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<br />JWF 7/5/06 <br /> <br />ORDINANCE NO. NS-2721 <br /> <br />AN ORDINANCE OF THE CITY COUNCIL OF THE <br />CITY OF SANTA ANA AMENDING SECTIONS 35- <br />153(n) AND 35-155 OF THE SANTA ANA <br />MUNICPAL CODE MAKING CERTAIN TECHNICAL <br />MODIFICATIONS TO THE UTILITY USERS TAX ON <br />TELEPHONE SERVICES DUE TO CHANGES IN <br />INTERPRETATION OF FEDERAL LAW <br /> <br />THE CITY COUNCIL OF THE CITY OF SANTA ANA DOES ORDAIN AS <br />FOLLOWS: <br /> <br />Section 1. The City Council of the City of Santa Ana hereby finds, <br />determines and declares as follows: <br /> <br />A. Since 1975 the City of Santa Ana has collected a Users Utility Tax <br />("UUT") on telephone communication services. Since 1991, the tax <br />rate has been 6%. <br /> <br />B. When first adopted, the UUT was enacted with reference to Federal <br />Excise Tax, 26 United States Code SS 4251, 4252 and 4253, <br />("FET") upon local and long distance telephone communication <br />services, as the FET was interpreted by the IRS the Internal <br />Revenue Service's ("IRS"). <br /> <br />C. The reference to the FET in the UUT was intended to be used as a <br />benchmark for purposes of identifying the types of telephone <br />communication services subject to the tax, and those taxpayers <br />exempt from the tax. The FET was not a basis or authority for the <br />City's imposition of the UUT. <br /> <br />D. On May 25, 2006, the IRS issued its Revenue Notice 2006-50 <br />which announced that the IRS was no longer interpreting the FET <br />as applying to wireless communications which were billed based on <br />time only, and not both time and distance. This revenue ruling <br />reversed the historical interpretation and practice of the I RS as it <br />relates to wireless telephone services and further reversed prior <br />IRS Revenue Ruling 79-404 which held that telephone services <br />which are billed based only on time are subject to the FET, and <br />upon which the City relied in collecting the UUT. As a result of <br />Revenue Notice 2006-50, effective August 31, 2006, the FET will <br />no longer be applicable to long distance calls billed on time only, <br />and certain other "bundled" services. <br /> <br />11 B-1 <br /> <br />Ordinance No. NS-2721 <br />Page 1 of 5 <br />