Gilroy hotel tax increase will generate thousands of dollars

A ballot measure in Gilroy is on a path to victory that will allow the City Council to raise its hotel tax significantly.

As of Friday, Measure B shows voter approval at 65%, which gives the city the ability to raise the transient occupancy tax (TOT) from its current 9% to as much as 13%. The measure only requires a simple majority to pass. Contingent on how the council votes, the city could see an additional $300,000 in annual general fund revenue at 11% or $700,000 at 13%.

City Administrator Matt Morley said the initial plan is to bump the hotel tax to 11%, which he said is comparable to other Santa Clara County cities, though hoteliers have some concerns about what it could do for future overnight stays.

“If the current results hold, Measure B will provide additional locally controlled funding to support the services our community relies on, paid for by visitors to Gilroy who also benefit from those services,” Morley told San José Spotlight.

Gilroy first established a 5% hotel tax in 1971 and increased it to 9% in 1983. Morley said the 11%, which will take effect Jan. 1, is still one of the lowest in the county. Unincorporated Santa Clara County has a 10% hotel tax, Morgan Hill is at 11% and San Jose just increased its tax to 12%. Los Altos, Milpitas and Palo Alto have the highest rate in the county at 14%.

Any future adjustment up to the voter-authorized 13% maximum rate would require city council approval at a public meeting, and would take effect 60 days later, Morley said.

TOT applies to guests staying in hotels, motels, short-term rentals and other qualified lodging within Gilroy. The tax is an additional fee. Measure B does not increase the sales tax on retail purchases or restaurant meals.

Councilmember Terence Fugazzi ran for office in 2024 focused on finding new ways to bring revenue to the city, and was the champion behind the initiative for this ballot measure. He said he pushed for creating a scaled tax rate that would leave the door open for the council to bump up the TOT another time rather than it needing to go back for a vote.

“That’s a key differentiator,” Fugazzi told San José Spotlight. “(The TOT) is a good thing. It’s going to bring the value to pay for another two police officers.”

Some hoteliers, such as Comfort Inn Gilroy owner Ray Vasant, believe the new tax rate will take away the city’s competitive edge on neighboring cities. Vasant said he accepts the vote for what it is, but pleaded with the city to only increase the tax to 11% so hotels like his can remain more attractive to tourists staying in South County.

“A few dollars a night decides whether a guest stops in Gilroy or drives 15 minutes further,” Vasant told San José Spotlight. “That would put Gilroy at a real disadvantage against nearby cities for the same traveler.”

Vasant said the tax spike could compound into less revenue across the board if travelers decide to stay in another city — with Gilroy losing out on the tax revenue and sales at stores, restaurants and for fuel. Vasant said if councilmembers decide to raise the TOT to the 13% maximum, they should consult the hoteliers and give them ample time to plan for the change before it takes effect.

“Gilroy’s hotels want the same things the council does: well-maintained streets, strong public safety and a city that visitors want to return to,” Vasant said. “We collect this tax on the city’s behalf every day, and we want it to work for Gilroy over the long term.”

Contact Giovanni Albanese Jr. at [email protected]