know how many rooms were actually given out for free.
Councilwoman Leslie Daigle was absent from the afternoon study session.