MAYORS AND COUNCILMEMEBRS EXECUTIVE FORUM

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League of California Cities Mayors & Councilmembers Executive Forum May 28, 2008 Page 2 separately billed local services, and eliminated the tax on bundled charges for both taxable and non-taxable calls, despite express language in the FET and in the Mobile Telecormnunications Sourcing Act of 2000, 4 U.S.C. §§ 116 et seq. (MTSA), that the FET applies to bundled charges and that state and local telephone taxes on cellular telephony may be applied to bundled charges. In response to the concerns raised by local governments about Notice 2006-50, the IRS issued its ,Revenue Bulletin 2007-5 on January 29, 2007 stating in § 10: "Neither Notice 2006- 50 nor this notice affect the ability of state or local governments to impose or collect telecommunication taxes under the respective statutes of those governments." Several suits raising these same issues are pending in the Court of Appeal in Los Angeles. The same plaintiffs' counsel are involved in all the LA cases, and we assume the defendants were chosen due to their very large shares of California's telecommunications market. The details of these cases follow. Class Actions Against the City of Los Angeles the City of Long Beach and the County of Los Angeles: Three class-action lawsuits were filed against the City of Los Angeles, the City of Long 'Beach and the County of Los Angeles in Los Angeles County Superior Court: Estuarado Ardon et al. v. City of Los Angeles; John McWilliams et al. v. City of Long Beach, and Willy Granados et al. v. County of Los Angeles. The complaints in these cases all involve the same theories. All three defendants demurred, arguing that a line of cases led by Woosley v. State of California, 3 CalAt" 758 (1992), prohibits a class action for tax refunds in the absence of explicit legislative authorization. The trial court granted Long Beach's and Los Angeles County's demurrers, with leave to amend, holding that the class plaintiffs had failed to exhaust their administrative remedies by filing a claim under local claiming ordinances. Los Angeles also won its demurrer in the Ardon case and the plaintiffs there appealed the dismissal of their class claims (in an interlocutory appeal under the "death -knell doctrine") while maintaining their trial court suit on the named plaintiffs' individual refund claims and a declaratory relief claim. In County of LA v. Superior Court (Oronoz), 159 Cal.App.4tli 353 (2008), the Los Angeles Court of Appeal considered a challenge to LA County's utility users tax (UUT) under Prop. 62. LA County adopted its tax in 1991, when Prop. 62's requirement of voter approval of local general taxes was unenforceable. The Guardino decision upheld Prop. 62 in 1995 and, apparently, LA County never sought voter approval of its tax even though the California Supreme Court made it clear in both Guardino and the 2001 HJTA v. La Habra case that compliance was required. Perhaps because of these bad facts, the Court of Appeal decided an issue the Oronoz parties had not briefed and opened the door to class actions against local taxes, an ominous development for local government given the entire industry of talented lawyers who seek class-action opportunities because of the lucrative '/s-share of the return often awarded lawyers in such cases. 73647.18