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HomeMy WebLinkAbout29-City Attorney ORIGINAL CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: JAMES F. PENMAN Subject: AN ORDINANCE OF THE CITY OF City Attorney SAN BERNARDINO AMENDING SECTION 3.44.030 OF THE SAN BERNARDINO Dept: CITY ATTORNEY MUNICIPAL CODE CHAPTER 3.44, TELEPHONE USERS TAX TO CLARIFY Date: September 12, 2007 ORIGINAL INTENT. MCC: September 17,2007 Synopsis of Previous Council Action: Discussed at the Legislative Review Committee meeting on July 17, 2007. Recommended motion: That said ordinance be laid over for final adoption. Signature e� Contact person: James F. Penman Phone: 5255 Supporting data attached: Staff Report Ward: FUNDING REQUIREMENTS: Amount: Source: Finance: Council Notes: Agenda Item No._ c::;?, 9 /0///,97 STAFF REPORT Council Meeting Date: September 17, 2007 TO: Mayor and Common Council FROM: James F. Penman, City Attorney DATE: September 17, 2007 AGENDA ITEM: UUT Ordinance For many years the City has imposed a Utility Users Tax(UUT)on a variety of public utilities, including long distance telephone service. For administrative ease,our existing UUT ordinance refers to certain provisions of the Internal Revenue Code to assist in applying our UUT to telephone communication service. Since 1979,the IRS has imposed the federal excise tax on long distance service if the charges for the service were based on either time or distance. The City's UUT has relied on the IRS's interpretation of the federal excise tax for its definition of long distance service since 1984.The City has been billing based on this interpretation. On May 25,2006,the IRS announced that it will only impose the federal excise tax("FET")on long distance service if the charges for the services are based on time and distance. Since most of the 150 UUT ordinances in California reference the FET, it is unclear whether this means that the UUT is subject to the IRS' ruling regarding long distance. This issue is being litigated in four other California jurisdictions. As a result of these lawsuits,and other changes in technology, it is clear that the City's UUT revenue from telephone communication services is at risk. Two possible approaches address these risks. First,the City may present to the electors of the City a new and modern ordinance that addresses the IRS issue and modernizes the ordinance in other respects. The Cities of Compton, Daly City,Eureka,Menlo Park and Tulare were recently successful in elections adopting such modern ordinances. Eight cities are seeking voter approval of similar ordinances this November. Even more are planning similar actions for 2008. The City's consultant and expert on the UUT, Don Maynor strongly favors seeking voter approval of a modern ordinance,as this approach leaves the City in better position to implement its UUT on future technologies. Further,a voter approved ordinance would remove the legal basis for the various lawsuits challenging the validity of the UUT on telecommunication services. Some cities have conducted polling to confirm whether such an approach is politically viable. A second approach would be for the City to amend its current ordinance clarifying that the City would continue to collect the UUT as it has done for many years. This approach would not seek voter approval. Several cities have adopted such clarifications, including three of the four jurisdictions that are in litigation. The plaintiffs allege that such"clarifications"require voter approval under Proposition 218. About two months ago,the City of Sacramento"clarified"its ordinance in the manner suggested above, and it was sued by the Howard Jarvis Association and two named taxpayers, alleging that such a clarification requires voter approval. It is certainly possible that the City could encounter similar litigation if it were to follow this second approach. F:\CALKINS\SLMTelephoneUsersTax.StaffReport2.wpd 1 ORDINANCE NO. 2 AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING SECTION 3.44.030 OF THE SAN BERNARDINO MUNICIPAL CODE CHAPTER 3.44,TELEPHONE 3 USER'S TAX TO CLARIFY ORIGINAL INTENT. 4 THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO 5 DO ORDAIN AS FOLLOWS: 6 SECTION 1. The Mayor and Common Council finds and declares: 7 Whereas, since 1968, the City of San Bernardino has imposed a telephone users tax on every person in the City using intrastate, interstate, and international telephone communication 8 services, and such revenues are critical to the public peace, health and safety in that such revenues pay the costs associated with essential municipal services such as public safety; and, 9 Whereas, on May 25, 2006, the Treasury Department announced in Notice 2006-50 that 10 it will no longer apply the Federal Excise Tax ("FET") to long distance and bundled long distance and local services provided under a single plan that does not separately state the charges for local 11 telephone service; and, 12 Whereas, the Treasury Department's May 25 Notice reversed its prior Revenue Rulings and long-held interpretation of the FET,ignored its own statutory and administrative bundling rules, 13 and contravened the intent and purpose of the City's ordinance in imposing a local tax on intrastate, interstate and international telephone communication services; and, 14 Whereas, there are also bills (5.140 and S.170) before Congress to repeal the federal 15 excise tax on telecommunications in its entirety, which raises ambiguity regarding the current reference to the federal excise tax law in the City's ordinance; and, 16 Whereas,the City reaffirms that it will continue its long-standing practice of applying its 17 service users tax to telephone communication services in a manner consistent with the intent and purpose of the City's service users tax ordinance and consistent with the IRS' interpretation of the 18 FET prior to Notice 2006-50 issued by the Treasury Department on May 25, 2006; and, 19 Whereas,the City wishes to remove any ambiguity in the event of repeal of the FET law by clarifying its telephone communication services ordinance; and, 20 Whereas, the City's clarifications will not result in an increase of existing tax revenues. 21 SECTION 2. Section 3.44.030 of the San Bernardino Municipal Code is hereby amended 22 to read as follows: 23 3.44.030 Telephone Users Tax. 24 A. A tax is imposed upon every person in the City using telephone communication services, including services for intrastate, inter-state, or international calls, and using any 25 teletypewriter exchange services in the City. The tax imposed by this section shall be at the rate of 7.83 percent (7.83%) of the charges made for such services and shall be paid 26 by the person paying for such services. Interstate calls shall be deemed to include calls to the District of Colombia. 27 B. As used in this Section, "charges" for"telephone communication services" shall include 28 (but are not limited to): i)monthly service charges for the providing of cellular telephone \\Sbcaw2k\sys\CALKINS\SUT\TelephoneUsersTax.Ord3.wpd 1 I communication services to a person whose billing address is in the City; and, ii) "communications services"as defined in Sections 4251 and 4252 of the Internal Revenue 2 Code, and the IRS regulations and rulings pertaining thereto, rendered prior to May 25, 2006,whether charges for such service are based on time,distance,or on any other basis. 3 It shall not include charges for services paid for by inserting coins in coin-operated telephones except that where such coin-operated telephone service is furnished for a 4 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; 5 nor shall the words"telephone communication services"include maritime mobile services as defined in Section 2.1 of Title 47 of the Code of Federal Regulations or"private mobile 6 radio service" [as defined in Part 20.3 of Title 47 of the Code of Federal Regulations] or "private mobile service" [as defined in 47 U.S.C.A. Section 332(d)(3)] which is not 7 interconnected to the public switched network. In the event that the federal excise tax on "communication services" as provided in Sections 4251, 4252 and 4253 of the Internal 8 Revenue Code is subsequently repealed, any reference in this section to such law shall refer to such law that existed as of the date of repeal, and as it was interpreted by the 9 Internal Revenue Service through its federal regulations, rulings, and other opinions, which were rendered prior to May 25,2006. The Tax Administrator shall thereafter apply 10 such law in rendering his or her administrative rulings as provided in this subsection B. 11 C. The tax imposed in this section shall be collected from the service user by the person providing the telephone communication services or the teletypewriter exchange services. 12 The amount of tax collected in one month shall be remitted to the Director of Finance on or before the twentieth day of the following month. 13 D. The tax imposed under subsection A above, shall not be imposed upon any person for 14 using telephone communication services to the extent that,pursuant to Sections 4252(d) and 4253 of the Internal Revenue Code, the amounts paid for such communication 15 services are not subject to or are exempt from the tax imposed under Section 4251 of the Internal Revenue Code. The Tax Administrator may issue and disseminate to telephone 16 communication service suppliers,which are subject to the tax collection requirements of this Chapter,an administrative ruling identifying those telephone communication services, 17 or charges therefor, that are subject to or not subject to the tax of subsection A, above. 18 19 20 21 22 23 24 25 26 27 28 \\Sbcaw2k\sys\CALKINS\SUT\TelephoneUsersTax.Ord3.wpd 2 1 AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING SECTION3.44.030 OF THE SAN BERNARDINO MUNICIPAL CODE CHAPTER 3.44, 2 TELEPHONE USER'S TAX TO CLARIFY ORIGINAL INTENT. 3 I HEREBY CERTIFY that the foregoing Ordinance was duly adopted by the Mayor and 4 Common Council of the City of San Bernardino at a meeting thereof, held on the 5 day of , 2007, by the following vote, to wit: COUNCIL MEMBERS: AYES NAYS ABSTAIN ABSENT 6 7 ESTRADA 8 BAXTER 9 BRINKER 10 DERRY 11 KELLEY 12 JOHNSON 13 MC CAMMACK 14 15 Rachel Clark, City Clerk 16 17 The foregoing Ordinance is hereby approved this day of , 2007. 18 19 PATRICK J. MORRIS, Mayor 20 City of San Bernardino 21 22 23 Approved as to form: 2 4 JAMES F. PENMAN City Attorney 25 26 27 28 \\Sbcaw2k\sys\CALKINS\SU nTelephoneUsersTax.0rd3.wpd 3 1 CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: JAMES F. PENMAN Subject: AN ORDINANCE OF THE CITY OF City Attorney SAN BERNARDINO AMENDING SECTIONS 3.44.010 AND 3.44.030 OF THE SAN Dept: CITY ATTORNEY BERNARDINO MUNICIPAL CODE Date: July 31, 2007 CHAPTER 3.44, TELEPHONE USER'S TAX TO CLARIFY ORIGINAL INTENT AND REMOVE OBSOLETE REFERENCES MCC: August 6,2007 Synopsis of Previous Council Action: Recommended for Approval at the Legislative Review Committee Mtg on July 17, 2007. Recommended motion: That said ordinance be laid over for final adoption. i ature Contact person: James F. Penman Phone: 5255 Supporting data attached:_ Staff Report Ward: FUNDING REQUIREMENTS: Amount: Source: Finance: Council Notes: Q O 36 U Agenda Item No.. / 0/ / /07 STAFF REPORT Council Meeting Date: August 6, 2007 TO: Mayor and Common Council FROM: James F. Penman, City Attorney DATE: August 6, 2007 AGENDA ITEM: AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING SECTIONS 3.44.010 AND 3.44.030 OF THE SAN BERNARDINO MUNICIPAL CODE CHAPTER 3.44, TELEPHONE USER'S TAX TO CLARIFY ORIGINAL INTENT AND REMOVE OBSOLETE REFERENCES For many years the City has imposed a Service User's Tax ("SUT") on a variety of public utilities,including long distance telephone service. Recent rulings by the Internal Revenue Service ("IRS")and court decisions have made the telephone provision of the City's SUT inconsistent with the manner in which the tax is in fact collected. Since 1979,the IRS has imposed the federal excise tax on long distance service if the charges for the service were based on either time or distance. The existing SUT ordinance defines the type of telephone service that pays the tax by making reference to sections of the Internal Revenue Code. The City has relied on the IRS's interpretation of the federal excise tax for its definition of long distance service since 1984 and has been billing based on this interpretation. On May 25,2006, the IRS announced that it will only impose the federal excise tax on long distance service if the charges for the services are based on time and distance. Action must be taken to delete the obsolete reference to the Internal Revenue Code which is no longer interpreted consistently with the City's SUT. Under the proposed amendment, the City would continue to collect the SUT in the same manner as it has done for many years. This action will not in anyway increase the amount of the tax. The ordinance would simply re-state the type of telephone service subject to the SUT without the references to the Internal Revenue Code. In addition, the definition of telephone communication services has been modernized to make the definitions consistent with past practice. In sum,it is important to reiterate that the City will be collecting the same tax, at the same rate and in the same manner as it has in the past, and currently does. F:\CALKINS\SLMTelephoneUsersTax.Staff Report.%vpd 1 I ORDINANCE NO. 2 AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING SECTIONS 3.44.010 AND 3.44.030 OF THE SAN BERNARDINO MUNICIPAL CODE 3 CHAPTER 3.44, TELEPHONE USER'S TAX TO CLARIFY ORIGINAL INTENT AND REMOVE OBSOLETE REFERENCES 4 THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO 5 DO ORDAIN AS FOLLOWS: 6 SECTION 1. The Mayor and Common Council finds and declares: 7 A. Chapter 3.44 of the San Bernardino Municipal Code defines "telecommunications 8 services" by referring to definitions in the federal excise tax law administered by the Internal Revenue Service. The common understanding of those definitions was set forth 9 in Revenue Ruling 79-404. 10 B. On May 25, 2006, the Internal Revenue Service (IRS) announced that it had changed its interpretation of the definitions in the federal excise tax(F.E.T.)and specifically revoked 11 Notices adopted in 2005 which had reaffirmed Revenue Ruling 79-404. 12 C. The Mayor and Common Council does not wish to adopt the IRS'new understanding of the definitions of the F.E.T. but rather wishes to continue to impose the telephone users 13 tax as it has been historically imposed. 14 D. The amendments are not intended to make any change in the way in which the tax is calculated,imposed or administered. Therefore the changes made by this ordinance to the 15 definition of"telecommunications services"do not constitute a change in the methodology of calculating the tax. 16 SECTION 2. That Section 3.44.010 of the San Bernardino Municipal Code is hereby 17 amended to read as follows: 18 3.44.010 Definitions. 19 The following words and phrases whenever used in this Chapter shall be construed as defined in this section: 20 A. "Telephone communication services" shall mean any telephonic type and quality of 21 communication including that which is interconnected to the public switched network, which allows people to talk to each other without the necessity of conversing in person. 22 In determining whether a service constitutes a telephone communication service, all technology used to transmit voice communications from one person to another shall be 23 included irrespective of whether, for example, such technology utilizes computer processing applications on the form,code or protocol of the content of the communication 24 or where the origination and/or termination points of the transmission, conveyance or routing are not fixed. Such means of transmission shall include,without limitation for the 25 purpose of transmitting messages or information (including but not limited to voice, telegraph, teletypewriter, data facsimile, video, or test) by electronic, radio or similar 26 means whether such transmission occurs by wire, cable, fiber-optic, light wave, laser, microwave, radio wave [including, but not limited to, cellular service, personal 27 communications service (PCAS), specialized mobile radio (SMR), and other types of personal wireless service regardless of radio spectrum used],switching facilities,satellite 28 or any other similar facilities. F:\CALKINS\SUT\TelephoneUsersTax.Ord2.wpd 1 1 B. "Month" means a calendar month. 2 C. "Person" shall include, but is not limited to, any domestic or foreign corporation, firm, association, syndicate,joint stock company,partnerships of any kind,joint venture,club, 3 Massachusetts business or common law trust, society, and individuals. 4 D. "Service user" means a person required to pay a tax imposed under the provisions of this Chapter. 5 SECTION 3. Section 3.44.030 of the San Bernardino Municipal Code is hereby amended 6 to read as follows: 7 3.44.030 Telephone Users Tax. 8 A. A tax is imposed upon every person in the City using telephone communication services, including services for intrastate, inter-state, or international calls, and using any 9 teletypewriter exchange services in the City. The tax imposed by this section shall be at the rate of 7.83 percent (7.83%) of the charges made for such services and shall be paid 10 by the person paying for such services. Interstate calls shall be deemed to include calls to the District of Colombia. 11 B. As used in this Section, "charges" shall include (but are not limited to) monthly service 12 charges for the providing of cellular telephone communication services to a person whose billing address is in the City. It shall not Include charges for services paid for by inserting 13 coins In coin-operated telephones except that where such coin-operated telephone service is furnished for a guaranteed amount, the amounts paid under such guarantee plus any 14 fixed monthly or other periodic charge shall be included in the base for computing the amount of tax due; nor shall the words "telephone communication services" include 15 maritime mobile services as defined in Section 2.1 of Title 47 of the Code of Federal 15 Regulations, or as that Section may be amended from time to time. C. The tax imposed in this section shall be collected from the service user by the person 17 providing the telephone communication services or the teletypewriter exchange services. The amount of tax collected in one month shall be remitted to the Director of Finance on 18 or before the twentieth day of the following month. 19 D. In order to prevent actual multi-state taxation the person paying the tax imposed in this Section on interstate orinternational telephone communications services or teletypewriter 20 exchange services, may receive a credit therefore, upon presentation of proof to the Director of Finance that the person has paid a tax in another State on the same telephone 21 call or service. 22 23 24 25 26 27 28 FA CALKINS\SUT\TelephoneUsersTax.Ord2.wpd 2 I AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING SECTIONS 3.44.010 AND 3.44.030 OF THE SAN BERNARDINO MUNICIPAL CODE CHAPTER 3.44, 2 TELEPHONE USER'S TAX TO CLARIFY ORIGINAL INTENT AND REMOVE OBSOLETE REFERENCES 3 I HEREBY CERTIFY that the foregoing Ordinance was duly adopted by the Mayor and 4 Common Council of the City of San Bernardino at a meeting thereof, held on the 5 day of , 2007, by the following vote, to wit: 6 COUNCIL MEMBERS: AYES NAYS ABSTAIN ABSENT 7 ESTRADA 8 BAXTER 9 BRINKER 10 DERRY 11 KELLEY 12 JOHNSON 13 MC CAMMACK 14 15 16 Rachel Clark, City Clerk 17 The foregoing Ordinance is hereby approved this day of , 2007. 18 19 20 PATRICK J. MORRIS, Mayor City of San Bernardino 21 22 23 Approved as to form: 24 JAMES F. PENMAN 25 City Attorney 26 27 28 F:\CALKINS\SU'nTelephoneUsersTax.Ord2.wpd 3