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RPVCCA_CC_SR_2014_07_15_06_Ordinance_Reducing_Utility_User_TaxCITY OF RANCHO PALOS VERDES MEMORANDUM TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: CAROL W. LYNCH, CITY ATTORNEY DATE: JULY 15, 2014 SUBJECT: ORDINANCE REDUCING THE UTILITY USER TAX RATE FROM 3% TO 2.75% AND MODERNIZING THE CITY'S UTILITY USER TAX AND EMERGENCY RESOLUTION AUTHORIZING THE CITY COUNCIL TO CALL AN ELECTION ON NOVEMBER 4, 2014 TO REQUEST THE VOTERS TO APPROVE THE ORDINANCE REVIEWED BY: CAROLYNN PETRU, ACTING CITY MANAGER® RECOMMENDATIONS 1. ADOPT RESOLUTION NO. 2014-; A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES, UNANIMOUSLY DECLARING AN EMERGENCY IN CONNECTION WITH THE PLACEMENT OF A MEASURE THAT MODERNIZES THE CITY'S UTILITY USER TAX AND DECREASES THE RATE OF THE TAX ON THE BALLOT FOR A SPECIAL MUNICIPAL ELECTION TO BE CONSOLIDATED WITH THE NOVEMBER 4, 2014 ELECTION 2. INTRODUCE ORDINANCE NO. ; AN ORDINANCE OF THE PEOPLE OF THE CITY OF RANCHO PALOS VERDES, REDUCING THE RATE OF THE CITY'S UTILITY USER TAX FROM 3% TO 2.75% AND MODERNIZING THE CITY'S UTILITY USER TAX BACKGROUND In 1993, the City Council adopted the City's Utility Users Tax ("Tax" or "UUT"). The amount of the Tax is 3%. It is imposed on City residents who use telephone service, electricity, co-generated electricity, natural gas, and water. Subsequently, the voters of the State of California adopted Proposition 218. Even though the City's Tax had been in effect prior to the adoption of Proposition 218, in order for the City to continue to collect the Tax legally, voter approval was 6-1 required. Accordingly, in 2004, the City Council placed the Tax on the ballot, and the voters ratified the existing Tax at the same 3% rate that had beerr adopted by the City Council. Like many utility users taxes, the telephone portion of the City's Tax originally was imposed upon telephone service that was subject to the Federal Excise Tax ("FET"), because, at that time, it was believed that the FET could be imposed upon the broadest categories of telephone services. The FET was used routinely by municipalities as the basis for imposing a utility user tax, so those local taxes also would be imposed on the broadest range of telephone services. However, a decision by a federal court invalidated a portion of the methodology that was used in the FET. Subsequently, in 2006, the Internal Revenue Service issued a ruling stating that the FET does not apply to most common telephone billing plans, such as one-rate plans that charge a flat rate for all calls. (The California Municipal Law Handbook Section 5.50.) Thus, like most utility users taxes in the state, the basis of the imposition of the City's Tax, as applied to telephone service, was no longer valid. In response to these events, some cities put their utility taxes on the ballot for voter approval of new definitions of telephone services upon which to impose the utility users tax; others did not amend their ordinances, which still contain the reference to the FET; and others, like Rancho Palos Verdes, amended their ordinances without voter approval to delete the reference to the FET and added a different definition of the telephone services upon which the UUT would be imposed. In taking this latter approach in 2006, the City Council made findings that the intent of the changes to the Tax was not to expand the Tax to any new categories ·of telephone service that had not been taxed previously, so that voter approval should not be required. The City Council took this action, rather than placing the Tax on the ballot again, because the City's voters had ratified the City's Tax fairly recently, and it was unclear whether changing the definition of the telephone service upon which the Tax could be imposed would require voter approval. Subsequent cases have addressed that issue and have clarified that the option that clearly is legally defensible is to place any definition changes and updates to the UUT on the ballot for approval. Since 2006, many changes have occurred with respect to telephone services that have caused the definitions in the UUT to become somewhat outdated. Accordingly, some types of telephone services currently are not subject to the tax, while others are. This is not completely fair to City residents who use telephone services and currently are subject to the City's UUT. Accordingly, Staff proposes placing an ordinance on an upcoming ballot that will modernize the UUT. In addition, at the June 17, 2014 City Council meeting, Council Member Campbell suggested that the City Council should consider reducing the R6876.000l/1720561 v2 2 6-2 rate of the City's UUT. The ordinance that modernizes the UUT also could reduce the rate of the City's UUT below the current rate of 3%. The Ordinance that is attached to this staff report proposes a reduction of the current tax rate of 3% to 2.75%. Of course, another tax rate also could be selected by the City Council and presented to the voters. History of UUT Approximately $2.6 million of UUT is deposited into the City's General Fund annually. About $0.7 million of this amount is based upon telecommunications services (telephone land line, long distance, and cellular service), and the remainder is based upon electricity, gas and water service. A five-year history of UUT follows: Utility Users' Tax $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $- FY09-10 FYl0-11 FYll-12 FY12-13 FY13-14 !!:l Electricity, Gas & Water ''''Telecommunications Loss of UUT -Budget Impact The FY14-15 General Fund revenue budget is $26.5 million. A net expenditure of about $19.2 million represents the City's operating budget; and $7.3 million will be transferred to the Capital Improvement Projects (CIP) Fund for infrastructure repair, replacement and improvement. Based upon the operating and capital needs of the City, the City Council has determined that the UUT rate of 3% continues to be a necessary General Fund revenue source. The FY14-15 General Fund budget is balanced by a thin margin. If the General Fund were to lose a revenue source such as UUT, the impact to the current level of service would be significant. Even if there is no loss of UUT, Staff expects that the General Fund budget will become more difficult to balance in future years. • As reported with the 2014 Five-Year Financial Model, Staff expects that the accumulated Street Maintenance Fund balance will be depleted, and R6876.0001/1720561 v2 3 6-3 the General Fund will be required to resume large subsidies for right-of- way maintenance beginning in FY15-16. • The Los Angeles County Sheriff's Department has notified the City to expect additional increases to the required liability trust fund contribution in FY15-16. • Staff expects that expenditures will increase over the next couple of years to keep pace with the latest storm water quality mandates from the state and federal governments. Due to conservative budget management, the City's General Fund does have a history of favorable expenditure variances, which have averaged about $1.0 million annual over the last 10 years. However, due to the increased need to improve the City's aged infrastructure and the limited availability of restricted revenue dedicated to infrastructure, the City Council recently modified its Policy No. 41 -Reserve Policies to transfer favorable General Fund expenditure variances to the CIP Fund for additional infrastructure funding. There are currently 3 components of infrastructure subsidies from the General Fund: 1. Annual transfer for the residential street rehabilitation program (FY14-15 budget of $3 million); 2. Annual transfer equivalent to the City's transient occupancy tax revenue (FY14-15 budget of $4 million; and 3. Annual transfer of the prior year expenditure variance (most recent was $1.7 million FY12-13 variance transferred in FY13-14). Over 10 years through FY14-15, General Fund transfers total more than $16.7 million for street improvements and $18.4 million for storm drain improvements. However, even with the large General Fund subsidies for infrastructure, projects with estimated costs totaling at least $28 million have been identified in the 2014 Five-Year Capital Improvement Plan that remain unfunded over the next five years. Fiscal Impact of Rate Reduction As part of a potential UUT modernization ballot measure, the City Council may consider a proposed reduction to the UUT rate, as suggested by Councilmember Campbell. The annual fiscal impact of the proposed quarter-percent reduction (from 3% to 2.75%) is a revenue decrease of about $221,675. fFY14-15 Budgeted uur 3% $ 2,660,ioo I I -·~~-1-~~---1 l.9.:15% Reduction (from 3% to 2.85%) J ___ _!~~!..005 lo.25% Reduction (from 3% to 2.75%) $ 221,675 l.Q:?.~.~~c:!.l:'~!iC?~ .. -(f~C?-~.·-~-~t9_?:?.~J ·············· .... ? ....... '¥~!~?.Q_ The fiscal impact of the City Council's alternatives are as follows: R6876.0001/1720561 v2 4 6-4 1. If the City Council takes no action to propose a UUT modernization ballot measure, the City could lose up to $0.7 million of annual UUT based upon telecommunications service, until a measure is brought before the voters for approval. 2. If the City Council proposes a UUT modernization ballot measure, the following outcomes are possible: a. The ballot measure fails, and the City loses about $0. 7 million of annual UUT revenue; b. A ballot measure with no proposed rate reduction prevails, and the City's UUT revenue remains intact; or c. A ballot measure prevails with a proposed rate reduction of a quarter-percent, and the City loses an estimated $221,675 of annual UUT. Staff recommends that the City Council include a reduction of the rate of the UUT from 3% to 2.75% in the ordinance that is presented to the voters because that reduction will benefit the residents while still providing the majority of the current revenue stream from the UUT to the City to fund City services. DISCUSSION The benefit to the City's residents of placing the City's UUT on the upcoming November ballot is obvious. If the voters were to approve an ordinance that modernizes the City's UUT at a reduced rate, such as 2. 75%, the residents will receive the benefit of the reduction of the rate of the UUT. In addition, by modernizing the UUT, newer telephone-related services will be treated the same, so that telephone users in the City are treated alike. In addition, by placing the measure on the ballot at the earliest possible election date, which is November 2014, any dispute about the UUT on telephone services will be resolved a year earlier than if the City waits to place such a measure on the ballot in November 2015, when the next regular City Municipal election will occur. If the City Council wishes to place the UUT on the November 2014 ballot, the City Council must adopt a resolution setting forth an emergency that justifies the election being held prior to an election date that is different from the date of the City's regular municipal elections in November of odd numbered years. Staff believes that there are facts upon which the City Council may rely in declaring an emergency and calling the election in November 2014, instead of waiting until November 2015. Those facts are set forth in the attached resolution and are reiterated here: 1. Continuous State takeaways over the last few years, including the state's recent elimination of redevelopment agencies, have resulted in significant R6876.0001/1720561 v2 5 6-5 reductions in revenues that the City intended would be used to repay the City for loans made previously to the Rancho Palos Verdes Redevelopment Agency for expenditures to address landslide damage and increase land stability within former Redevelopment Project Area No. 1. 2. The Portuguese Bend Landslide is a large active landslide that continues to move and adversely affects public infrastructure, including Palos Verdes Drive South, a major arterial street in the City. The constant damage caused by the landslide requires constant and increased City expenditures to maintain PVDS as a viable arterial street. 3. During the recession, the State took money monies that previously were allocated to cities to reduce the State's budget deficit, and it is expected that similar actions will occur again in the future in response to downturns in the economy. 4. · The cost to the City of complying with state and federal clean water rules continues to increase each year. 5. The City has many unfunded important infrastructure projects, which are discussed above, totaling more than $28 million, including unfunded projects to improve City streets ($4. 7 million), and storm drains ($9.4 million). 6. The City of Rancho Palos Verdes seeks to maintain current levels of public safety and police services within the City, even though the cost of such services continues to increase, including the City's contribution to the County liability trust fund for law enforcement services, which the City has been notified will increase again in fiscal year 15-16. 7. The cost saving measures the City has employed in recent years to maintain a balanced City budget will not be sufficient to avoid future cuts to services provided by the City to the community, which would have a negative impact upon public safety and the character of the community in Rancho Palos Verdes. If the City Council concurs with the above findings and that the ordinance reducing the rate of the UUT and modernizing its provisions should be placed on the ballot for the upcoming election in November 2014, instead of having to wait until the next regular City election in November 2015, then the City Council should adopt the attached resolution; the adoption of the resolution requires a unanimous vote. CONCLUSION In addition to qdopting the attached resolution, the City Council should review the attached ordinance and determine if the City Council agrees with Staff's recommendation that the current rate of the UUT should be reduced from 3% to 2.75% or if another rate should be chosen instead. Attachments: Draft Resolution Draft Ordinance Public Correspondence R6876.0001/1720561 v2 6 6-6 RESOLUTION NO. __ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES UNANIMOUSLY DECLARING AN EMERGENCY IN CONNECTION WITH THE PLACEMENT OF A MEASURE THAT MODERNIZES THE CITY'S UTILITY USER TAX AND DECREASES THE RATE OF THE TAX ON THE BALLOT FOR THE NOVEMBER 4, 2014 ELECTION WHEREAS, the City of Rancho Palos Verdes has historically operated with fiscal prudence and caution and without spending more than the amount allowed by the City's General Fund reserve policy. As a result, the City has been very fiscally responsible; and WHEREAS, in 1993, the Rancho Palos Verdes City Council adopted a utility user tax ("UUT") in the amount of 3% to provide a source of income to the City, which could not be diverted by the State of California to balance the State's budget, to fund important City services; and WHEREAS, following the adoption of Proposition 218, the City Council placed the City's UUT on the ballot for approval, and in 2004, the City's voters ratified the City's UUT at the same rate of 3%; and WHEREAS, the UUT continues to be an important source of revenue to the City to fund important public services that are funded by revenues in the City's general fund; and WHEREAS, the continuous State takeaways in the last few years, including the state's recent elimination of redevelopment agencies, have resulted in significant reductions in revenues that the City intended would be used to repay the City for loans made previously to the Rancho Palos Verdes Redevelopment Agency for expenditures to address landslide damage and increase land stability within former Redevelopment Project Area No. 1 ; and WHEREAS, the Portuguese Bend Landslide is a large active landslide that continues to move and adversely affects public infrastructure, including Palos Verdes Drive South, a major arterial street in the City; the constant damage caused by the landslide requires constant and increased City expenditures to maintain it as a viable arterial street; and WHEREAS, during the recession, the State took money monies that previously were allocated to cities to reduce the State's budget deficit, and it is expected that similar actions will occur again in the future in response to downturns in the economy; and 1727460v2 6-7 WHEREAS, the cost to the City of complying with state and federal clean water rules continues to increase each year; and WHEREAS, the City has many unfunded important infrastructure projects within the City totaling more than $28 million, including unfunded projects to improve City streets ($4.7 million), and storm drains ($9.4 million); and WHEREAS, the City of Rancho Palos Verdes seeks to maintain current levels of public safety and police services within the City, even though the cost of such services continues to increase, including the City's contribution to the County liability trust fund for law enforcement services, which the City has been notified will increase again in fiscal year 15-16; and WHEREAS, the cost saving measures the City has employed in recent years to maintain a balanced City budget will not be sufficient to avoid future cuts to services provided by the City to the community, which would have a negative impact upon public safety and the character of the community in Rancho Palos Verdes; and WHEREAS, due to changes in technology the City Council wishes to update the City's UUT ordinance so that it is applied fairly and uniformly to users of gas, water, electricity and telephone services in the City and to correspondingly reduce the tax rate of the UUT from 3% to 2. 75%, which will benefit the City's residents; and WHEREAS, without further action to modernize the provisions of the UUT that is based on telephone services, it is possible that someone could challenge the City's UUT on those services; any unexpected loss of utility users' tax on telephone services would have a detrimental impact on the City's budget, including future reductions to infrastructure maintenance; and WHEREAS, without Council action to place these revisions on the ballot at the earliest possible time, which is the November 4, 2014 election, there will be an unnecessary delay before the City's residents will be able to determine if the City's UUT ordinance should be modernized and if the residents' tax rate should be reduced; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES AS FOLLOWS: Section 1. The City Council finds that the recitals are true and correct. Section 2. The City Council unanimously finds and declares the existence of this emergency, based upon the facts and findings stated in the recitals of this Resolution, and accordingly orders that the election on the City's Utility User Tax should occur at the November 4, 2014 election, so that the UUT will be updated; the tax rate will be reduced to 2.75%, and this important source of revenue can be preserved. 1727460v2 6-8 Section 3. That the City Clerk shall certify to the adoption of this resolution and enter it into the book of resolutions. PASSED, APPROVED and ADOPTED, this ____ day of ___ _ 2014. MAYOR ATTEST: GITY CLERK 1727460v2 6-9 ORDINANCE NO. AN ORDINANCE OF THE PEOPLE OF THE CITY OF RANCHO PALOS VERDES REDUCING THE RATE OF THE CITY'S UTILITY USER TAX FROM 3% TO 2.75% AND MODERNIZING THE CITY'S UTILITY USER TAX WHEREAS, the Rancho Palos Verdes City Council unanimously declared on June 17, 2014, that an emergency exists in the City; and WHEREAS, the Rancho Palos Verdes City Council introduced this Ordinance on June 17, 2014, by the following vote: ; and WHEREAS, the City Council submitted this ordinance to the voters at the November 4, 2014, election; NOW, THEREFORE, THE PEOPLE OF THE CITY OF RANCHO PALOS VERDES DO ORDAIN AS FOLLOWS: Section 1. Chapter 3.30 of the Rancho Palos Verdes Municipal Code ("Code") entitled "Utility User Tax," which applies a tax on all telephone, electric, co-generated electric, water and gas charges in the City of Rancho Palos Verdes, is hereby amended to reduce the rate of the tax from 3% to 2. 75% and to include the other amendments that are set forth in Exhibit "A," which is attached hereto and incorporated herein by this reference. Section 2. In no event may the City Council alter the provisions of sections 3.30.050, 3.30.060, 3.30.070, 3.30.080 and 3.30.100 to increase the two and three quarter percent (2.75%) rate on telecommunication, electric, co-generated electric, water and gas charges, without the approval of the tax rate increase by a majority of voters of the City; provided, however, the City Council is hereby authorized to amend any other provisions of Chapter 3.30 of the Code by three (3) affirmative votes of its members to, without limitation, carry out the general administrative purposes of Chapter 3.30 of the Code to reasonably implement the collection of the utility user tax through public utilities and other service suppliers as authorized in Chapter 3.30. Section 3. This Ordinance shall be effective only if approved by a majority of voters voting thereon and shall go into effect ten (10) days after the vote is declared by the City Council. ADOPTED AT A SPECIAL ELECTION OF THE CITY OF RANCHO PALOS VERDES held on the 4th day of November, 2014. -1- 6-10 EXHIBIT A "Chapter 3.30 -UTILITY USER TAX Sections: 3.30.010 -Short title. 3.30.020 -Purpose. 3.30.030 -Definitions. 3.30.040 -Constitutional, statutory and other exemptions. 3.30.050 -Telecommunications user tax. 3.30.060 -Electricity user tax. 3.30.070 -Cogenerated electricity user tax. 3.30.080 -Gas user tax. 3.30.090 .-Collection of tax from service users receiving direct purchase of gas or electricity. 3.30.100 -Water user tax. 3.30.110 -Bundling taxable items with nontaxable items. 3.30.120 -Substantial nexus-Minimum contacts. 3.30.130 -Duty to collect-Procedures. 3.30.140 -Collection penalties-Service suppliers. 3.30.150 -Actions to collect. 3.30.160 -Deficiency determination and assessment-Tax application errors. 3.30.170 -Administrative remedy-Non-paying service users. 3.30.180 -Additional powers and duties of the tax administrator. 3.30.190 -Records. 3.30.200 -Refunds. 3.30.210 -Appeals. 3.30.220 -No injunction-Writ of mandate. 3.30.230 -Notice of changes to chapter. 3.30.240 -Effect of state and federal reference/authorization. 3.30.250 -No increase in tax percentage or change in methodology without voter approval-Amendment or repeal. 3.30.260 -Independent audit of tax collection, exemption, remittance and expenditure. 3.30.270 -Remedies cumulative. 3.30.280 -Validity of prior ordinance. 3.30.290 -Legislative review. 3.30.300-Violations--Misdemeanor 3.30.01 O -Short title. The ordinance codified in this chapter shall be known as the "Utility User Tax Ordinance of the City of Rancho Palos Verdes." 3.30.020 -Purpose. 6-11 The taxes imposed by this chapter are established solely to raise revenue for the general governmental purposes of the city. The revenues generated thereby shall be deposited in the general fund of the city and may be expended for any proper municipal purpose at the discretion of the city council. 3.30.020 -Definitions. The following words and phrases, whenever used in this chapter, shall be construed as defined. in this section, except where the context clearly requires otherwise: A. "Ancillary telecommunication services" means services that are associated with or incidental to the provision, use or enjoyment of telecommunications services, including but not limited to the following services: 1. "Conference bridging service" means an ancillary service that links two (2) or more participants of an audio or video conference call and may include the provision of a telephone number. Conference bridging service does not include the telecommunications services used to reach the conference bridge. 2. "Detailed telecommunications billing service" means an ancillary service of separately stating information pertaining to individual calls on a customer's billing statement. 3. "Directory assistance" means an ancillary service of providing telephone number information, and/or address information. 4. "Vertical service" means an ancillary service that is offered in connection with one or more telecommunications services, which offers advanced calling features that allow customers to identify callers and to manage multiple calls and call connections, including conference bridging services. 5. "Voice mail service" means an ancillary service that enables the customer to store, send or receive recorded messages. Voice mail service does not include any vertical services that the customer may be required to have in order to utilize the voice mail service B. "Billing address" means the mailing address of the service user where the service supplier submits invoices or bills for payment by the customer. C. "City" means the City of Rancho Palos Verdes. D. "Cogeneration electrical energy" means the use for the generation of electricity of exhaust steam, waste steam, heat, or resultant energy from an industrial, commercial or manufacturing plant or process, or the use of exhaust steam, waste steam, or heat from a thermal power plant for an industrial, commercial, or manufacturing plant or process. E. "Gas" means natural or manufactured gas or any alternate hydrocarbon fuel which may be substituted therefor. 6-12 F. "Mobile telecommunications service" means commercial mobile radio service, as defined in Section 20.3 of Title 47 of the Code of Federal Regulations and as set forth in the Mobile Telecommunications Sourcing Act (4 U.S.C. § 124) and the regulations there under. G. "Month" means a calendar month. H. "Non-utility service supplier" means: 1. A service supplier, other than a supplier of electric distribution services to all or a significant portion of the city, which generates electricity for sale to others, and shall include but is not limited to any publicly-owned electric utility, investor-owned utility, cogenerator, distributed generation provider, exempt wholesale generator, municipal utility district, federal power marketing agency, electric rural cooperative, or .other supplier or seller of electricity; 2. An electric service provider (ESP), electricity broker, marketer, aggregator (including a community choice aggregator), pool operator, or other electricity supplier other than a supplier of electric distribution services to all or a significant portion of the city, which sells or supplies electricity or supplemental services to electricity users within the city; or 3. A gas service supplier, aggregator, marketer or broker, other than a supplier of gas distribution services to all or a significant portion of the city, which sells or supplies gas or supplemental services to gas users within the city. I. "Paging service" means a telecommunications service that provides transmission of coded radio signals for the purpose of activating specific pagers; such transmissions may include messages and/or sounds. J. "Person" means, without limitation, any natural individual, firm, trust, common law trust, estate, partnership of any kind, association, syndicate, club, joint stock company, joint venture, limited liability company, corporation (including foreign, domestic, and non-profit), municipal district or municipal corporation (other than the city) cooperative, receiver, trustee, guardian, or other representative appointed by order of any court. K. "Place of primary use" means the street address representative of where the customer's use of the telecommunications service primarily occurs, which must be the residential street address or the primary business street address of the customer. L. "Post-paid telecommunication service" means the telecommunications service obtained by making a payment on a communication-by-communication basis either through the use of a credit card or payment mechanism such as a bank card, travel card, credit card, or debit card, or by charge made to a service number which is not associated with the origination or termination of the telecommunications service. M. "Prepaid telecommunication service" means the right to access telecommunications services, which must be paid for in advance and which enables the origination of 6-13 communications using an access number or authorization code, whether manually or electronically dialed. N. "Private telecommunication service" means a telecommunications service that entitles the customer to exclusive or priority use of a communications channel or group of channels between or among termination points, regardless of the manner in which such channel or channels are connected, and includes switching capacity, extension lines, stations, and any other associated services that are provided in connection with the use of such channel or channels. A communications channel is a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points (i. e., the location where the customer either inputs or receives the communications). 0. "Service address" means the residential street address or the business street address of the.service user. For a telecommunications service user, "service address" means either: 1. The location of the service user's telecommunications equipment from which the telecommunication originates or terminates, regardless of where the telecommunications is billed or paid; or, 2. If the location in subsection (0)(1) of this section is unknown (e.g., mobile telecommunications service or VoIP service), the service address means the location of the service user's place of primary use. 3. For prepaid telecommunication service, "service address" means the point of sale of the services where the point of sale is within the city, or if unknown, the known address of the service user (e.g., billing address or location associated with the service number), which locations shall be presumed to be the place of primary use. P. "Service supplier" means any entity or person, including the city, which provides utility service to a user of such service within the city. The term shall include any person required to collect, or self-collect under Section 3.30.090 hereof, and remit a tax as imposed by this chapter, including its billing agent in the case of electric or gas suppliers. Q. "Service user" means a person required to pay a tax imposed under the provisions of this chapter. R. "State" means the State of California. S. "Tax administrator" means the director of finance of the city or other person designated by the city manager to administer the provisions of this chapter. T. "Telecommunications service" means the transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points, whatever the technology used. The term "telecommunications services" includes such transmission, conveyance, or routing in which computer 6-14 processing applications are used to act on the form, code or protocol of the content for purposes of transmission, conveyance or routing without regard to whether such services are referred to as voice over internet protocol (VoIP) services or are classified by the Federal Communications Commission as enhanced or value added, and includes video and/or data services that is functionally integrated with telecommunications services. "Telecommunications services" include, but are not limited to the following services, regardless of the manner or basis on which such services are calculated or billed: ancillary telecommunication services; intrastate, interstate, and international telecommunication services; mobile telecommunications service; prepaid telecommunication service; post-paid telecommunication service; private telecommunication service; paging service; 800 service (or any other toll-free numbers designated by the Federal Communications Commission); 900 service (or any other similar numbers designated by the Federal Communications Commission for services whereby subscribers who call in to pre-recorded or live service). U. "VoIP (Voice Over Internet Protocol)" means the digital process of making and receiving real-time voice transmissions over any Internet Protocol network. V. "800 service" means a telecommunications service that allows a caller to dial a toll- free number without incurring a charge for the call. The service is typically marketed under the name "800," "855," "866," "877," and "888" toll-free calling, and any subsequent numbers designated by the Federal Communications Commission. W. "900 service" means an inbound toll telecommunications service purchased by a subscriber that allows the subscriber's customers to call in to the subscriber's prerecorded announcement or live service. "900 service" does not include the charge for: collection services provided by the seller of the telecommunications services to the subscriber, or service or product sold by the subscriber to the subscriber's customer. The service is typically marketed under the name "900" service, and any subsequent numbers designated by the Federal Communications Commission. 3.30.040 -Constitutional, statutory and other exemptions. A. Nothing in this chapter shall be construed as imposing a tax upon any person when the imposition of such tax upon that person would be in violation of the Constitution of the United States or the Constitution of the State of California, or any federal or California statute. B. The city council may, by resolution, establish one or more classes of persons or one or more classes of utility services otherwise subject to payment of the tax imposed by this chapter and to provide that such classes of persons shall be exempt, in whole or in part from the payment of the tax imposed by this chapter. C. Charges made for energy used in the propulsion of a low emission motor vehicle, as defined in the Vehicle Code of the State of California, shall be exempt, provided that the owner of such vehicle installs and maintains a separate metering system for the energy provided to the vehicle. 6-15 D. Notwithstanding the foregoing, the exemptions provided by subsections (8) and (C) of this section shall not be applicable unless and until applied for by the service user and granted in accordance with the provisions of subsections (E) and (F) of this section. E. Any service user who becomes eligible for an exemption from the taxes imposed by this chapter because of the provisions of subsections (B) and (C) of this section, may file an application with the tax administrator for an exemption. Such application shall be made upon forms supplied by the tax administrator and shall recite facts under penalty of perjury which qualify the applicant for an exemption. The tax administrator shall review all such applications and shall certify as exempt those applicants determined to qualify therefor and shall notify all service suppliers that such exemption has been approved, stating the name of the applicant, the address to which such exempt service is being supplied, the account number, if any, and such other information as may be necessary for the service supplier to remove the exempt service user from its tax billing procedure. Upon receipt of such notice, the service supplier shall not be required to continue to bill any further tax imposed by this chapter from such exempt service user until further notice is given by the tax administrator. The service supplier shall eliminate such exempt service user from its tax billing procedure not later than sixty (60) calendar days after receipt of such notice from the tax administrator. F. All exemptions certified by the tax administrator shall be effective for a period of two (2) years and may thereafter be renewed by the tax administrator upon application to the tax administrator showing that the prerequisite facts supporting the initial qualification for exemption still continue; provided, however, that the exemption shall automatically terminate with any change in the service address or residence of the exempt individual. If the new address or residence is still within the city, such individual may apply for a new exemption with each change of address or residence. Any individual exempt from the tax shall notify the tax administrator within ten (10) days of any change in fact or circumstance which might disqualify said individual from receiving such exemption. It shall be a misdemeanor for any person to knowingly receive the benefits of the exemption provided by this section when the basis for such exemption either does not exist or ceases to exist. G. Every service supplier is authorized to bill the tax imposed by this chapter to any new service user or to any account on which the service user's name has been changed (excluding changes attributable to spelling errors or other clerical errors) until such time as the service supplier receives notification from the tax administrator that an exemption has been granted pursuant to this section. H. Notwithstanding any of the provisions of this section, any service supplier who determines by any means that a new or nonexempt service user is receiving service through a meter or connection exempt by virtue of an exemption issued to a previous user or exempt user of the same meter or connection shall immediately notify the tax administrator of such fact and the tax administrator shall conduct an investigation to ascertain whether or not the provisions of this section have been complied with and, 6-16 where appropriate, order the service supplier to commence collecting the tax from the nonexempt service user. I. "Telephone corporations," "electrical corporations," "gas corporations" and "water corporations," as defined in Sections 234, 218, 222 and 241, respectively, of the California Public Utilities Code, or any successor statute, shall be exempt from this tax. 3.30.050 -Telecommunications user tax. A. There is hereby imposed a tax upon every person in the city using telecommunications services. The tax imposed by this section shall be at the rate of two and three quarter percent (2.75%) of the charges made for such services and shall be collected from the service user by the telecommunications services supplier or its billing agent, or as otherwise provided by law. There is a rebuttable presumption that telecommunications services, which are billed to a billing or service address in the city, are used, in whole or in part, within the city's boundaries, and such services are subject to taxation under this section. There is also a rebuttable presumption that prepaid telecommunications services sold within the city are used, in whole or in part, within the city and are therefore subject to taxation under this section. If the billing address of the service user is different from the service address, the service address of the service user shall be used for purposes of imposing the tax. 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 telecommunications services. B. Mobile telecommunications service shall be sourced in accordance with the sourcing rules set forth in the Mobile Telecommunications Sourcing Act (4 U.S.C. § 116 et seq.). The tax administrator may issue and disseminate to telecommunications service suppliers, which are subject to the tax collection requirements of this chapter, sourcing rules for the taxation of other telecommunications services, including but not limited to post-paid telecommunications services, prepaid telecommunications services, VoIP, and private communication services, provided that such rules are based upon custom and common practice that further administrative efficiency and minimize multi- jurisdictional taxation . C. The tax administrator may issue and disseminate to telecommunications service suppliers, which are subject to the tax collection requirements of this chapter, an administrative ruling identifying those telecommunications services, or charges therefore, that are subject to or not subject to the tax of subsection (A) of this section. D. As used in this section, the term "telecommunications services" shall include, but is not limited to, charges for: connection, reconnection, termination, movement, or change of telecommunications services; late payment fees; detailed billing; central office and custom calling features (including but not limited to call waiting, call forwarding, caller identification and three-way calling); voice mail and other messaging services; directory assistance; access and line charges; universal service charges; 6-17 regulatory or administrative fees, charges or surcharges, including charges or surcharges for programs imposed by state or federal law (whether such charges or surcharges are imposed on the service supplier or the customer); local number portability charges; and text and instant messaging. "Telecommunications services" shall not include digital downloads that are not ancillary telecommunication services, such as music, ringtones, games, and similar digital products. E. To prevent actual multi jurisdictional taxation of telecommunications 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 telecommunications services, 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. · F. The tax on telecommunications services imposed by this section shall be collected from the service user by the service supplier. The amount of tax collected in one month shall be remitted to the tax administrator, and must be received by the tax administrator on or before the twentieth (20th) day of the following month. 3.30.060 -Electricity user tax. A. There is hereby imposed a tax upon every person using electricity in the city. The tax imposed by this section shall be at the rate of two and three quarter percent (2. 75%) of the charges made for such electricity, and for any supplemental services or other associated activities directly related to and/or necessary for the provision of electricity to the service user, which are provided by a service supplier or non-utility service supplier to a service user. The tax shall be collected from the service user by the service supplier or non-utility service supplier, or its billing agent. B. As used in this section, the term "charges" shall apply to all services, components and items that are: i) necessary for or common to the receipt, use or enjoyment of electric service; or, ii) currently are or historically have been included in a single or bundled rate for electric service by a local distribution company to a class of retail customers. The term "charges" shall include, but is not limited to, the following charges: 1 . Energy charges; 2. Distribution or transmission charges; 3. Metering charges; 4. Standby, reserves, firming, ramping, voltage support, regulation, emergency, or other similar charges for supplemental services to self-generation service users; 5. Customer charges, late charges, service establishment or reestablishment charges, demand charges, fuel or other cost adjustments, power exchange charges, independent system operator (ISO) charges, stranded investment or 6-18 competitive transition charges (CTC), public purpose program charges, nuclear decommissioning charges, trust transfer amounts (bond financing charges), franchise fees, franchise surcharges, annual and monthly charges, and other charges, fees or surcharges which are necessary for or common to the receipt, use or enjoyment of electric service; and 6. Charges, fees, or surcharges for electricity services or programs which are mandated by the California Public Utilities Commission or the Federal Energy Regulatory Commission, whether or not such charges, fees, or surcharges appear on a bundled or line item basis on the customer billing, or whether they are imposed on the service provider or the customer. C. 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 electricity or services related to the provision of such electricity. D. The tax administrator, from time to time, may survey the electric service suppliers to identify the various unbundled billing components of electric retail service that they commonly provide to residential and commercial/industrial customers in the of the city, and the charges therefor, including those items that are mandated by state or federal regulatory agencies as a condition of providing such electric service. The tax administrator, thereafter, may issue and disseminate to such electric service suppliers an administrative ruling identifying those components and items which are: i) necessary for or common to the receipt, use or enjoyment of electric service; or, ii) currently are or historically have been included in a single or bundled rate for electric service by a local distribution company to a class of retail customers. Charges for such components and items shall be subject to the tax of subsection (A) of this seCtion. E. As used in this section, the term "using electricity" shall not include the mere receiving of such electricity by an electrical corporation or governmental agency at a point within the city for resale. F. The tax on electricity provided by self-production or by a non-utility service supplier not under the jurisdiction of this chapter shall be collected and remitted in the manner set forth in Section 3.30.090 of this chapter. All other taxes on charges for electricity imposed by this section shall be collected from the service user by the electric service supplier or its billing agent. The amount of tax collected in one (1) month shall be remitted to the tax administrator, and must be received by the tax administrator on or before the twentieth (20th) day of the following month; or, at the option of the person required to collect and/or remit the tax, such person shall remit an estimated amount of tax measured by the tax billed in the previous month or upon the payment pattern of the service user, which must be received by the tax administrator on or before the twentieth (20th) day of the following month, provided that such person shall submit an adjusted payment or request for credit, as appropriate, within sixty (60) calendar days following each calendar quarter. The credit, if approved by the tax administrator, may be applied against any subsequent remittance that becomes due. 6-19 3.30.070 -Cogenerated electricity user tax. A. There is imposed a tax upon every person using cogenerated electrical energy in the city at the rate specified in Section 3.30.060. The tax applicable to cogenerated electrical energy used on site shall be determined by applying the tax rate to the equivalent charges the cogenerator would have incurred if the energy used had been provided to the service user by an electrical corporation franchised by the city. B. The cogenerator shall install and maintain an appropriate metering system that will enable compliance with this section. C. If the cogenerator sells the energy for consumption in the city, the tax will be imposed by applying the tax rate to the equivalent charges for such service the service user would have incurred if the energy used had been provided by the electrical corporation franchised by the city and shall be collected from the service user by the service supplier. 3.30.080 -Gas user tax. A. There is hereby imposed a tax upon every person using gas in the city, which is transported and delivered through a pipeline or by mobile transport. The tax imposed by this section shall be at the rate of two and three quarter percent (2.75%) of the charges made for such gas, including all services related to the storage, transportation and delivery of such gas. The tax shall be collected from the service user by the service supplier or non-utility service supplier, or its billing agent, and shall apply to all uses of gas, including but not limited to, heating, electricity generation, and the use of gas as a component of a manufactured product. B. As used in this section, the term "charges" shall apply to all services, components and items for gas service that are: i) necessary for or common to the receipt, use or enjoyment of gas service; or, ii) currently are or historically have been included in a single or bundled rate for gas service by a local distribution company to a class of retail customers. The term "charges" shall include, but is not limited to, the following charges: 1. The commodity charges for purchased gas, or the cost of gas owned by the service user (including the actual costs attributed to drilling, production, lifting, storage, gathering, trunkline, pipeline, and other operating costs associated with the production and delivery of such gas), which is delivered through a gas pipeline distribution system; 2. Gas transportation charges (including interstate charges to the extent not included in commodity charges); 3. Storage charges; provided, however, that the service supplier shall not be required to apply the tax to any charges for gas storage services when the service supplier cannot, as a practical matter, determine the jurisdiction where such stored gas is ultimately used; but it shall be the obligation of the service user to self-collect the 6-20 amount of tax not applied to any charge for gas storage by the service supplier and to remit the tax to the appropriate jurisdiction; 4. Capacity or demand charges, late charges, service establishment or reestablishment charges, transition charges, customer charges, minimum charges, annual and monthly charges, and any other charges which are necessary for or common to the receipt, use or enjoyment of gas service; and, 5. Charges, fees, or surcharges for gas services or programs which are mandated by the California Public Utilities Commission or the Federal Energy Regulatory Commission, whether or not such charges, fees, or surcharges appear on a bundled or line item basis on the customer billing, or whether they are imposed on the service provider or the customer. C. As u~ed 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 gas or services related to the delivery of such gas. D. The tax administrator, from time to time, may survey the gas service suppliers to identify the various unbundled billing components of gas retail service that they commonly provide to residential and commercial/industrial customers in the city, and the charges therefor, including those items that are mandated by state or federal regulatory agencies as a condition of providing such gas service. The tax administrator, thereafter, may issue and disseminate to such gas service suppliers an administrative ruling identifying those components and items which are: i) necessary for or common to the receipt, use or enjoyment of gas service; or, ii) currently are or historically have been included in a single or bundled rate for gas service by a local distribution company to a class of retail customers. Charges for such components and items shall be subject to the tax of subsection (A) of this section. E. There shall be excluded from the calculation of the tax imposed in this section, charges made for gas that is to be resold and delivered through a pipeline distribution system. F. The tax on gas provided by self-production or by a non-utility service supplier not under the jurisdiction of this chapter shall be collected and remitted in the manner set forth in Section 3.30.090. All other taxes on charges for gas imposed by this section shall be collected from the service user by the gas service supplier or its billing agent. The amount of tax collected in one (1) month shall be remitted to the tax administrator, and must be received by the tax administrator, on or before the twentieth (20th) day of the following month; or, at the option of the person required to collect and/or remit the tax, such person shall remit an estimated amount of tax measured by the tax billed in the previous month or upon the payment pattern of the service user, which must be received by the tax administrator on or before the twentieth (20th) day of the following month, provided that such person shall submit an adjusted payment or request for credit, as appropriate, within sixty (60) calendar days following each calendar quarter. 6-21 The credit, if approved by the tax administrator, may be applied against any subsequent remittance that becomes due. 3.30.090 -Collection of tax from service users receiving direct purchase of gas or electricity. A. Any service user subject to the tax imposed by Section 3.30.060 or by Section 3.30.080 of this chapter, which produces gas or electricity for self-use; which receives gas or electricity, including any related supplemental services, directly from a non- utility service supplier not under the jurisdiction of this chapter; or which, for any other reason, is not having the full tax collected and remitted by its service supplier, a non- utility service supplier, or its billing agent on the use of gas or electricity in the city, including any related supplemental services, shall report said fact to the tax administrator and shall remit the tax due directly to the tax administrator within thirty (30) c.alendar days of such use, based on the charges for, or value of, such gas or electricity, or supplemental services, as provided in subsection (B) of this section. In lieu of paying said actual tax, the service user may, at its option, remit to the tax administrator within thirty (30) calendar days of such use an estimated amount of tax measured by the tax billed in the previous month, or upon the payment pattern of similar customers of the service supplier using similar amounts of gas or electricity, provided that the service user shall submit an adjusted payment or request for credit, as appropriate, within sixty (60) calendar days following each calendar quarter. The credit, if approved by the tax administrator in writing, may be applied against any subsequent tax bill that becomes due. B. The tax administrator may require said service user to identify its non-utility service supplier, and otherwise provide, subject to audit: invoices; books of account; or other satisfactory evidence documenting the quantity of gas or electricity used, including any related supplemental services, and the cost or price thereof. If the service user is unable to provide such satisfactory evidence, or if the administrative cost of calculating the tax in the opinion of the tax administrator is excessive, the tax administrator may determine the tax by applying the tax rate to the equivalent charges the service user would have incurred if the gas or electricity used, including any related supplemental services, had been provided by the service supplier that is the primary supplier of gas or electricity within the city. Rate schedules for this purpose shall be available from the city. 3.30.100 -Water user tax. A. There is imposed a tax upon every person using water in the city which is delivered through mains or pipes. The tax imposed by this section shall be at the rate of two and three quarter percent (2.75%) of the charges made for such water and shall be paid by the person paying for such water. B. "Charges," as used in this section, shall include charges made for (1) metered water; and (2) minimum charges for service, including customer charges, ready to serve charges, standby charges and annual and monthly charges and any other charges, 6-22 fees and surcharges that are necessary to or common for the receipt, use or enjoyment of water service, whether or not such charges, fees or surcharges appeal on a bundled or line item basis on the customer billing. C. There shall be excluded from the bases on which the tax imposed by this section is computed charges for water that is to be resold and that is delivered through mains or pipes. 3.30.110 -Bundling taxable items with nontaxable items. If any nontaxable charges are combined with and not separately stated from taxable service charges on the customer bill or invoice of a service supplier, the combined charge is subject to tax unless the service supplier identifies, by reasonable and verifiable standards, the portions of the combined charge that are nontaxable and taxable through the servi9e supplier's books and records kept in the regular course of business, and in accordance with generally accepted accounting principles, and not created and maintained for tax purposes. If the service supplier offers a combination of taxable and non-taxable services, and the charges are separately stated, then for taxation purposes, the values assigned the taxable and non-taxable services shall be based on its books and records kept in the regular course of business and in accordance with generally accepted accounting principles, and not created and maintained for tax purposes. The service supplier has the burden of proving the proper valuation and apportionment of taxable and non-taxable charges. 3.30.120 -Substantial nexus-Minimum contacts. For purposes of imposing a tax or establishing a duty to collect and remit a tax under this chapter, "substantial nexus," "substantial economic presence" and "minimum contacts" shall be construed broadly in favor of the imposition, collection and/or remittance of the utility users' tax to the fullest extent permitted by State and Federal law, and as it may change from time to time by judicial interpretation or by statutory enactment. Any telecommunications service (including VoIP) used by a person with a service address in the city, which service is capable of terminating a call to another person on the general telephone network, shall be subject to a rebuttable presumption that "substantial nexus/minimum contacts" exists for purposes of imposing a tax, or establishing a duty to collect and remit a tax, under this chapter. A service supplier shall be deemed to have sufficient activity in the city for tax collection .and remittance purposes if its activities include, but are not limited to, any of the following: maintains or has within the city, directly or through an agent, affiliate or subsidiary, a place of business of any nature; solicits business in the city by employees, independent contractors, resellers, agents, affiliates or other representatives; solicits business in the city on a continuous, regular, seasonal or systematic basis by means of advertising that is broadcast or relayed from a transmitter with the city or distributed from a location with the city; or advertises in newspapers or other periodicals printed and published within the city or through materials distributed in the city by means other than the United States mail; or if there are activities performed in the city on behalf of the service supplier that are significantly associated with the service supplier's ability to establish and maintain a market in the city for the provision of utility 6-23 services that are subject to a tax under this chapter (e.g., an affiliated person engaging in activities in the city that inure to the benefit of the service supplier in its development or maintenance of a market for its services in the city). 3.30.130 -Duty to collect-Procedures. A. Collection by Service Suppliers. The duty of service suppliers to collect and remit the taxes imposed by the provisions of this chapter shall be performed as follows: 1. The tax shall be collected by service suppliers insofar as practicable at the same time as, and along with, the collection of the charges made in accordance with the regular billing practice of the service supplier. Where the amount paid by a service user to a service supplier is less than the full amount of the charge and tax which was accrued for the billing period, a proportionate share of both the charge and th~ tax shall be deemed to have been paid. In those cases where a service user has notified the service supplier of refusal to pay the tax imposed on said charges, Section 3.30.170 shall apply. 2. The duty of a service supplier to collect the tax from a service user shall commence with the beginning of the first regular billing period applicable to the service user where all charges normally included in such regular billing are subject to the provisions of this chapter. Where a service user receives more than one billing, one or more being for different periods than another, the duty to collect shall arise separately for each billing period. B. Filing Return and Payment. Each person required by this chapter to remit a tax shall file a return to the tax administrator, on forms approved by the tax administrator, on or before the due date. The full amount of the tax collected shall be included with the return and filed with the tax administrator. The tax administrator is authorized to require such additional information as he or she deems necessary to determine if the tax is being levied, collected, and remitted in accordance with this chapter. Returns are due immediately upon cessation of business for any reason. Pursuant to Revenue and Taxation Code Section 7284.6, the tax administrator, and its agents, shall maintain such filing returns as confidential information that is exempt from the disclosure provisions of the Public Records Act. 3.30.140 -Collection penalties-Service suppliers. A. Taxes collected from a service user, or owed by a service user subject to Section 3.30.090 hereof, are delinquent if not received by the tax administrator on or before the due date. Should the due date occur on a weekend or legal holiday, the return must be received by the tax administrator on the first regular working day following the weekend or legal holiday. A direct deposit, including electronic fund transfers and other similar methods of electronically exchanging monies between financial accounts, made by a service supplier in satisfaction of its obligations under this chapter shall be considered timely if the transfer is initiated on or before the due date, and the transfer settles into the city's account on the following business day. 6-24 B. If the person required to collect and/or remit the utility users' tax fails to collect the tax (by failing to properly assess the tax on one or more services or charges on the customer's billing) or fails to remit the tax collected on or before the due date, or, in the case of a service user that fails to properly self-collect and remit the tax under Section 3.30.090 hereof on or before the due date, the tax administrator shall attach a penalty for such delinquencies or deficiencies at the rate of fifteen percent (15%) of the total tax that is delinquent or deficient in the remittance, and shall pay interest at the rate of one and one-half percent (1.5%) per month, or any fraction thereof, on the amount of the tax, exclusive of penalties, from the date on which the remittance ,first became delinquent, until paid. C. The tax administrator shall have the power to impose additional penalties upon persons required to collect and remit taxes pursuant to the provisions of this chapter for fraud or gross negligence in reporting or remitting at the rate of fifteen percent (15%) of the amount of the tax collected and/or required to be remitted, or as recomputed by the tax administrator. D. For collection purposes only, every penalty imposed and such interest that is accrued under the provisions of this chapter shall become a part of the tax herein required to be paid. E. Notwithstanding the foregoing, the tax administrator may, in his or her discretion, modify the due dates of this chapter to be consistent with any uniform standards or procedures that are mutually agreed upon by other public agencies imposing a utility users' tax, or otherwise legally established, to create a central payment location or mechanism. 3.30.150 -Actions to collect. Any tax required to be paid by a service user under the provisions of this chapter shall be deemed a debt owed by the service user to the city. Any such tax collected from a service user which has not been remitted to the tax administrator shall be deemed a debt owed to the city by the person required to collect and remit and shall no longer be a debt of the service user. Any person owing money to the city under the provisions of this chapter shall be liable to an action brought in the name of the city for the recovery of such amount, including penalties and interest as provided for in this chapter, along with any collection costs incurred by the city as a result of the person's noncompliance with this chapter, including, but not limited to, reasonable attorneys' fees. Any tax required to be collected by a service supplier or owed by a service user is an unsecured priority excise tax obligation under 11 U.S.C. § 507(a)(8)(C). Service suppliers who seek to collect charges for service in bankruptcy proceedings shall also include in any such claim the amount of taxes due the city for those services, unless the tax administrator determines that such duty is in conflict with any federal or state law, rule, or regulation or that such action would be administratively impractical. 3.30.160 -Deficiency determination and assessment-Tax application errors. 6-25 A. The tax administrator shall make a deficiency determination if he or she determines that any person required to pay or collect taxes pursuant to the provisions of this chapter has failed to pay, collect, and/or remit the proper amount of tax by improperly or failing to apply the tax to one or more taxable services or charges. Nothing herein shall require that the tax administrator institute proceedings under this section if, in the opinion of the tax administrator, the cost of collection or enforcement likely outweighs the tax benefit. B. The tax administrator shall mail a notice of such deficiency determination to the person required to pay or remit the tax, which notice shall refer briefly to the amount of the taxes owed, plus interest at the rate of one and one-half percent (1.5%) per month, or any fraction thereof, on the amount of the tax from the date on which the tax should have been received by the city. Within fourteen (14) calendar days after the date of service of such notice, the person may request in writing to the tax administrator for a hearing on the matter. C. If the person fails to request a hearing within the prescribed time period, the amount of the deficiency determination shall become a final assessment, and shall immediately be due and owing to the city. If the person requests a hearing, the tax administrator shall cause the matter to be set for hearing, which shall be scheduled within thirty (30) calendar days after receipt of the written request for hearing. Notice of the time and place of the hearing shall be mailed by the tax administrator to such person at least ten ( 10) calendar days prior to the hearing, and, if the tax administrator desires said person to produce specific records at such hearing, such notice may designate the records requested to be produced. D. At the time fixed for the hearing, the tax administrator shall hear all relevant testimony and evidence, including that of any other interested parties. At the discretion of the tax administrator, the hearing may be continued from time to time for the purpose of allowing the presentation of additional evidence. Within a reasonable time following the conclusion of the hearing, the tax administrator shall issue a final assessment (or non-assessment), thereafter, by confirming, modifying or rejecting the original deficiency determination, and shall mail a copy of such final assessment to person owing the tax. The decision of the tax administrator may be appealed pursuant to Section 3.30.210 of this chapter. Filing an application with the tax administrator and appeal to the city council, or designee, pursuant to Section 3.30.210 of this chapter is a prerequisite to a suit thereon. E. Payment of the final assessment shall become delinquent if not received by the tax administrator on or before the thirtieth (30th) day following the date of receipt of the notice of final assessment. The penalty for delinquency shall be fifteen percent (15%) on the total amount of the assessment, along with interest at the rate of one and one- half percent (1.5%) per month, or any fraction thereof, on the amount of the tax, exclusive of penalties, from the date of delinquency, until paid. The applicable statute of limitations regarding a claim by the city seeking payment of a tax assessed under this chapter shall commence from the date of delinquency as provided in this subsection (E). 6-26 F. All notices under this chapter may be sent by regular mail, postage prepaid, and shall be deemed received on the third calendar day following the date of mailing, as established by a proof of mailing. 3.30.170 -Administrative remedy-Non-paying service users. A. Whenever the tax administrator determines that a service user has deliberately withheld the amount of the tax owed by the service user from the amounts remitted to a person required to collect the tax, or whenever the tax administrator deems it in the best interest of the city, he or she may relieve such person of the obligation to collect the taxes due under this chapter from certain named service users for specific billing periods. To the extent the service user has failed to pay the amount of tax owed for a period of two (2) or more billing periods, the service supplier shall be relieved of the obligation to collect taxes due. The service supplier shall provide the city with the names and addresses of such service users and the amounts of taxes owed under the provisions of this chapter. Nothing herein shall require that the tax administrator institute proceedings under this section if, in the opinion of the tax administrator, the cost of collection or enforcement likely outweighs the tax benefit. B. The tax administrator shall notify the non-paying service user that the tax administrator has assumed the responsibility to collect the taxes due for the stated periods and demand payment of such taxes, including penalties and interest. The notice shall be served on the service user by personal delivery or by deposit of the notice in the United States mail, postage prepaid, addressed to the service user at the address to which billing was made by the person required to collect the tax; or, should the service user have a change of address, to his or her last known address. C. If the service user fails to remit the tax to the tax administrator within fifteen (15) calendar days from the date of receipt of notice from the tax administrator, the service user shall pay in addition to the tax owed, a delinquency penalty in the sum of twenty- five percent (25%) of the total tax that is owed, but not less than five dollars ($5.00). 3.30.180 -Additional powers and duties of the tax administrator. A. The tax administrator shall have the power and duty, and is hereby directed, to enforce each .and all of the provisions of this chapter. B. The tax administrator may adopt administrative rules and regulations consistent with provisions of this chapter for the purpose of interpreting, clarifying, carrying out and ·enforcing the payment, collection and remittance of the taxes herein imposed. The administrative ruling shall not impose a new tax, revise an existing tax methodology as stated in this chapter, or increase an existing tax, except as allowed by California Government Code Section 53750(h)(2). A copy of such administrative rules and regulations shall be on file in the tax administrator's office. To the extent that the tax administrator determines that the tax imposed under this chapter shall not be collected in full for any period of time from any particular service supplier or service user, that determination shall be considered an exercise of the tax administrator's discretion to 6-27 settle disputes and shall not constitute a change in taxing methodology for purposes of Government Code Section 53750 or otherwise. The tax administrator is not authorized to amend the city's methodology for purposes of Government Code Section 53750, and the city does not waive or abrogate its ability to impose the utility users' tax in full as a result of promulgating administrative rulings or entering into agreements. C. Upon a proper showing of good cause, the tax administrator may make administrative agreements, with appropriate conditions, to vary from the strict requirements of this chapter and thereby: (1) conform to the billing procedures of a particular service supplier so long as said agreements result in the collection of the tax in conformance with the general purpose and scope of this chapter; or, (2) to avoid a hardship where the administrative costs of collection and remittance greatly outweigh the tax benefit. A copy of each such agreement shall be on file in the tax administrator's office, and are voidable by the tax administrator or the city at any time. D. The tax administrator may conduct an audit, to ensure proper compliance with the requirements of this chapter, of any person required to collect and/or remit a tax pursuant to this chapter. The tax administrator shall notify said person of the initiation of an audit in writing. In the absence offraud or other intentional misconduct, the audit period of review shall not exceed a period of three (3) years next preceding the date of receipt of the written notice by said person from the tax administrator. Upon completion of the audit, the tax administrator may make a deficiency determination pursuant to Section 3.30.160 of this chapter for all taxes (and applicable penalties and interest) owed and not paid, as evidenced by information provided by such person to the tax administrator. If said person is unable or unwilling to provide sufficient records to enable the tax administrator to verify compliance with this chapter, the tax administrator is authorized to make a reasonable estimate of the deficiency. Said reasonable estimate shall be entitled to a rebuttable presumptjpn of correctness. E. Upon receipt of a written request of a taxpayer, and for good cause, the tax administrator may extend the time for filing any statement required pursuant to this chapter for a period of not to exceed forty-five (45) calendar days, provided that the time for filing the required statement has not already passed when the request is received. F. The tax administrator shall determine the eligibility of any person who asserts a right to exemption from, or a refund of, the tax imposed by this chapter. G. Notwithstanding any provision in this chapter to the contrary, the tax administrator may waive any penalty or interest imposed upon a person required to collect and/or remit for failure to collect the tax imposed by this chapter if the non-collection occurred in good faith. In determining whether the non-collection was in good faith, the tax administrator shall take into consideration the uniqueness of the product or service, industry practice or other precedence, or whether the person offers to voluntarily disclose its tax liability. The tax administrator may also participate with other utility users' tax public agencies in conducting coordinated compliance reviews with the goal 6-28 of achieving administrative efficiency and uniform tax application determinations, where possible. To encourage voluntary full disclosure and on-going cooperation on annual compliance reviews, the tax administrator, and its agents, may enter into agreements with the tax-collecting service providers and grant prospective only effect on any changes regarding the taxation of services or charges that were previously deemed by the service provider, in good faith and without gross negligence, to be non- taxable. In determining whether the non-collection was in good faith and without gross negligence, the tax administrator may take into consideration the uniqueness of the product or service, industry practice or other precedence, and whether the disclosure was voluntarily made by the service provider or its agent. 3.30.190 -Records. A. It shall be the duty of every person required to collect and/or remit to the city any tax imposed by this chapter to keep and preserve, for a period of at least three (3) years, all records as may be necessary to determine the amount of such tax as he/she may have been liable for the collection of and remittance to the tax administrator, which records the tax administrator shall have the right to inspect at a reasonable time. B. The city may issue an administrative subpoena to compel a person to deliver, to the tax administrator, copies of all records deemed necessary by the tax administrator to establish compliance with this chapter, including the delivery of records in a common electronic format on readily available media if such records are kept electronically by the person in the usual and ordinary course of business. As an alternative to delivering the subpoenaed records to the tax administrator on or before the due date provided in the administrative subpoena, such person may provide access to such records outside the city on or before the due date, provided that such person shall reimburse the city for all reasonable travel expenses incurred by the city to inspect those records, including travel, lodging, meals, and other similar expenses, but excluding the normal salary or hourly wages of those persons designated by the city to conduct the inspection. C. The tax administrator is authorized to execute a non-disclosure agreement approved by the city attorney to protect the confidentiality of customer information pursuant to California Revenue and Tax Code Sections 7284.6 and 7284.7. The tax administrator may request from a person providing transportation or distribution services of gas or electricity to service users within the city, a list of the names, billing and service addresses, quantities of gas or electricity delivered, and other pertinent information, of its transportation customers within the city pursuant to Section 6354(e) of the California Public Utilities Code. D. If a service supplier uses a billing agent or billing aggregator to bill, collect, and/or remit the tax, the service supplier shall: 1) provide to the tax administrator the name, address and telephone number of each billing agent and billing aggregator currently authorized by the service supplier to bill, collect, and/or remit the tax to the city; and, 2) upon request of the tax administrator, deliver, or effect the delivery of, any information or records in the possession of such billing agent or billing aggregator that, 6-29 in the opinion of the tax administrator, is necessary to verify the proper application, calculation, collection and/or remittance of such tax to the city. E. If any person subject to record-keeping under this chapter unreasonably denies the tax administrator access to such records, or fails to produce the information requested in an administrative subpoena within the time specified, then the tax administrator may impose a penalty of Five Hundred Dollars ($500.00) on such person for each day following: 1) the initial date that the person refuses to provide such access; or, 2) the due date for production of records as set forth in the administrative subpoena. This penalty shall be in addition to any other penalty imposed under this chapter. 3.30.200 -Refunds. Whenever the amount of any tax has been overpaid or paid more than once or has been erroneou?IY or illegally collected or received by the tax administrator under this chapter from a person or service supplier, it may be refunded as provided in this section as follows: A. Written Claim for Refund. The tax administrator may refund any tax that has been overpaid or paid more than once or has been erroneously or illegally collected or received by the tax administrator under this chapter from a person or service supplier, provided that no refund shall be paid under the provisions of this section unless the claimant or his or her guardian, conservator, executor, or administrator has submitted a written claim to the tax administrator within one year of the overpayment or erroneous or illegal collection of said tax. Such claim must clearly establish claimant's right to the refund by written records showing entitlement thereto. To the extent allowed by law, nothing herein shall permit the filing of a claim on behalf of a class or group of taxpayers unless each member of the class has submitted a written claim under penalty of perjury as provided by this section. B. Compliance with Claims Act. The filing of a written claim pursuant to Government Code Section 935 is a prerequisite to any suit thereon. Any action brought against the city pursuant to this chapter shall be subject to the provisions of Government Code Sections 945.6 and 946. The tax administrator, or the city council where the claim is in excess of Five Thousand Dollars ($5,000.00), shall act upon the refund claim within the time period set forth in Government Code Section · 912.4. If the tax administrator/city council fails or refuses to act on a refund claim within the time prescribed by Government Sec::tion 912.4, the claim shall be deemed to have been rejected by the city council on the last day of the period within which the city council was required to act upon the claim as provided in Government Code Section 912.4. The tax administrator shall give notice of the action in a form, which substantially complies with that set forth in Government Code Section 913. C. Refunds to Service Suppliers. Notwithstanding the notice provisions of subsection (A) of this section, the tax administrator may, at his or her discretion, give written permission to a service supplier, who has collected and remitted any amount of tax in excess of the amount of tax imposed by this chapter, to claim credit for such 6-30 overpayment against the amount of tax which is due the city upon a subsequent monthly return(s) to the tax administrator, provided that: 1) such credit is claimed in a return dated no later than one year from the date of overpayment or erroneous collection of said tax; 2) the tax administrator is satisfied that the underlying basis and amount of such credit has been reasonably established; and, 3) in the case of an overpayment by a service user to the service supplier that has been remitted to the city, the tax administrator has received proof, to his or her satisfaction, that the overpayment has been refunded by the service supplier to the service user in an amount equal to the requested credit. 3.30.210 -Appeals. A. The provisions of this section apply to any decision (other than a decision relating to a refund pursuant to Section 3.30.200 of this chapter), deficiency determination, assessment, or administrative ruling of the tax administrator. Any person aggrieved by any decision (other than a decision relating to a refund pursuant to Section 3.30.200 of this chapter), deficiency determination, assessment, or administrative ruling of the tax administrator, shall be required to comply with the appeals procedure of this section. Compliance with this section shall be a prerequisite to a suit thereon. (See Cal. Gov. Code,§ 935(b).) To the extent allowed by law, nothing herein shall permit the filing of a claim or action on behalf of a class or group of taxpayers. B. If any person is aggrieved by any decision (other than a decision relating to a refund pursuant to Section 3.30.200 of this chapter), deficiency determination, assessment, or administrative ruling of the tax administrator; he or she may appeal to the city council, by filing a notice of appeal with the city clerk within fourteen (14) calendar days of the date of the decision, deficiency determination, assessment, or administrative ruling of the tax administrator which aggrieved the service user or service supplier. C. The matter shall be scheduled for hearing before the city council, no more than thirty (30) calendar days from the receipt of the appeal. The City Council may designate an independent hearing officer to hear the appeal. The appellant shall be served with notice of the time and place of the hearing, as well as any relevant materials, at least five (5) calendar days prior to the hearing. The hearing may be continued from time to time upon mutual consent. At the time of the hearing, the appealing party, the tax administrator, and any other interested person may present such relevant evidence as he or she may have relating to the determination from which the appeal is taken. D. Based upon the submission of such evidence and the review of the city's files, the city council (or the hearing officer designated by the city council) shall issue a written notice and order upholding, modifying or reversing the determination from which the appeal is taken. The notice shall be given within fourteen (14) calendar days after the conclusion of the hearing and shall state the reasons for the decision. The notice shall specify that the decision is final and that any petition for judicial review shall be filed within ninety (90) calendar days from the date of the decision in accordance with Code of Civil Procedure Section 1094.6. 6-31 E. All notices under this section may be sent by regular mail, postage prepaid, and shall be deemed received on the third calendar day following the date of mailing, as established by a proof of mailing. 3.30.220 -No injunction-Writ of mandate. No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action, or proceeding in any court against this city or against any officer of the city to prevent or enjoin the collection under this chapter of any tax or any amount of tax required to be collected and/or remitted. 3.30.230 -Notice of changes to chapter. If a tax under this chapter is added repealed, increased, reduced, or the tax base is changed, the tax administrator shall follow the notice requirements of California Public Utilities Code Section 799. 3.30.240 -Effect of state and federal reference/authorization. A. Unless specifically provided otherwise, any reference to a State or Federal statute in this chapter shall mean such statute as it may be amended from time to time, provided that such reference to a statute herein shall not include any subsequent amendment thereto, or to any subsequent change of interpretation thereto by a State or Federal agency or court of law with the duty to interpret such law, to the extent that such amendment or change of interpretation would require voter approval under California law, or to the extent that such change would result in a tax decrease (as a result of excluding all or a part of a utility service, or charge therefor, from taxation). Only to the extent voter approval would otherwise be required or a tax decrease would result, the prior version of the statute (or interpretation) shall remain applicable; for any application or situation that would not require voter approval or result in a decrease of a tax, provisions of the amended statute (or new interpretation) shall be applicable to the maximum possible extent. B. To the extent that the city's authorization to collect or impose any tax imposed under this chapter is expanded or limited as a result of changes in State or Federal law, no amendment or modification of this chapter shall be required to conform the tax to those changes, and the tax shall be imposed and collected to the full extent of the authorization up to the full amount of the tax imposed under this chapter. 3.30.250 -No increase in tax percentage or change in methodology without voter approval-Amendment or repeal. This chapter may be repealed or amended by the city council without a vote of the People. However, as required by Chapter XlllC of the California Constitution, voter approval is required for any amendment provision that would increase the rate of any tax levied pursuant to the ordinance codified in this chapter or extend the tax to a service that is not included in the ordinance codified in this chapter. The People of the City of Rancho Palos 6-32 Verdes affirm that the following actions shall not constitute an increase of the rate of a tax: A. The restoration of the rate of the tax to a rate that is no higher than that set by the ordinance codified in this chapter, if the city council has acted to reduce the rate of the tax; B. An action that interprets or clarifies the methodology of the tax, or any definition applicable to the tax, so long as such interpretation or clarification (even if contrary to some prior interpretation or clarification) is not inconsistent with the language of this ·Ordinance; C. The establishment a class of persons that is exempt or excepted from the tax or the discontinuation of any such exemption or exception (other than the discontinuation of an ex~mption or exception specifically set forth in this Ordinance); and D. The collection of the tax imposed by the ordinance codified in this chapter, even if the city had, for some period of time, failed to collect the tax. 3.30.260 -Independent audit of tax collection, exemption, remittance and expenditure. The city shall annually verify that the taxes owed under this chapter have been properly applied, exempted, collected, and remitted in accordance with this chapter, and properly expended according to applicable municipal law. The annual verification shall be performed by a qualified independent third party and the review shall employ reasonable, cost-effective steps to assure compliance, including the use of sampling audits. The verification shall not be required of tax remitters where the cost of the verification may exceed the tax revenues to be reviewed. 3.30.270 -Remedies cumulative. All remedies and penalties prescribed by this chapter or which are available under any other provision of law or equity, including but not limited to the California False Claims Act (Cal. Gov. Code, § 12650 et seq.) and the California Unfair Practices Act (Cal. Bus. and Prof. Code, § 17070 et seq.), are cumulative. The use of one or more remedies by the city shall not bar the use of any other remedy for the purpose of enforcing the provisions of this chapter. 3.30.280 -Validity of prior ordinance. In the event that a final court order should determine that the election enacting this chapter (as amended herein) is invalid for whatever reason, or that any tax imposed under this chapter (as amended herein) is invalid in whole or in part, then the taxes imposed under this chapter, as it existed prior to its amendment as provided herein, shall automatically continue to apply with respect to any service for which the tax levied pursuant to this chapter has been determined to be invalid. Such automatic continuation shall be effective beginning as of the first date of service (or billing date) for which the tax imposed by this 6-33 chapter is not valid. However, in the event of an invalidation, any tax (other than a tax that is ordered refunded by the court or is otherwise refunded by the city) paid by a person with respect to a service and calculated pursuant to this chapter (as amended herein) shall be deemed to satisfy the tax imposed under chapter, as it existed prior to its amendment as provided herein, on that service, so long as the tax is paid with respect to a service provided no later than six (6) months subsequent to the date on which the final court order is published. 3.30.290 -Legislative review. Beginning in 1998, and every year thereafter, the city manager shall submit for consideration by the city council, in connection with the preparation of the city's annual budget for the following fiscal year, an analysis of the revenues derived from the taxes imposed by in this chapter. Based on the needs of the city, the city council shall determine whether any modification to the rate of the tax is necessary or if the tax imposed by this chapter is unnecessary. However, in no event shall the rate of the tax exceed two and three quarter percent (2.75%) without a prior vote of the people in favor of such increase. The review required by this section shall be completed by the city council prior to the adoption at each year's annual budget, which shall occur by June 30 1h. If the city council fails to conduct the periodic review of the tax as required by this section, the city shall not cause the tax to be collected until the review has been conducted by the city council. 3.30.300-Violations-Misdemeanor. Any person who violates any of the foregoing provisions of this Chapter is guilty of a misdemeanor and shall be punished therefor in conformance with Section 1.08.010 of this Code. 6-34 Carolynn Petru From: Sent: Long, Thomas D. <tlong@nossaman.com> Wednesday, July 09, 2014 12:54 PM To: cc Subject: Repeal of Utility User Tax? Dear Councilmembers: I noticed this item to be considered by you. I would urge you to tread carefully before advancing this proposal further. Reducing the city's revenue would seem risky unless you can determine that the city has surpluses after meeting its obligations. Specifically, are all of the. city's infrastructure deficits now fully funded? Is the city revenue per resident now above average compared to California cities such that perhaps we can consider it has too much money? Is the city spending more on infrastructure maintenance and improvement than its depreciation each year? Are we spending enough more to cover the replacement costs of wasting assets instead of just book value? What operational and infrastructure projects would you cut back to cover the lost revenue? Thomas D. Long Attorney at Law NOSSAMAN LLP 777 South Figueroa Street, 34th Floor Los Angeles, CA 90017 tlong@nossaman.com T 213.612.7800 F 213.612.7801 D 213.612.7871 M 213.718.4484 ftj N' .. '0· SSAM·.A·· .N: i 1· SUBSCRIBE TOE-ALERTS f,U · · llP nossaman.com PLEASE NOTE: The information in this e-mail message is confidential. It may also be attorney-client privileged and/or protected from disclosure as attorney work product. If you have received this e-mail message in error or are not the intended recipient, you may not use, copy, nor disclose to anyone this message or any information contained in it. Please notify the sender by reply e-mail and delete the message. Thank you. 1 6-35