City Council
MEETING DATE: 8/26/2015
TITLE:
Title
Utility Users Tax (UUT) on Wireless Prepaid Mobile Telephony Services, AB 1717
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FROM:
Tami Scott, Administrative Services Director
RECOMMENDATION:
Recommendation
Staff recommends the City Council adopt two resolutions to contract with the State Board of Equalization (BOE) and authorize the City Manager and the City Attorney to execute documents required by BOE to collect the City’s UUT on prepaid wireless service; and authorize the City to examine prepaid mobile telephone services surcharge and local charge records.
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BACKGROUND:
The City’s UUT is collected by wireless service providers who include the charge on their customers’ monthly invoices. For customers purchasing prepaid wireless services, they avoid paying any UUT, because there is no contract, no monthly invoices, and the prepaid wireless services are usually sold by retailers. It is estimated that approximately 70% of all prepaid wireless services are sold by retailers resulting in a significant loss of revenue. As a result, traditional phone plan users are treated disparately and the burden of the UUT is not equally shared among all telephone users (traditional versus prepaid).
DISCUSSION:
Beginning January 1, 2016, AB 1717 will take effect and require California retailers and online sellers to collect the local UUT at the point of sale when they collect sales tax on other retail products. Under this new law, all local jurisdictions have to contract with the State BOE in order to receive UUT imposed on consumers of prepaid wireless phone service. It should be noted that AB 1717 has a sunset provision of 2020; however, it is expected the Legislature will permanently renew AB 1717 if the actual collection proves costs are reasonable and the expected revenue levels are achieved.
In order to receive the UUT collected by the BOE commencing on January 1, 2016, the City Manager and the Attorney must execute documents required by the State BOE on or before September 1, 2015. This agreement between the City and the BOE allows for the collection of local charges by the State. If the City elects not to contract with the BOE, it will not receive this revenue. The documents also authorize certain City employees and our revenue consultants to examine the local charge records and surcharges on prepaid mobile telephony services.
The City’s UUT revenue consultant (MuniServices) estimates an increase of 15-20% of current UUT telecommunication revenues. This estimate is a statewide average, and individual cities will vary depending on the City’s demographics and the number of retail stores selling prepaid wireless services. For managing the statewide revenues for prepaid telephony, all cities will be required to reimburse the BOE for implementation costs, with each City’s share estimated to be approximately 5-6% of FY 15/16 revenues collected. Thereafter, the City’s proportionate share of operating costs is expected to decline.
FISCAL IMPACT:
For the six months of FY 15/16 (January - June), we estimate an increase in UUT telephony revenue between $29,900 and $39,900.
ATTACHMENTS:
Local Jurisdiction MTS Resolution
MTS Authority Resolution
Local Charge Agreement
Certification
MTS Surcharge Checklist