SR-212-002 (3)
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APR 2 5 1989
CMD:RB:br/srl013
council Meeting: April 25, 1989
TO: Mayor and city Council
Santa Monica, California
FROM: City Staff
SUBJECT: Amendment to Section 662l(a) of the Santa Monica
Municipal Code to Include Interstate and International
Telecommunication Services in the City's utility Users'
Tax Base
Introduction
This is to recommend that the City Council direct the city
Attorney to prepare an ordinance amending section 6621(a) of the
Santa Monica Municipal Code to include interstate and
international telecommunication services which originate within
the City of Santa Monica or which are charged to a Santa Monica
service address in the City's utility Users' Tax base.
Background
During January 1989, the United States Supreme Court issued a
decision for two consolidated cases, Goldberg vs. Sweet and GTE
sprint Communications Corporation vs. Sweet, upholding the right
of states and cities to tax interstate and international
telecommunication services. As a result of this decision, the
taxing of interstate and international telecommunication services
currently being done by some ten states and, locally, the cities
of Los Angeles and Culver City, was held to be constitutional.
Los Angeles expanded its utility Users' Tax base to include such
telephone services in July 1987 and Culver City did so in June
1988.
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Under the City's current Utility Users' Tax, only those
telecommunication services users which place local or intrastate
calls are taxed. Residents and businesses utilizing interstate
and international telecommunication services are not taxed. For
example, a Santa Monica resident making calls to San Francisco
will be taxed on those calls. Alternatively, a Santa Monica
resident making calls to Phoenix, Arizona or Reno, Nevada will
not be taxed despite the fact that the distances between Santa
Monica and San Francisco, Phoenix, and Reno are approximately the
same. Expanding the existing utility Users' Tax base to include
interstate and international calls will correct this inequity.
staff has consulted with representatives of providers of long
distance telecommunication services and determined that should
the city's utility Users' Tax base be expanded to include
interstate and international telecommunication services which
originate within the City or which are charged to a Santa Monica
service address, they will be able to implement tax collections
within ninety (90) days at essentially no cost to the city.
Financial Impact on Average Household and Business
Based on data provided by the cities of Los Angeles and Culver
City, staff estimates that: a) approximately one-third of
interstate and international telecommunication revenues are
generated by households, while two-thirds are generated by
businesses; and b) expanding the City's utility Users' Tax base
to include interstate and international calls would result in
approximately a 20% or $798,200 increase in annual
telecommunication service-related revenue.
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Combining these estimates gives the following projected financial
impact on the average household and business in the city:
Homeowners Businesses Total
projected Additional
Revenues $ 262,800 (33%) $ 535,400 ( 67%) $ 798/200
Number of Households 45,741(1)
Number of Businesses 6/100 - 8,000 (2)
Monthly Impact per
Avg. Household...... $ .48
Monthly Impact per
Avg. Business.........................$5.78 - $7.31
(1) Per state Department of Finance, 1/1/88, occupied housing
units
(2) Number of licensed resident businesses (estimated)
BUdget/Financial Impact
Assuming the ordinance change expanding the City'S utility Users'
Tax base to include interstate and international
telecommunication services would be effective by July 1, 1989;
and allowing ninety days for long distance carriers to implement
the tax base expansion, tax collections should start by October
1, 1989. It is therefore projected that $598,650 in additional
utility User Tax revenues would be realized in FY1989/90. Should
council approve the recommendation of this staff report, staff
will reflect this additional revenue in the City'S proposed
FY1989/90 budget.
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Recommendation
It is recommended that the City Council direct the city Attorney
to prepare an ordinance amending Section 6621(a) of the Santa
Monica Municipal Code to include interstate and international
telecommunication services which originate within the City of
Santa Monica or which are charged to a Santa Monica service
address.
Prepared by: Mike Dennis, Director of Finance
Ralph E. Bursey, city Treasurer/Revenue Manager
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