SR-072308-8Cc7
,tYo, .City Council Report
Santa Monica
City Council Meeting: July 23, 2008
Agenda Item: ~~
To: Mayor and City Council
From: Mona Miyasato, Deputy City Manager
Subject: Measure to Maintain and Update the Utility User's Tax on
telecommunications, continuing unchanged the existing tax rate.
Recommended Action
Staff recommends that the Council
1) adopt a resolution placing a measure on the November 2008 election that would
amend the City's Utility Users Tax, by updating the City's Utility User's Tax on
telecommunications without raising the tax rate, and authorizing certain members
of the Council to submit arguments and rebuttals concerning the measure, and
2) direct the City Attorney to prepare an impartial analysis of the measure.
Executive Summary
On June 17, 2008 as part of final budget adoption actions, Council directed staff to
prepare a resolution placing a proposition do the November 2008 'General Municipal
Election to amend .and. update the City's Utility Users Tax on telecommunications
without increasing the tax rate. The ballot measure and proposed ordinance are
attached.
Background
The City's adopted budget assumes the continuance of $12.6 million of the City's UUT
on telecommunications. This tax has been in effect since 1969 and funds general
services such as education and school programs, public safety,. parks and recreation
and other general fund services. Given the changes in technology, the City wishes to
update its ordinance without raising the tax rate (10 percent) so that taxpayers are
treated equitably, regardless of the technology used. The burden is currently not
shared equally. As a result of technological changes not anticipated when the UUT was
initially developed, some users are able to avoid paying the tax due solely to the type of
telecommunication services they use. In contrast users of traditional telephone services
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potentially shoulder a disproportional share of the tax burden. The update will clgse
these technology loopholes and imbalances, and .ensure that everyone is on an even
and equal playing field. There would be no increase in the tax rate, and low-income
seniors and disabled residents would continue to be exempt from paying this tax.
Pursuant to Proposition 218 any future tax rate increase would require voter approval.
Discussion
Attached as Exhibit A is the resolution submitting the measure to the voters of the City
of Santa Monica. The title is as follows
PROPOSITION " ": Shall an ordinance be adopted to continue and update Santa
Monica's Utilities Tax on telecommunication services to fund City activities including
police, fire, paramedic and emergency services, school and afterschool programs, gang
and drug prevention programs, parks and recreation programs, environmental
protection and other general fund services, with tax-exemptions for low-income seniors
and disabled residents, with provisions ensuring. equal treatment of taxpayers
regardless of technology used, and with expenditures subject to independent annual
audits?"
In addition, the resolution authorizes the City Council to submit arguments and rebuttals
concerning the measure. The City Council may designate one to five members to
submit arguments and rebuttals for the measure. Finally, the resolution directs the City
Clerk to transmit a copy of the measure to the City Attorney and directs the City
Attorney to prepare an impartial analysis of it showing the effects of the measure on the
existing law and operation of the measure.
Arguments and rebuttals shall be submitted in accordance with State Elections Code
Sections 9280-9287, and Santa Monica Municipal Code Section 11.04.125. The
Elections Official will set the deadline for submitting arguments as August 6, 2008 and
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the deadline for submitting rebuttals to arguments as August 18,.2008.
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Alternatives
Council may choose not to adopt the resolution and thereby avoid placing a measure on
the ballot. If so, staff would propose adjustments to the current year's budget for
Council action at mid-year, along with potential tradeoffs or reductions in expenditures,
to maintain a balanced budget, as necessary.
Financial Impacts & Budget Actions
The cost of placing the measure orrthe ballot will be covered by the FY2008-09 election
budget. Voter approval of the measure would safeguard $12.6 million in revenue
generated by utility users' taxes on telecommunication services, as adopted in the
budget.
Attachment: Resolution Placing a Proposed Measure on the Ballot and Text of
.Proposed Measure (Exhibit 1)
Prepared. by: Mona Miyasato, Deputy City Manager
Approved: Forwarded to Council:
~ ~ __-,
Mona Miyasato (/ - P. ont EN
Deputy City Manager City Manager
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Exhibit 1
SECTION 1. Chapter 6.72 of the Santa Monica Municipal Code is amended to
read as follows:
Utilities Tax
6.72.010 Definitions.
The following words and phrases. whenever used in this Chapter shall be given the
meaning stated below unless otherwise provided.
(a). "Ancillary telecommunication services" mean services that are associated
with or incidental to the provision, use or eniovment of telecommunications services,
including but not limited to the following services:
(1) "Conference bridging service" that links two or more participants of an audit
or video conference call and may include the provision of a teleph~=,a number.
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Conference bridging service does not include the telec^mmunications services
used to reach the conference bridge.
(2) Anv service which separately states information pertaining to individual calls
on a customer's billing statement.
(3) Any service which provides telephone number information, or address
information.
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(4) Anv service offered in connection with one or more telecommunications; ;
services, which offers advanced calling features that allow customers to identify
callers or to manage multiple calls or to call. connections, including conference
bridging services.
(5) Anv service that enables a service user to store, send or receive recorded
messages.
(b) "Ancillary video services" mean services that are associated with or
incidental to the provision or delivery of video services, including but not limited to the
provision of converters and similar eauipment, electronic program guide services,
recording services, search functions, or other interactive services or communications
that are associated with or incidental to the provision, use or eniovment of video
services.
~. "Billing address" means the mailing address of the service user where the
service supplier submits invoices or bills for payment by the customer.
(~ "Cable television service" means any and all services related to the providing
of television, video or origination programming or services, including any communications
that are ancillary, necessary or common to the use or enjoyment of the programming or
service, provided to premises located in the City through any cable, or any other similar
medium, in part or exclusively, that is used to transmit television or video signals,
regardless of the content of the video programming or communications. However, cable
television service shall not include services for which a tax is paid under Section 6.72.Q20 ; ;
of this Chapter.
[e) "Cable television supplier" means any person, company or service which
provides one or more channels or signals of television, video or television programming or
services, .including any communications that are ancillary, necessary or common to the
use or enjoyment of the programming or services, to or from a business, home,
condominium or apartment, where some fee is paid, whether directly or indirectly,
whether or not the public rights-of-way are utilized in the delivery of the video or television
programming or communications and regardless of the content of such video or television
programming or communication. Cable television supplier includes, but is not limited to,
multichannel video programming distributors, as defined in 47 U.S.C. Section 522(13),
open video systems (OVS) suppliers, suppliers of cable television, master ant~~rna
television, satellite master antenna television, multichannel multipcint distribution
services, direct broadcast satellite, and other suppliers or video programming or
communications including two way communications, whatever their technology, to the
extent allowed by law:
~f). "City" means the City of Santa Monica.
(~ "Electrical corporation" has the same meaning as it is defined in Section
218 of the California Public Utilities Code. "Electrical corporation" shall be construed to
include any municipality or franchised agency ,engaged in the selling or supplying of
electrical power to a service user.
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(h) "Exempt wholesale generator" has the same meaning as set forth in the ,
Federal Power Act, 15 U.S.C. Section 79z-5a, and regulations thereunder.
~) "Gas" means natural or manufactured gas or any alternate hydrocarbon
fuel, which may be substituted therefor.
(j) "Gas corporation" has the same meaning as it is defined in Section 222 of
the California Public Utilities Code.
~). "Month" means a calendar month.
(~ "Non-utility service supplier" means:
(1) A service supplier, other than a supplier of electric distribution services to all
or a significant portion of the City, which generates electricity for sale to others,
and shall include, but is not limited #o, any publicly-owned electric utiiity, investor-
owned utility, co-generator, exempt wholesale generator, municipal utility district,
federal power marketing agency, electric rural cooperative, or other supplier or
seller of electricity;
(2) An electric service provider (ESP), electricity broker, marketer, aggregator,
pool operators, or other electricity supplier other than a supplier of electric
distribution services to all or a significant portion of the City, which sells or supplies
electricity or supplemental services to electricity users within the City; or
(3) A gas service supplier, aggregator, marketer or broker, other than a supplier ; ;
of gas distribution services to all or a significant portion of the City, which sells or
supplies gas or supplemental services to gas users within the City.
(~. "Person" means, without limitation, any natural individual, firm, trust,
common law trust, estate, partnership of any kind, association, syndicate, club, joint stock
company, joint venture, limited liability company, corporation (including foreign, domestic,
and non-profit), municipal district or municipal corporation, other than the City,
cooperative, receiver, trustee, guardian, or other representative appointed by order of any
court.
(n). "Service address" means the residential street address or the business
street address of the service user's primary place of usage. As determined by the Tax
Administrator "service address" may include the location of the service user's
communication equipment from which the communication originates or terminates,
regardless of where the communication is billed or paid. For prepaid telecommunication
service, "service address" means the location associated with the service number.
(o). "Service supplier" means any entity or person, including the City, that is
reauired to collect, self-collect or self-impose and remit a tax subiecf to this Chapter
including any billing agent. Service supplier includes any person that provides
telecommunication, electric, pas, cable, water or wastewater service to a user of such
services within the City.
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(p). "Service user'' means a person required to pay a tax imposed undEr;the ; ;
provisions of this Chapter.
(q). "Tax Administrator" means the City's Director of Finance or his or her
designee.
(r). "Telecommunication service" means the transmission, conveyance, or
rbuting by any method or mean of any voice, data, audio, video. or any other information
or sigrials to a point, or between or among points, regardless of the technology or method
or mean of transmission, conveyance or routing that may be used. Telecommunication
service includes, without any limitation whatsoever, any transmission, conveyance, or
routing in which computer processing, or any other technology or application of any kind,
may be used to act on any form. code or protocol of content for purposes of transmission,
conveyance or routing, without regard to whether such service is described or otherwise
referred to as voice over Internet protocol (VoIP) service or is classified by the Federal
Communications Commission, or any other successor entity, as enhanced or value
added. Telecommunication service includes video or data or any other service that is
functionally integrated, in whole or in part, with a~ telecommunication service.
Telecommunication service further includes, but is not limited to, the following services,
regardless of the manner or basis on which such services are calculated or billed:
ancillary telecommunication services; intrastate, interstate and international
telecommunication service; mobile telecommunications service: prepaid or post-paid
telecommunication service; private telecommunication service; paging service; "800" or
"900" numbers or any other similar numbers designated by the Federal Communications;
Commission or any other successor entity: ancillary video services and video services.
Telecommunication service also includes, but is not limited to any charge however
calculated or billed for: connection reconnection, termination, movement. or change of
service• late payment fees' detailed billing~ central office; custom features• directory
assistance' access line or universal service• regulatory, administrative or other cost
recovery fees local number portability text and instant messaging~ video programminq•
equipment leases• service calls• service protection plans and special or other services of
any kind. Telecommunication service does not include digital downloads that are not
"ancillary telecommunication services" such as music, ringtones games, and similar
digital products.
(s) "Telephone corporation" has the same meaning as defined in Section 234
of the California Public Utilities Code.
(t) "Video programminq" means programming services provided to service
users by a "video service supplier" including but not limited to basic services, premium
services, audio services, video games, pay-per-view services, video on demand,
origination programminq or any other similar services regardless of the content of such
video programminq, or the technology used to deliver such services, and regardless of
the manner or basis on which such services are calculated or billed.
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(u) "Video services" means any and all services and equipment related :to ;the: :
providing, recording, delivering, use or enioyment of video programming, including but
not limited to. origination programming and programming using Internet Protocol, e.g.,
IP-TV and IP-Video, using one or more channels by a video service supplier, regardless
of the technology used to deliver, store or provide such services, and regardless of the
manner or basis on which such services are calculated or billed, and includes ancillary
video services, data services, telecommunication services, or interactive
communication services that are functionally integrated, in whole or in part, with video
services.
6.72.020 Telecommunication Services Tax
(a). There is hereby imposed a tax upon every person using telecommunication
services in the City, other than a telephone corporation, including intrastate, interstate,
and international telephone communication services.. The tax imposed by this Section
shall be at the rate of ten percent of all charges made for such telecommunication
services and shall be collected from the service user by the telecommunication services
supplier or its billing agent. To the extent allowed by law, the tax on telecommunication
services shall apply to a service user if the billing or service address of the service user is
within the City's boundaries. If the billing address of the service user is different from the
service address, the service address of the service user shall be used.
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(b) As used in this Section, the term "charges" shall include the value of any : .
other services, credits, property of every kind or nature, or other consideration provided
by the service user in exchange for the telecommunication services. If any nontaxable
service or charge is combined with and not separately stated from taxable service
charges on the bill or invoice of a service supplier, the combined charge is subject to tax
unless the service supplier can reasonably identify the portions of the combined charge
that are nontaxable and taxable through the service supplier's books and records that
are kept in the regular course of business, and in accordance with generally accepted
accounting principles. The service supplier has the burden of proving the proper
apportionment of taxable and- non-taxable charges If the service supplier offers a
combination of taxable and non-taxable services and the charges are separately
stated then for taxation purposes the values assigned the taxable and non-taxable
services shall be based on its books and records kept in the regular course of business
and in accordance with generally accepted accounting principles ='rid not created and
maintained for tax purposes The service supplier has the burden of proving the proper
valuation of the taxable and non-taxable services. As used in this Section, the term
"charges" shall not include charges for services paid for by inserting coins or other
forms of payment in coin or payment operated telephones, except that where such coin
or payment operated telephone service is furnished for a guaranteed amount, the
amounts paid under such guarantee plus any fixed monthly or other periodic charge
shall be included in the base for computing the amount of tax due.
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~. To prevent actual multi-jurisdictional taxation of telecommunication services;
subject to tax under this Section, any service user, upon proof to the Tax Administrator
that the service user has previously paid the same tax in another state or city on such
telecommunication services, shall be allowed a credit against the tax imposed to the
extent of the amount of such tax legally imposed in such other state or city; provided,
however, the amount of credit shall not exceed the tax owed to the City under this
section. For purposes of establishing a sufficient legal basis for the imposition and
collection of utility users tax for telecommunication services pursuant to this Chapter,
"minimum contacts" shall be construed broadly in favor of the imposition and collection of
the utility users tax to the fullest extent permitted by California and federal law, and as it
may change from time to time.
(d)• The tax on telecommunication service imposed by this Section mall be
collected. from the service user by the service supplier or its billing agent. The _amount of
tax collected in one month shall be remitted to the Tax Administrator, and is due to the
Tax Administrator on or before the 20th day of the following month.
(e) Any natural person, who satisfies the special exemption requirements
established by Section 6.72.150, shall be exempt from ttie tax imposed by this Section.
Nothing in this Chapter shall be construed as imposing a tax upon any person or service
when the imposition of such tax upon such person or service would be in violation of a
federal or state statute. the Constitution of the United States or the Constitution of the
State of California. The Citv Council may, in its discretion and in accordance with
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applicable law, create by ordinance exemptions from the telecommunication-services ; ;
tax.
(fl The Tax Administrator is authorized to enforce the provisions of this Chapter
and may adopt administrative rules and regulations and may issue determinations as
appropriate for the proper administration and interpretation of this Chapter and that are
consistent with provisions and intent of this Chapter. The Tax Administrator may also
issue and disseminate to service suppliers sourcing and other administrative rules or
determinations for the taxation of telecommunication services, including but not limited
to post-paid communication services, prepaid communication services, and private
communication services.
SECTION 2. The terms of this ordinance measure may be repealed or
amended by the City Council of the City of Santa Monica through duly c,~acted
ordinance unless Chapter XIIIC of the Constitution of the State cif California provides
otherwise.
SECTION 3. Severability. If any section, subsection, sentence, clause, phrase,
or portion of this Ordinance is for any reason held to be invalid or unenforceable by a
court of competent jurisdiction, the remaining portions of this Ordinance shall
nonetheless remain in full force and effect. The people hereby declare that they would
have adopted each section, subsection, sentence, clause, phrase, or portion of this
Ordinance, irrespective of the fact that any one or more sections, subsections,
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sentences, clauses, phrases, or portions of this Ordinance be declared invalid or: ;
unenforceable.
SECTION 4. Ratification of Prior Tax. The People of the City of Santa Monica
ratify and approve the tax practices and collection activities under Chapter 6.72 of the
Santa Monica Municipal Code as occurred prior to the adoption of this Ordinance.
SECTION 5 Any provision of the Santa Monica Municipal Code or appendices
thereto inconsistent with the provisions of this Ordinance, to-the extent of such
inconsistencies and no further, is hereby repealed or modified to that extent necessary
to effect the provisions of this Ordinance.
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Reference Resolution No.
10333 (CCS).