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HomeMy WebLinkAbout11B -NS-2721 UTILITY USERS' TAX JWF 7/5/06 ORDINANCE NO. NS-2721 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA ANA AMENDING SECTIONS 35- 153(n) AND 35-155 OF THE SANTA ANA MUNICPAL CODE MAKING CERTAIN TECHNICAL MODIFICATIONS TO THE UTILITY USERS TAX ON TELEPHONE SERVICES DUE TO CHANGES IN INTERPRETATION OF FEDERAL LAW THE CITY COUNCIL OF THE CITY OF SANTA ANA DOES ORDAIN AS FOLLOWS: Section 1. The City Council of the City of Santa Ana hereby finds, determines and declares as follows: A. Since 1975 the City of Santa Ana has collected a Users Utility Tax ("UUT") on telephone communication services. Since 1991, the tax rate has been 6%. B. When first adopted, the UUT was enacted with reference to Federal Excise Tax, 26 United States Code SS 4251, 4252 and 4253, ("FET") upon local and long distance telephone communication services, as the FET was interpreted by the IRS the Internal Revenue Service's ("IRS"). C. The reference to the FET in the UUT was intended to be used as a benchmark for purposes of identifying the types of telephone communication services subject to the tax, and those taxpayers exempt from the tax. The FET was not a basis or authority for the City's imposition of the UUT. D. On May 25, 2006, the IRS issued its Revenue Notice 2006-50 which announced that the IRS was no longer interpreting the FET as applying to wireless communications which were billed based on time only, and not both time and distance. This revenue ruling reversed the historical interpretation and practice of the I RS as it relates to wireless telephone services and further reversed prior IRS Revenue Ruling 79-404 which held that telephone services which are billed based only on time are subject to the FET, and upon which the City relied in collecting the UUT. As a result of Revenue Notice 2006-50, effective August 31, 2006, the FET will no longer be applicable to long distance calls billed on time only, and certain other "bundled" services. 11 B-1 Ordinance No. NS-2721 Page 1 of 5 E. The City of Santa Ana does not want to apply the new IRS interpretation to the UUT, but rather continue to apply its UUT to all telephone services as it has historically and consistent with the IRS Ruling 79-404. F. The amendments continue to recognize and retain the prior FET exemptions that existed prior to May 25, 2006. G. Santa Ana has always taxed all types of telephone communication services and has amended its ordinances in the past only to keep up with the advances in technology in order to continue to capture UUT for the range of telephone services already taxed. H. The proposed amendments restate the telephone communication services that are subject to the UUT. Only those telephone communications services that were taxed before Revenue Notice 2006-50 will continue to be taxed. I. The amendments do not increase or create a new tax on telephone communication services. J. The amendments neither extend the effective period of the UUT, nor modify any sunset provision or expiration date of the UUT. Section 2. Section 35-153 (n) of the Santa Ana Municipal Code is hereby amended such that it reads as follows: "(n) Telephone Communication Services shall mean any telephonic quality communication that is interconnected to the public switched network [as defined in 47 U.S.CA Section 332(d), as amended from time to time, and the regulations of the Federal Communications Commission]. and shall include, without limitation, the transmission of messages or information (including but not limited to voice, telegraph, teletypewriter, data, facsimile, video, or text) or any other transmission of messages or information by electronic, radio or similar means, whether such transmission occurs by wire, cable, fiber-optic, light wave, laser, microwave, radio wave [including, but not limited to, cellular service, personal communications service (PCS), specialized mobile radio (SMR), and other types of mobile telecommunications regardless of radio spectrum used]. switching facilities, satellite or any other similar facilities. Except where inconsistent with the foregoing, Telephone Communication Services shall also mean a "communications service" as defined in Sections 4251, 4252 and 4253 of the Internal Revenue Code (the "Federal Communications Excise Tax" or "FET"). Telephone Communication Services shall not include "private mobile radio service" [as defined in Part 20 of Title 47 of the Code of Federal Regulations as Ordinance No. NS-2721 Page 2 of 5 11 B-2 amended from time to time]. which is not interconnected to the public switched network." Section 3. Section 35-155 of the Santa Ana Municipal Code is hereby amended such that it reads as follows (new language in bold, deleted language in strikeout for tracking purposes only): Sec. 35-155. Telephone users tax. "(a) There is hereby imposed a tax upon every person in the City of Santa Ana using Telephone Communication Services as defined in Section 35-153(n), above, including services for intrastate, interstate or international calls. The tax imposed by this section shall be at the rate of six (6) percent of all charges made for such services and shall be collected from the service user by the telephone communication services supplier or its billing agent. To the extent allowed by law, the tax on telephone communication services shall apply to a service user if the billing or service address of the service user is within the city's boundaries. If the billing address of the service user is different from the service address, the service address of the service user shall be used. (b) The tax imposed under subsection (a), above, shall not be imposed upon any person for using Telephone Communication Services to the extent that the amounts paid for such services are exempt from or are not subject to the Federal Communications Excise Tax as it was interpreted by the Internal Revenue Service prior to May 25, 2006. In the event that the Federal Communications Excise Tax is repealed, any reference in this section to such law shall refer to that body of law, that existed immediately prior to the date of repeal. (c) The tax administrator, from time to time, may issue administrative rulings clarifying those Telephone Communication Services that are subject to the tax of subsection (a) above. These administrative rulings shall be for the purpose of ensuring that despite changes in communications technologies and practices, or changes in body of federal law referred to in this Article, the tax remains applicable to all of those services intended by this Article, to the extent not preempted by the State of California or the United States of America. In no event, shall such administrative rulings be interpreted or have the effect of imposing a new tax, revising any existing tax methodology, or increasing an existing tax. (d) As used in this section, the term "charges" shall include the value of any other services, credits, property of every kind or nature, or other consideration provided by the service user in exchange for the telephone communication services. If a non-taxable service and a taxable service are billed together under a single charge, the entire charge shall be deemed taxable unless the service supplier can reasonably identify charges not subject to the utility users tax based upon its books and records that are kept in the regular course of business, which shall be consistent with generally accepted accounting principles. The term "charges" shall not include charges for services paid for by inserting coins in coin-operated telephones except that where such coin-operated telephone 11 B-3 Ordinance No. NS-2721 Page 3 of 5 service is furnished for a 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. (e) To prevent actual multi-jurisdictional taxation of telephone communication services subject to tax under this section, any service user, upon proof to the tax administrator that the service user has previously paid the same tax in another state or city on such telephone communication service, shall be allowed a credit against the tax imposed to the extent of the amount of such tax legally imposed in such other state or city; provided, however, the amount of credit shall not exceed the tax owed to the city under this section. For purposes of establishing sufficient legal nexus for the imposition and collection of utility users tax on charges for telephone communication services pursuant to this code, "minimum contacts" shall be construed broadly in favor of the imposition and collection of the utility users tax to the fullest extent permitted by California and federal law, and as it may change from time to time. (f) The tax imposed in this section shall be collected from the service user by the service supplier or its billing agent. The amount of tax collected in one (1) month shall be remitted to the tax administrator on or before the twentieth (20th) day of the following month in accordance with section 35-163 of this code." Section 4. If any section, subsection, sentence, clause, phrase or portion of this ordinance is for any reason held to be invalid or unconstitutional by the decision of any court of competent jurisdiction, such decision shall not affect the validity of the remaining portions of this ordinance. The City Council of the City of Santa Ana hereby declares that it would have adopted this ordinance and each section, subsection, sentence, clause, phrase or portion thereof irrespective of the fact that anyone or more sections, subsections, sentences, clauses, phrases, or portions be declared invalid or unconstitutional. ADOPTED this day of ,2006 Miguel A. Pulido Mayor APPROVED AS TO FORM: Joseph W. Fletcher, City Attorney Ordinance No. NS-2721 Page 4 of 5 11 B-4 AYES: Councilmembers NOES: Councilmembers ABSTAIN: Council members NOT PRESENT: Councilmembers CERTIFICATE OF ATTESTATION AND ORIGINALITY I, PATRICIA E. HEALY, Clerk of the Council, do hereby attest to and certify that the attached Ordinance No. NS-2721 to be the original ordinance adopted by the City Council of the City of Santa Ana on , and that said ordinance was published in accordance with the Charter of the City of Santa Ana. Date: Clerk of the Council City of Santa Ana Ordinance No. NS-2721 Page 5 of 5 11 B-5 11 B-6