city of Chula Vista

File #: 15-0469    Name: Prepaid Mobile UUT BOE Agreement
Type: Consent Item Status: Passed
In control: City Council
On agenda: 8/18/2015 Final action: 8/18/2015
Title: A. RESOLUTION NO. 2015-205 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AUTHORIZING THE CITY MANAGER TO EXECUTE AN AGREEMENT WITH THE STATE BOARD OF EQUALIZATION FOR IMPLEMENTATION OF THE LOCAL PREPAID MOBILE TELEPHONY SERVICES COLLECTION ACT B. RESOLUTION NO. 2015-206 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AUTHORIZING THE EXAMINATION OF PREPAID MOBILE TELEPHONY SERVICES SURCHARGE AND LOCAL CHARGE RECORDS
Indexes: 1. Operational Excellence
Code sections: 03.44 - Utility Users’ Tax
Attachments: 1. Item 12 - Attachment 1, 2. Item 12 - Attachment 2, 3. Item 12 - Resolution A, 4. Item 12 - Exhibit 1 to Resolution A, 5. Item 12 - Resolution B

Title

A.                     RESOLUTION NO. 2015-205 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AUTHORIZING THE CITY MANAGER TO EXECUTE AN AGREEMENT WITH THE STATE BOARD OF EQUALIZATION FOR IMPLEMENTATION OF THE LOCAL PREPAID MOBILE TELEPHONY SERVICES COLLECTION ACT

 

B.                     RESOLUTION NO. 2015-206 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA AUTHORIZING THE EXAMINATION OF PREPAID MOBILE TELEPHONY SERVICES SURCHARGE AND LOCAL CHARGE RECORDS

 

Body

RECOMMENDED ACTION

Recommended Action

Council adopt the resolutions.

 

Body

SUMMARY

Chapter 3.44 of the Chula Vista Municipal Code authorizes the imposition of a Utility Users’ Tax (UUT) on gas, electricity, and telecommunication services.  A new statewide law addresses the collection of UUT on prepaid wireless telecommunication services.  In order to secure these revenues, the City must approve and provide certain documents to the State Board of Equalization.

 

ENVIRONMENTAL REVIEW

The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity is not a “Project”, authorizing the City to enter into an agreement regarding collection of surcharges as defined under Section 15378(b)(4) of the State CEQA Guidelines because it is a fiscal activity that does not involve a physical change to the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA.  Thus, no environmental review is necessary.

 

BOARD/COMMISSION RECOMMENDATION

Not Applicable.

 

DISCUSSION

The City of Chula Vista Utility Users’ Tax (UUT) was adopted in 1970 as a means to help fund public services and capital improvement projects through the City’s General Fund.  The City receives UUT based on the usage of natural gas, electricity, and intrastate telecommunication services, including wireless telephone services, in the City.  Current UUT rates are 0.00919 per therm of gas, 0.0025 per kilowatt of electricity, and 4.75% of telecommunication services.

 

In September of 2014, Governor Brown signed AB 1717, an action that protects existing and future local revenues by providing a collection mechanism for prepaid (non-contract) wireless services (the Local Prepaid Mobile Telephony Services Collection Act).  As prepaid wireless services are generally sold through major retailers, UUT compliance has been inconsistent.  Addressing inconsistency in application of the UUT is increasingly important as prepaid wireless services increase in popularity, reducing UUT revenues collected by the City and other local agencies.

 

Under the provisions of AB 1717, wireless carriers will collect and remit UUT on prepaid sales alongside their traditional UUT remittance each month.  Retail stores and online retail sellers will be responsible for collecting UUT at point of sale and remitting it to the State Board of Equalization (BOE) on a quarterly basis, in a similar manner to sales taxes.  Similarly, UUT will be distributed by the BOE to local agencies on a quarterly basis.  UUT will be imposed and remitted based on the point of sale location for brick-and-mortar retailers, and based on the billing address for online sales.

 

Retail stores and online retailers are entitled to retain 2% of the UUT collected and remitted.  The wireless carriers are not entitled to any compensation.  The BOE will determine its implementation costs, and will deduct these costs from the UUT revenues on a pro-rata basis.

 

AB1717 includes a compromise provision which creates several tiers of standardized UUT rates.  The City of Chula Vista’s existing rate of 4.75% falls within the 4.5% tier.  The program also includes a 2020 sunset provision.

 

In order to ensure the collection of UUT on prepaid wireless services on the City’s behalf beginning on January 1, 2016, the City must contract with the BOE and certify eligibility by September 1, 2015.  Should the City fail to meet this deadline, the next deadline would be December 1, 2015, delaying collection on the City’s behalf until April 1, 2016.

 

DECISION-MAKER CONFLICT

Staff has reviewed the decision contemplated by this action and has determined that it is not site-specific and consequently, the 500-foot rule found in California Code of Regulations Title 2, section 18705.2(a)(11), is not applicable to this decision for purposes of determining a disqualifying real property-related financial conflict of interest under the Political Reform Act (Cal. Gov't Code § 87100, et seq.).

 

Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.  

 

LINK TO STRATEGIC GOALS

The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community.  Approving the resolution supports the Operational Excellence Goal by securing a valuable General Fund revenue stream and ensuring taxes are applied fairly and consistently, regardless of the means of sale.

 

CURRENT YEAR FISCAL IMPACT

Approval of the resolutions supports the City’s participation in the BOE prepaid mobile telephone services UUT collection program beginning on January 1, 2016.  Industry estimates indicate local agencies will see a 20% increase in wireless UUT revenues. 

 

Wireless UUT revenues for fiscal year 2014-15 are projected to total approximately $3,000,000.  A 20% increase in revenues equates to an annual positive impact of $600,000.  With a January 1, 2016 start date, this would equate to additional revenues of approximately $300,000 in the current fiscal year.  Actual impacts will vary based upon sales of wireless prepaid telephone services attributable to the City under the provisions of AB 1717. 

 

It is important to note that in total UUT revenues have declined below budgetary estimates due to the reduction of telephone landlines.  The Third Quarter Financial Report in fiscal year 2015 reflected a projected shortfall of $675,000 for UUT revenues.  UUT revenues related to AB1717 may mitigate the decline in revenues experienced over the past few years.  Staff will continue to monitor revenue trends and recommend adjustments as needed. 

 

ONGOING FISCAL IMPACT

On an annual basis, a 20% increase in wireless UUT revenues to the City would increase General Fund discretionary revenues by $600,000.  Actual impacts will vary based upon sales of wireless prepaid telephone services attributable to the City under the provisions of AB 1717.

 

As discussed above, UUT revenues have declined below budgetary estimates due to the reduction of telephone landlines.  UUT revenues related to AB1717 may mitigate the decline in revenues experienced over the past few years.  Staff will continue to monitor revenue trends and recommend adjustments as needed. 

 

ATTACHMENTS

1.                     BOE Utility Users Tax Certification.

2.                     AB 1717 Bill Text.

 

Staff Contact: Tiffany Allen, Finance Department