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CC - Adoption of Resolutions (1) Authorizing the City Manager and the City Attorney to Execute Certain Documents Required by the State Board of Equalization to Collect the City’s Utility Users’ Tax on Prepaid Wireless Services and (2) Authorizing the Examination of Prepaid Mobile Telephony Services Surcharge and Local Charge Records.
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Contact Person/Dept: Jeff Muir/Finance
Phone Number: (310) 253-5865
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [] Attachments: Yes [X] No []
Commission Action Required: Yes [] No [X] Date:
Commission Name:
Public Notification: (E-Mail) Meetings and Agendas - City Council (08/06/15)
Department Approval: Jeff Muir, Chief Financial Officer (08/03/15)
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RECOMMENDATION
Staff recommends the City Council adopt the proposed resolutions (1) authorizing the City Manager and the City Attorney to execute certain documents required by the State Board of Equalization to collect the City’s Utility User’s Tax (UUT) on prepaid wireless service (Attachment 1) and (2) authorizing the examination of prepaid mobile telephony services surcharge and local charge records (Attachment 2).
BACKGROUND
Traditionally, a city’s UUT is collected by wireless service providers which include the charge on their customers’ monthly invoices. In contrast to this arrangement, customers who purchase pre-paid wireless services usually avoid paying any UUT due to collection complications. With prepaid wireless, there is no contract, no monthly invoices, and the prepaid wireless services are usually 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’s local UUT, the City experiences a significant loss of revenue. Additionally, traditional phone plan users are treated disparately as the burden of the UUT is not equally shared among all telephone users.
Beginning January 1, 2016, AB 1717 will take effect and solve the collection problem by requiring California retailers and on-line sellers to collect the local UUT at the same time it collects sales tax on its other retail products, based on the point of sale (for retail stores in our City). Under this new law, all local jurisdictions must contract with the State Board of Equalization (BOE) to receive UUT revenues levied on consumers of prepaid wireless phone service. The BOE has indicated these contracts must be entered into on or before September 1, 2015 in order for collection of the UUT to begin in January, 2016.
DISCUSSION
The first proposed resolution authorizes the City Manager and the City Attorney to execute certain documents required by the BOE to collect the City’s UUT on prepaid wireless service. The second proposed resolution authorizes certain staff and our UUT revenue consultants to examine the local charge records and surcharges on prepaid mobile telephone services. Also attached is the required agreement between the City and the BOE for collection of local charges by the State.
FISCAL ANALYSIS
For administrative ease, AB 1717 included a tiering of UUT rates into nine groupings. Although Culver City’s UUT rate is 11%, based on AB 1717 jurisdictions with a rate of 9% and above will have a rate of 9% applied. It is estimated that the application of UUT to prepaid wireless will increase UUT collections by an additional 15% to 20%. For Culver City, this would mean approximately an additional $350,000 to $460,000 annually in revenue to the General Fund.
ATTACHMENTS
1. Proposed Resolution authorizing execution of a contract with the BOE for collection of UUT on prepaid wireless customers
2. Proposed Resolution authorizing examination of records
3. BOE Local Charge Agreement
RECOMMENDED MOTIONS
That the City Council:
1. Adopt a Resolution authorizing the City Manager and the City Attorney to execute certain documents required by the State Board of Equalization to collect the City’s Utility User’s Tax on prepaid wireless service; and,
2. Adopt a Resolution authorizing the examination of prepaid mobile telephony services surcharge and local charge records.