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Adoption of a Resolution Authorizing the City Manager to Execute an Agreement with the California State Board of Equalization (BOE) for Implementation of the Local Prepaid Mobile Telephony Services Collection Act; and Sign a Certification Regarding the City’s Utility Users Tax (UUT) Ordinance; and
Adoption of a Resolution Authorizing the Examination of Prepaid Mobile Telephony Services Surcharge and Local Charge Records by City Staff. (Finance 2410)
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To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Interim City Manager
Re: Adoption of a Resolution Authorizing the City Manager to Execute an Agreement with the California State Board of Equalization for Implementation of the Local Prepaid Mobile Telephony Services Collection Act; and Sign a Certification Regarding the City’s Utility Users Tax (UUT) Ordinance; and
Adoption of a Resolution Authorizing the Examination of Prepaid Mobile Telephone Services Surcharge and Local Charge Records by City Staff.
BACKGROUND
Beginning January 1, 2016, a new state law (AB 1717) requires California retailers 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 based on the point of sale. 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. Retailers collecting the tax will remit the UUT funds to the California State Board of Equalization (BOE) for distribution to the City
AB 1717 requires that cities contract with the BOE to collect these revenues on their behalf. Under this new law, all local jurisdictions must contract with the BOE to receive UUT distribution for prepaid wireless phone service. Staff recommends that Council authorize the City Manager to execute a contract and all related documents with the BOE for collection of the MTS surcharge. The BOE is also requiring that each local jurisdiction certify certain information regarding its UUT ordinance. Lastly, the BOE also requires that Council adopt a resolution establishing the list of City staff authorized to examine the prepaid telephony tax records of the BOE. This will allow City staff to periodically review the BOE records to ensure the City is receiving the appropriate UUT allocations.
DISCUSSION
This new law creates a State administered collection mechanism which requires retailers to collect the City’s UUT on prepaid wireless telecommunications at the point of sale. The action before the Council tonight does not address the modernization of the City’s UUT Ordinance, a proposal staff will be returning to Council for consideration in the near future. This action simply allows the City to participate in a streamlined collection process for one category of wireless telecommunication services.
Traditionally, a city’s UUT is collected by wireless service providers who include the charge on their customers’ monthly invoices. However, customers who purchase prepaid wireless services are usually not charged UUT due to collection complications. With prepaid wireless, there is no contract, no monthly invoices, and the prepaid wireless services are typically sold by retailers, not service providers themselves. It is estimated that approximately 70% of all prepaid wireless services are sold by retailers. Since these transactions bypass the City of Alameda UUT collection channels, the City experiences a significant loss of revenues as customers expand their use of prepaid wireless telephone services.
Beginning in January 1, 2016, AB 1717 (Chp. 885, Stats. 2014) will solve the collection problem by requiring California retailers and online sellers to collect the local UUT at the same time that sales tax on retail products is collected, based on the point of sale. Under this new law, all local jurisdictions must contract with the BOE to receive UUT imposed on consumers of prepaid wireless phone service. The BOE published standardized forms for contracts, certifications, and resolutions in August 2015.
To simplify administration of AB 1717, a compromise provision to reduce the number of different UUT rates was included. UUT rates were grouped into tiers with only the lowest rate in each tier being applied to prepaid wireless purchases of that tier. The City’s UUT rate is 7.5% which falls into the 7.5%-9.0% tier so the rate collected by the BOE from stores in the City will be 7.5%. It should be noted that AB 1717 has a sunset provision of 2020, so that the Legislature may determine if the actual cost of collection proves to be reasonable and the level of collections are as anticipated.
Next Steps
To receive the UUT collected by the BOE commencing on January 1, 2016, the new law requires local jurisdictions to contract with the California State Board of Equalization (BOE) for collection and remittance of local UUT imposed on consumers of prepaid phone cards. The law also requires Council to adopt a resolution denoting the City staff who are authorized to examine prepaid telephony 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 City Manager and the Finance Director as the City staff authorized to view the records.
The City anticipates that BOE will begin collecting the MTS revenue as of January 1, 2016. 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.
FINANCIAL IMPACT
While the actual impact of this new revenue source is not certain, Muni Services (a firm that specializes in UUT) estimates that it will range from 15% to 20% of a City’s current UUT telecommunication revenues. This estimate is a statewide average, and individual city’s collections will vary depending on their demographics and the number of retail stores located in the city selling prepaid wireless services. For the City of Alameda, this 15-20% increase equates to an estimated additional UUT revenue of $420,000 to $560,000 annually. The City will be required to reimburse the BOE for its implementation costs, with the City’s share estimated to be approximately 5% to 6% of the total amounts collected on behalf of the City, or approximately $21,000 to $34,000 annually. The BOE costs, and the City’s proportionate share, are expected to decline after the first year. Since the collection period will begin mid-year in January 2016, the estimated net revenue to the Fiscal Year 2015-16 General Fund is approximately $200,000 to $263,000. The Fiscal Year 2015-16 General Fund Budget did not account for this increase in UUT revenues.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This action is not a project for the purposes of the California Environmental Quality Act (CEQA) under CEQA Guidelines section 10561(b)(3) as there is no possibility that this action may have a significant effect on the environment.
RECOMMENDATION
Adopt a Resolution authorizing the City Manager to execute an Agreement with the California State Board of Equalization for implementation of the Local Prepaid Mobile Telephony Services Collection Act; and sign a certification regarding the City’s Utility Users Tax (UUT) ordinance; and
Adopt a Resolution authorizing the examination of prepaid mobile telephone services surcharge and local charge records by City staff.
Respectfully submitted by,
Elena Adair, Finance Director
Exhibit:
1. City Certification
2. BOE Agreement