Gilroy officials are considering asking the voters to approve an increase of the city’s transient occupancy tax—commonly referred to as the hotel tax—up to a total of 13% of visitors’ short-term lodging rentals.
The current hotel tax rate in Gilroy is 9%, which officials noted at a recent city council meeting is one of the lowest TOT rates among cities in Santa Clara County. At the Feb. 9 meeting, the council directed city staff to return to a future meeting with a proposed ballot question for the November ballot.
The ballot question would ask voters to raise the TOT to a “not-to-exceed” rate of 13%, according to city staff. If approved by voters, the council would then determine the actual rate, which the elected body could set anywhere up to 13 percent.
“This potential adjustment would help generate additional revenue for general city services without impacting local residents, ensuring Gilroy remains competitive while addressing long-standing financial needs,” says a city staff report.
The city’s TOT applies to lodging stays of 30 days or less at hotels, motels and short-term rentals. The tax is paid by the customers of local lodging businesses.
Gilroy’s current hotel tax rate of 9% has not changed since 1983. The county average TOT is about 12%, according to city staff. Some at the Feb. 9 meeting suggested a hotel tax rate closer to 11% like that of Morgan Hill would be more appropriate.
Some hotel operators have raised concerns about competition and sales impacts that may result from a TOT increase, city staff added.
Gilroy’s hotel tax at 9% currently generates about $1.8 million per year for the city’s general fund. A TOT of 13% could increase annual revenue to $2.6 million from hotel stays.
A ballot measure could cost the city up to $100,000, according to city staff.
City staff are expected to return to the council this spring with a proposal for a ballot measure for the November 2026 election.
