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Since the interpretation of the FET by the IRS is not necessarily binding on the City of Santa Ana for purposes of levying or collecting the UUT on telephone communications services, staff recommends that the UUT be amended to clarify that the reference to the FET in the UUT is to the FET as interpreted by the IRS prior to the issuance of Revenue Notice 2006- 50. In doing so, the City would continue to apply its UUT to all telephone services as it has historically, and consistent with the IRS Ruling 79-404. At the same time, the proposed amendments continue to recognize and retain the prior FET exemptions found in ~4253 as they existed prior to May 25, 2006. This will also prevent future ad hoc reaction to changes in Federal law that otherwise do not affect the City's ability to levy the UUT. Proposition 218 does not apply to these amendments because they do not increase, extend or create a new tax on telephone communication services. Pending this proposed ordinance becoming effective, the Finance Director will issue an administrative ruling consistent with this action notifying all telephone communications service providers to continue to apply the UUT to all long distance bills irrespective of the impact of Revenue Notice 2006-50 on the FET. On July 17, 2006, the City Council introduced Ordinance No. NS-2721 which enacts the same amendments to Sections 35-153 and 35-155 as contained in this urgency ordinance. Once adopted, Ordinance No. NS-2721 will not go into effect any earlier than September 7, 2006. However, since that introduction, the City has been informed by at least one wireless communications provider that it intends to pay under protest any telephone taxes affected by the May 25, 2006 Revenue Notice. Non-payment of such taxes for the month of August alone could exceed $.5 Million and would likely be irreparably lost. Enactment of this urgency ordinance will clarify that Santa Ana's telephone tax will be unaffected by the IRS ruling immediately, and is necessary to protect the public peace, health, and/or safety by protecting necessary and valuable general revenues of the city that support all public services including public safety. FISCAL IMPACT There is no fiscal impact associated with this action. APPROVED AS TO FUNDS AND ACCOUNTS: ~~dt-k,,-'tj -1~rancisco Gutierrez '0 Executive Director Finance & Management Services Agency 508-2