SR-08-25-2015-3T
City Council
Report
City Council Regular Meeting: August 25, 2015
Agenda Item: 3.T
1 of 4
To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Treasury Division
Subject: Contract with the California State Board of Equalization for Collection of Utility
Users Taxes on Prepaid Mobile Telephony Services
Recommended Action
Staff recommends that the City Council:
1) Adopt the attached resolution authorizing the City Manager to negotiate and
execute a contract with the California State Board of Equalization for the
collection of utility users taxes on prepaid mobile telephony and sign all related
documents; and
2) Adopt the attached resolution of the City of Santa Monica establishing the list of
City staff authorized to examine prepaid telephony records tax records of the
California State Board of Equalization (BOE) and in addition, authorizing
MuniServices LLC to examine the prepaid telephony records tax records of the
BOE.
Executive Summary
Per Assembly Bill (AB) 1717, beginning January 1, 2016, California retailers are
required to impose a surcharge on purchasers of prepaid mobile telephony services
(MTS), commonly known as prepaid calling cards. The MTS surcharge is collected as a
percentage of the sales price of each transaction. One of the components of the MTS
surcharge is local Utility Users Tax (UUT), which until now, has not been collected on
retail purchases of prepaid mobile telephony.
AB 1717 requires that cities contract with the California State Board of Equalization
(BOE) to collect these revenues on their behalf. Staff recommends that Council
authorize the City Manager to negotiate and execute a contract and all related
documents with the BOE for collection of the MTS surcharge. The BOE also requires
that Council adopt a resolution establishing the list of City staff and any third party
consultant authorized to examine prepaid telephony records tax records of the BOE.
MuniServices LLC is currently under contract with the City to provide audit and
consulting services relating to Utility Users Tax issues and would periodically review the
BOE records to ensure the City is receiving the appropriate UUT allocations.
Background
2 of 4
The City currently levies a 10% utility users tax (UUT), resulting in collection of
approximately $33 million in revenues annually, approximately $5 million of which is
generated from taxes on mobile telecommunication services. The options for mobile
telecommunications services have changed significantly over the last few years with an
increasing amount being provided through prepaid telephony methods such as prepaid
wireless airtime cards, prepaid wireless sim cards, and other prepaid options. Prior to
the enactment of AB 1717, which takes effect on January 1, 2016, there was no
workable process for collecting and remitting local jurisdictions’ UUT for transactions
involving the sale of prepaid telephony services at retail stores. AB 1717 establishes a
process for collection at the State level and apportionment to local jurisdictions in the
same manner that local sales taxes are collected and remitted.
Discussion
Traditionally, a city’s UUT on telephony services is collected by telephone service
providers who include the charge on their customers’ monthly invoices. The City’s UUT
ordinance specifically includes prepaid services in the list of telecommunication services
subject to the City’s UUT. However, at the current time, customers who purchase
prepaid phone cards avoid paying any UUT. With prepaid wireless, there is no contract,
no monthly invoices, and the phone cards are usually sold by retailers, not service
providers themselves. It is estimated that approximately 70% of all prepaid phone cards
are sold by retailers in transactions that bypass local UUT . As prepaid options become
more common, the City stands to lose revenue as more people shift from service
contracts. Additionally, traditional phone plan users are treated disparately and the
burden of the UUT is not equally shared among all telephone users.
AB 1717 protects existing and future revenues by providing a collection mechanism for
existing and future UUT revenues and removes the loophole that existed regarding
prepaid telephony services. Beginning January 1, 2016, California retailers will be
required to collect the local UUT (as well as certain State-assessed administrative
charges) at the same time they collect sales tax on the retail product, based on the point
of sale. It is estimated that implementation of AB 1717 will increase UUT on mobile
telecommunication services by approximately 20%.
3 of 4
Under this new law, all local jurisdictions are required to contract with the California
State Board of Equalization (BOE) for collection and remittance of local UUT imposed
on consumers of prepaid phone cards. In order to simplify and reduce the costs of the
Statewide collection process, which would require the moni toring of the UUT rates of
the approximately 150 cities that levy a UUT, AB 1717 substitutes a schedule of nine
tax rates (on prepaid mobile telephony services only) for the i ndividual rate charged by
each city. The rate for Santa Monica will be 9%. The Santa Monica general UUT rate
of 10% will continue to apply to all other utility services, including mobile telephone
service contracts.
The law also requires Council to adopt a resolution denoting City staff and any third
party consultant authorized to examine prepaid telephony records tax records of the
BOE, as this is considered confidential information per Sections 42110 and 42103 of the
State Revenue and Taxation Code. The attached resolution lists the Finance
Director/City Treasurer and the Assistant City Treasurer as the City staff authorized to
view the records and MuniServices LLC as the third party consultant authorized to view
the records. MuniServices LLC is the City’s Utility Users Tax consultant/auditor and
examination of the records would f all under the scope of services of the existing
contract between City and MuniServices LLC.
The law also has a sunset provision in 2020, therefore additional legislative action
would be required to extend it beyond that time.
4 of 4
Financial Impacts and Budget Actions
Staff estimates that the implementation of AB 1717 will generate approximately
$750,000 in additional revenue annually. This figure is net of BOE charges for
administering the program. Revenue estimates are included in the FY 2015 -17 Biennial
Budget, thus no budget action is required.
Prepared By: David Carr, Assistant City Treasurer
Approved
Forwarded to Council
Attachments:
A. Agreement with State Board of Equalization Resolution
B. Examination of Prepaid Mobile Telephony Services Resolution
C. Certification
CERTIFICATION
I, ________________ am authorized to sign this certification on behalf of _________________.
(Insert name of local jurisdiction)
I certify to the following:
Please check all the following that apply to your jurisdiction:
1.___ 911 Charges/Access to Communication Services - Ordinance No. ____ of the
________________ imposes the local charge set forth in the ordinance to prepaid mobile
(Insert name of local jurisdiction)telephony services for access to communication services or to local 911 emergency
telephone systems. As required by section 42102.5, the percentage reflecting the rate for
access to the local 911 emergency telephone systems or access to communications
services is ________.
2.___ Utility User Tax - Ordinance No. ____ of the ________________ imposes the local
(Insert name of local jurisdiction)charge set forth in the ordinance to the consumption of prepaid mobile telephony
services. The tiered rate for the utility user tax, as identified in section 42102 is
___________.
3.The _________________ agrees to indemnify and to hold harmless the Board of
Equalization (Board), its officers, agents, and employees for any and all liability for
damages that may result from the Board’s collection pursuant to this agreement.
Executed in the _________________________________ on ___________________.
(Insert name of local jurisdiction) (Add date)
Printed name ___________________________________
(Insert name of local jurisdiction)
Title of person ___________________________________
Signature ___________________________________