Legal Alerts Aug 12, 2015

Immediate Action Required by Cities to Begin Collecting Utility Users Tax

New Law Will Allow California Cities to Receive Tax Revenue on Prepaid Wireless Telephone Service

Immediate Action Required by Cities to Begin Collecting Utility Users Tax

Prepaid wireless phone service is a booming business and, to date, cities have not been receiving their full measure of Utility Users Tax from these sales. While telecommunication providers generally have been collecting and forwarding UUT to cities on prepaid wireless phones they sell directly to customers, third-party vendors that aren’t in the telecom business (e.g.: Walmart, Target, Best Buy, etc.) have not done so because they didn’t know how to do it legally. Needless to say, this has resulted in cities losing out on thousands, if not millions, of dollars in potential tax revenue.

In response, the California Legislature passed AB 1717 late last year (Rev & Tax Code 42100 et. seq.), which puts the legal structure in place for third-party vendors to collect and remit to cities UUT on prepaid wireless phones. In a nutshell, as a result of this measure, the California Board of Equalization will collect prepaid wireless UUT from the vendor and forward it to taxing cities on a quarterly basis — just as it does with local sales and use taxes. Once this starts, cities can expect an increase of approximately 15-20 percent in telecom UUT revenue.  

AB 1717 goes effective Jan. 1, but calls for immediate local action to get things started. AB 1717 requires each city to adopt certain resolutions, certificates and tax collection agreements with the BOE by Sept. 1 so that UUT collection can start promptly on Jan. 1.  Because many city councils are dark in August, BOE has given assurances that they will accept these documents by Sept. 30, as long as it is notified by Sept. 1 that the city intends to take action once its council is back in session. Cities may still take action any time after Sept. 30, but it means BOE will not start UUT collection until April 1, and potential revenue for the first three months of the year will be lost.

IMPORTANT NOTE: AB 1717 will only apply to cities that have a modern telecom UUT ordinance that includes prepaid wireless telephone service within the taxing base. Before taking any action with regard to the BOE, cities are urged to first review their ordinances to confirm if this is the case. If a city has a modern ordinance, it should take immediate action with the BOE to ensure collection starts on Jan. 1. If not, a city will have to first amend its telecom UUT ordinance, which will likely require voter approval under Proposition 218.

For more information about this new law and how it may impact your city, contact the attorney author of this Legal Alert listed at right in the Municipal Law practice group, or your BB&K attorney.

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Disclaimer: BB&K legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.

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