City Councilors voted Tuesday to allow restaurant and hotel owners to pay city taxes as many as three business days after deadlines without penalty.

City Councilors voted Tuesday to allow restaurant and hotel owners to pay city taxes as many as three business days after deadlines without penalty.

In order to be granted the grace period, the businesses must have paid all taxes on time for the last two years and have a clean bookkeeping record with the city.

Although the city sometimes implemented informal grace periods in the past, restaurant and lodging owners were technically required to pay at least 10 percent extra, plus interest, if payments were late under the previous ordinance regulations.

Now, the council unanimously decided, if a tax is due on a Friday afternoon, for example, restaurant and hotels that have the equivalent of "good credit" with the city will have until the following Wednesday afternoon to pay up — late fee free.

"It seemed to council and staff and some of the restaurant owners, I'd imagine, that (the city) was being unduly strict," City Administrator Martha Bennett said Wednesday. "And then, of course, with what's going on with the economy, being unduly strict doesn't help anybody."

The fact that the city will begin its campaign on May 18 to renew the 1993-voter-approved meals tax — which will expire in December 2010 — had nothing to do with the decision to allow leniency in the ordinance, Bennett said.

"We're trying to use common sense," she said, adding that allowing a grace period encourages business owners to continue to work with the city.

"When you have a business that has a good track record of compliance, imposing a penalty for a minor and potentially inadvertent mistake on their part makes them feel bad about the tax, and if they're just three days late it's more important that they stay current with the tax and that they continue to work with us, than that we get that penalty," she said.

Ashland restaurants collect a 5 percent Prepared Food Tax, commonly referred to as the meals tax, on sales of all food and beverages, 95 percent of which they are required to give to the city.

They are allowed to keep 5 percent of the total tax collected for administrative fees. The city uses the funds to pay for open space and its debt on Ashland's wastewater treatment system.

Ashland hotels, motels and bed and breakfasts collect a 9 percent Transient Occupancy Tax, 95 percent of which they are required to give to the city. The city places some of the money in its general fund and uses the rest to pay for tourism-related grants.

Restaurants and hotels that are more than three-business-days late paying taxes will face the same penalties as before: 10 percent extra for the first 30 days late and an additional 10 percent for any time after that, plus interest.

At city officials' discretion, the city may take businesses that don't pay up to court. Last week, owners of three Ashland restaurants — Big Al's, Geppetto's and Stillwater — received notices to appear in court later this month because they had not paid taxes they owed to the city, according to police.

"We try to use common sense, and an enforcement strategy that makes sure that everyone knows that we hope that restaurants will work with us," Bennett said, "but their patrons have paid this money so it's important that the restaurants turn it over."

Contact staff writer Hannah Guzik at 482-3456 ext. 226 or hguzik@dailytidings.com.