RPVCCA_CC_SR_2014_09_02_L_Claim_Against_City_by_Sharon_YarberTO:
FROM:
DATE:
SUBJECT:
REVIEWED:
CITY OF RANCHO PALOS VERDES
HONORABLE MAYOR & CITY COUNCIL MEMBERS
CAROL W. LYNCH, CITY ATTORNEY
SEPTEMBER 2, 2014
CLAIM AGAINST THE CITY BY SHARON YARBER
CAROLYNN PETRU, ACTING CITY MANAGER~
RECOMMENDATION
Reject the portion of the claim that is timely and direct staff to notify the claimant.
BACKGROUND
On August 13, 2014, Stephen J. Schultz presented on behalf of his client, Sharon
Yarber, a claim to the City of Rancho Palos Verdes for a refund of the City's Utility
Users Tax ("UUT") that allegedly was improperly collected by Verizon Wireless and
AT&T. The claim covered the period from August 1, 2006 to date [August 13, 2014].
The claim was presented in two parts, the second portion of which includes backup
documents that consist of a number of invoices from telecommunication providers.
These documents are not included in the agenda packet, but are available for review in
the City Clerk's Office.
Under Section 3.24.030 of the Municipal Code, a claim for a refund of a tax that has
been improperly collected or paid to the City must be presented to the City within one
year of the date of accrual of the claim. Accordingly, the request for a refund of any
UUT on telecommunications services that was improperly collected by
telecommunications providers and paid to the City prior to August 13, 2013 was
untimely. For that reason, on August 28, 2014, the City Clerk's Office sent a letter to
Stephen J. Schultz, Esq. returning the untimely portion of the claim (copy attached).
At this point, the only portion of the claim that is timely is for the UUT that was
improperly collected and remitted to the City by telecommunications providers between
August 13, 2013 and August 13, 2014, inclusive.
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Claim Against the City by Sharon Yarber
September 2, 2014
Page 2 of 2
The City Attorney's Office has reviewed the timely portion of the claim and advises the
City Council to reject only that portion of the claim for the alleged overpayment of the
City's UUT. No action should be taken on the untimely portion of the claim, which was
returned by the City Clerk to Stephen J. Schultz on August 28, 2014.
Attachments:
Claim
Letter from City Clerk Morreale dated August 28, 2014
1744393
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c ... ;"
Marks Finch Stephen J. Schultz
sschultz@marksfinch.com
Attorneys at Law
August 13, 2014
VIA NORCO OVERNITE
CERTIFIED AND ELECTRONIC MAIL
Clerk of the City Council
City of Rancho Palos Verdes
30940 Hawthorne Boulevard
Rancho Palos Verdes, California 90275
cityclerls;@rpv.com
VIA NORCO OVERNITE
CERTIFIED AND ELECTRONIC MAIL
Director of Finance I Tax Administrator
City of Rancho Palos Verdes
30940 Hawthorne Boulevard
Rancho Palos Verdes, California 90275
dennism@rpv.com
Re: Rancho Palos Verdes Utility Users Tax On Certain
Telephone Services: Claim For Refimd And Other Relig.f
• To the City Clerk of the City Council of Rancho Palos Verdes:
1. Name And Address Of Claimarits
File 2044.002
Our client, Sharon Yarber, a resident of , Rancho Palos Verdes, California
90275, on behalf of herself and all similarly situated taxpayers (whether individuals or any entity of any
form) in the City of Rancho Palos Verdes ("City"), respectfully requests the immediate cessation of the
collection of the Utility Users Tax ("UUT") on telephone services, described below, and the return of all
monies to her and the persons and entities from whom the UUT was collected on those services.
2. Notices Or Correspondence Concerning This Matter Should Be Sent To:
Stephen J. Schultz, of Counsel
Marks, Finch, Thornton & Baird, LLP
4747 Executive Drive -Suite 700
San Diego, California 92121-3107
3. Circumstances Giving Rise To Claim
In 1993 the City imposed a 3% tax upon telephone services as defined in the City's Municipal
Code section 3.30.020 (hereafter RPVM §_)•The "tax imposed ... shall be collected from the service
user by the service supplier." RPVM§ 3.30.100.A. The amount of the tax collected in one month shall be
remitted to the City in the next month. Id.
The UUT is automatically added to the monthly mobile phone bill of City taxpayers and because
the UTI is embedded in billing statements of service providers, most taxpayers are unaware of the UUT
or the fact that it has been illegally collected.
Marks, !'inch, Thornton & Baird,.., 4747 llxec11t!ve Drive, S11ite 700 San Diego, CA 92121 T 858.737.3100 F 858.737.SlOl markslinclt.com
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City Of Rancho Palos Verdes
August 13, 2014
Page2 ofS
The Federal Excise Tax is imposed upon, among other services, "toll telephone service," which is
defined, in relevant part, as telephone communications "for which ... there is a toll charge which varies in
amount with the distance and elapsed transmission time of each individual communication. I.R.C. §
4252(b)(l)(A). Telephonic communications that are billed at rates that do not vary with both distance and
transmission time, therefore, both fall outside of the Federal Excise Tax, and hence, the UUT. The City
by incorporation adopted the Federal Excise Tax definition.
On May 25, 2006, the Internal Revenue Service ("IRS'') announced in Notice 2006-50 that it
would cease collecting the Federal Excise Tax on amounts paid for time only service after July 31, 2006
and that it would refund taxes improperly collected from February 28, 2003 through July 31, 2006, the
date by which service providers were required to cease collecting the tax on non-taxable service.
The services that the IRS acknowledges are non-taxable included bundled service, where local and
long distance are not separately billed (including landline and cellular telephone service), and all long
distance service.
As the City adopted the Federal Excise Tax definition, any charges for telephone services that are
. not taxable under the Federal Excise Tax cannot be taxed by the City. After July 31, 2006, the City's
UUT imposed upon telephone services not based on time and distance was illegal and unlawful. Thus, the
IRS's position that such services are not taxable under the Federal Excise Tax is conclusive as to the
applicability of the City UUT here.
However, the IRS 's statement is not necessarily a prerequisite to a finding that the City UUT is
inapplicable to telephone service charged by time only. Under the plain language of the Federal Excise
Tax, charges for telephone services that do not vary by time and distance have never been taxable. Thus,
it is no defense that the UUT only became improperly applied subsequent to the issuance of IRS Notice
2006-50. In fact, even the IRS acknowledges that the Federal Excise Tax was never properly applied to
timeftonly service by granting taxpayers a refund. of all taxes improperly collected since February 2003.
Accordingly, the City UUT, by its terms,:does not apply to (1) mobile phone services; (2) services
which include long distance telephone service where the charge varies only by time; and (3) charges for
"bundled service." "Bundled service" is service that combines local and long distance and is provided
under a plan that does not separately state the charge for the telephone service and can include cellular
service, land.line service, prepaid telephone card service, and voice-over internet protocol service. See IRS
Notice 2006-501.
There is no question that the City UUT has been improperly applied and collected. Claimant and
all other taxpayers are entitled to a refund of all UUTs improperly collected from at least August I, 2006
to the present, together with interest.
The California Government Code § 53723 ("Government Code § 53723") prevents the application
of a tax without voter approval. Specifically, Government Code § 53723 provides that "[n]o local
government, or district, whether or not authorized to levy a property tax, may impose any general tax
unless and until such general tax is submitted to the electorate of the local government, or district and
approved by a majority vote of the voters voting in an election on the issue."
Marks, Pinch, Thornton & Baird"' 4747 llxecutive Drive, Suite 700 San Diego, CA 92121 T 858.737.3100 F 858.737.3101 markslinch.com
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City of Rancho Palos Verdes
August 13, 2014
Page 3 of5
In support of this principle, in November 1996, California voters passed Proposition 218, the
"Right to Vote on Taxes Act." California Constitution, Article XIIl, § C. This constitutional amendment
protects taxpayers by limiting the methods by which local governments can impose, extend, or increase
taxes, fees and charges without taxpayer consent. Proposition 218 requires voter approval prior to an
imposition, increase, or extension of general taxes, assessments, and certain user fees.
In or about September, 2006, the City, in an attempt to cover up the unlawful continued imposition
of the UUT, passed Ordinance No. 443. This Ordinance was an attempt to confuse and misrepresent the
status of UUT charges on telephone services not based on time and distance, which includes cell phone
and landline services .
. Ordinance No. 443 amended RPVMC § 3.30.020.l by striking the incorporation of the Federal
Excise Tax reference contained in RPVMC § 3.30.010. The effect of this amendment thereby constituted
a tax by a local government that was "imposed, extended or increased" without voter approval as is
i:eqµired by the California Constitution Article :XIIl, § C, Government Code§ 53723, and Proposition 218.
The implementation of Ordinance No. 443 and its continued application to Claimant and the City's
taxpayers violated and continues to violate, the Government Code§ 53723, the California Constitution
Article XIII, § C, and Proposition 218 whereby voters should have had the opportunity to vote upon the
implementation of the changes to the UUT. No such vote has taken place. Therefore, since the
implementation, the UUT has been unlawfully assessed against Claimant and all other similarly situated
regarding the telephone services described herein. The City's continued. imposition and collection of the
UUT on said telephone services is an ongoing violation, constituting a new violation upon each collection.
On July 15, 2014, and thereafter, the City Attorney recommended that the City Council adopt a
Resolution to call a special municipal election to be held on November 4, 2014 to consider a proposed
ordinance. The proposed ordinance seeks to amend the telephone UUT to "modernize" the language of
the UUT. Tiris was an extremely belated attempt to repair the faulty ordinance and to come into
compliance, for the first time, with Government Code § 53723, the California Constitution Article XIlI, §
C, and Proposition 218. In the words of the City Attorney, after the IRS 2006 Notice, "the basis for the
imposition of the City's [UU] Tax, as applied to telephone services, was no longer valid." See July 15,
2014 Memorandum of City Attorney to the Mayor and City Council. Despite this acknowledgment by the
City that the UUT is out of compliance with Government Code § 53723, the California Constitution
Article XIII,§ C, and Proposition 218, the City Council in August, 2014 voted against a Prop 218 election
in November, 2014, and the City continues to assess and colfoct the UUT from Claimant and all others
similarly situated.
4. General Descri:Qtion Of Damages
Claimant and all other similarly situated taxpayers have paid and continue to pay, the telephone
UUT imposed, extended or increased in violation of Proposition 218, Article XIII C, § 2 (b) of the
California Constitution and Government Code§ 53723.
Marks, Pinch, Thornton & Baird w 4747 Executive Drive, Suite 700 San Diego, CA 92121 T 858.737.3100 F 858.737.3101 markslinch.com
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City of Rancho Palos Verdes
August 13, 2014
Page 4of5
Thus, the City is in the position of a bailee or trustee with respect to these specific monies and
would be unjustly enriched by retaining them. Claimant, on behalf of herself and all similarly situated
taxpayers in the City, hereby respectfully requests the immediate return of these monies.
5. Names Of Public Employees Causing The Damages
The City's public employees causing the damage include the City Tax Collector and/or
Administor, the Mayor and members of the City Council responsible for adopting Ordinance 443
amending the UUT and the current City Council for the continuing collection of the UUT on telephone
service.
6. Amount Claimed
The City is able to determine the identities of all relevant taxpayers and the specific monies due to
each of them; however, upon information and belief the total amount exceeds $5,000,000. As to the
amount claimed for the Claimant and all others similarly situated, the documents supporting the amount
include the July 15, 2014 Memorandum of the City Attorney stating at page 5 that the annual amount is
''up to" $700,000 per year. Further, upon infonnation and belief, this claim, if filed as a civil action,
would not be a limited civil case as that term is defined in California Code of Civil Procedure § 86. The
violations specified above commenced in at least 2006 and are continuing to date. (Attached as Exlu'bit 1
are the oldest and most recent billings paid by Claimant herself; attached as Exhibit 2 is the July 15, 2014
Memorandum of the City Attorney.) The billings back to 2006 for the Claimant are available from ·
provider(s). All the billings in Claimant's possession are submitted as hard copy by separate mailing.
7. Conclusion
Accordingly, Claimant, on behalf of herself and all similarly situated taxpayers in the City, further
respectfully requests the immediate cessation of collection of the illegal and unlawful UUT on these
services and return of all monies to the persons and entities from whom the UUT was illegally collected
on those services from August 1, 2006 to the present.
Claimant has been a customer of AT&T and Verizon. She has been charged UUT's on those
services.
By filing this claim, our clients do not admit or concede that California Government Code,
Sections 910 et seq. apply to this claim or that said Sections 910 et seq. are the exclusive remedy for these
claims.
Marks, l'inc:h, Thornton & Baird • .., 4747 Executlve Drive, Suite. 700 San Diego, CA 9212'1 T BS6.737.3tOO P 858.737.3101 marksfincb.~om
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,.. ..... ........
I .
\ '·.
City of Rancho Palos Verdes
August 13, 2014
Page 5 of5
,r~"•--.... I .
I
• ....... !\
£f you do not respond within tbe time allowed by law, we will assume that you have denled these
claims. .
Very truly yours,
LooisJ.Blum,Pmnor ."4..q--
Enclosures
SJS:axm/3 785832.DOCX
Stephen J, Schultz, of Counsel
Marks, Finch, Thornton & Baird, LLP
Attorneys for Sharon Yarber
I, Sharon Yarber, have read the facts regarding my cell phon
perjury under the laws of Callfumia, that they are true and COl'fe(l
belief, 1 believe them to be truJ
Dated: ~ ( / 5 ~} i By:
Marl<D, Finch, Thornton 4' IJK!t<I '" 4747 !lxec1AtJve Drive, $"lie 700 San Diego, CA 92ta1 T llSS.737.3100 F '58,137.3lot maYlCalia.ch,com
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Fll.E WITH:
CITY CLERK'S OFFICE
City of Rancho Palos Verdes
30940 Hawthorne Blvd.
Rancho Palos Verdes, CA 90275
CLAIM FOR DAMAGES
TO PERSON OR PROPERTY
INSTRUCTIONS
1. Claims for death, Injury to person or to personal property must be flied not
later than six months afterthe occummce. (Gov. Code Sec. 911.2.}
2. Claims for damages to real property must be filed not later than 1 year after
the occurrence. (Gov. Code Sec. 911.2.)
3. Read entire claim fonn before filing.
4. See Page 2 for diagram upon which to locate place of accident,
5. THIS CLAIM FORM MUST BE SIGNED ON PAGE 2 AT BOTTOM.
6. Attach separate sheets, If necessary, to give full details. SIGN EACH SHEET.
TO: CITY OF RANCHO PALOS VERDES
(~'
······"
RESERVE FOR FILING STAMP
CLAIM NO. OlO!t.j-o8
RECEIVED
CITY OF RANCHO PALOS VERDES
AUG 13 2014
CITY CLERK'S OFFICE"
Date of Birth of Claimant
Not Applicable
Occupation of Claimant
When did DAMAGE or INJURY occur?
Date A119ue11, 200e1odlte Time ,....Nl_A _,..,..._,,,.....,_ __
If claim Is for Equitable Indemnity, give date
clalmant served with the complaint:
ames of any city employees Involved In INJURY or DAMAGE
See Claim Letter dated August 13, 2014.
Date
Where did DAMAGE or INJURY occur? Deecrlbe fully, and locate on diagram on Page 2. Where appropriate, give
street names and address and measurements from landmar1<a:
See Claim Letter dated August 13, 2014 submitted herewith . •
Describe In detail how the DAMAGE or INJURY occurred,
See Claim Letter dated August 13, 2014. submitted herewith.
Why do you claim the city Is responsible?
See Claim Letter dated August 13, 2014 submitted herewith.
Oescrlbe In detail each INJURY or DAMAGE.
See Claim Letter dated August 13, 2014 submitted herewith.
This Claim Must Be Signed on Page 2
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...........
t ' \ ........ ·
The a111ount claimed', ae oftl11t date of pieeentatlon oftl118 olalm, I• computed as followe:
Dama9ea Incurred to date (exact): E!atlmai9d pto&pvottve damages a& far as known:
Damage to property •••••••••••••••••••• $ Future eJCl)enMS for medlcal and hospltal care • $. ___ _
ExpenMe fOtLmadlcaJand.JlospitlllJ.oare ••• S Futunt·l"8 ot~mlnu-, •• , ••••••••••••••••• '---
L.o .. of aamlnga ....................... $ Other prospective •peclal damagee .......... $ __ _
Special damages for ......... , ......... $. ProsP"tlve general damagea ............... $.._ __ _
Total eetlmate prospective dantagn •••.• , • $ __ _
General damagM •••••••• , ••••••••••••• s 100.000 ,...'!!!"
Total damaQQllJ Incurred to date. , • , •••• $ f.tlll!P!!Jr!llf-
Total amount claimed H of date of presentation of this clalm: $ 6,600,000 plus Interest and stlDmeys' fees
waa damago and/or Injury Jnvo.Ugated'by pollae1"" lfao, whatoltY? ______________ _
Wal'G paramedics or ambublnce calfGd?.Ha lhlo, name city or ambulance-·"""--------------
If Injured, atate date, time, name and addrsaa of doctor of yournr.t vi.It""-------------------
DOCTORS and HOSPITALS; Hoapltal .;.;W_,~ _________ __,Addresa. _____________ :Dafe Hotpltal!Zed._ _____ _
Doctor HJA Addl'GS'8 Date of Treatment------Doi;tor • NIA AddAJM Daw of Treatment _____ _
Rl!AD CAREFULLY •
Por all accld•nt clafma placo on f'ollowlng diagram nam• your v•hlokt when you firet eaw City vohlcle; locatlon of
of .ireets, lncludlng North, e .. t, South, and Weat; Indicate Cl\y vehlol• a Um• of •ocldtnt by "A·1" and lontlon of
place of accident by "X" and by •howtng house nwnbeN youl'lllilf or your vahJcle at the time of the accldam by
or dlatancn to at.reet oomere. If City Vehicle Wlll9 "EM" and a;. point of Impact by ''X." NOTE: If diagrams
Involved, dealgnaw by letter "A" locatlon of City Vehicle below do n'oVflt tha eltuatlon, attach hereto a proper
when you first saw It, and by "B" location of yourself or dlag111m signed by the claimant.
J
S.DEWALK
CURB
CURS:
PARKWAY
SIBE.WALK
Typed Name:
. Stephen J. Schuftz, Esq.
Dam:
August Ji, 2014
1 le.), !9$entatlon of a fa1" olalm Iv. ~ felon~ (Pen. Codv &le. 72.
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EXHIBIT ''1''
EXHIBIT "1"
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Invoice Number Account Number Oate Due Page
-· -··--·· ----··--··· .. •T··· ·---···~··· .. . ....... .. . . C O!~t~/14 ~-~~-· -· ...... I
Monthly .Charges, continued
Varllon Wlrvless' SUn:harges+
Regula1Dry Charge
Administrative Charge
CA State PUC Fee
Taxes, GWemmental Stnhargas a11d Fees+
CAS1al8911 Fee
CA Talecannect Fund Surthg
CA Slal8 High Cost Fund (A)
Ufellne Surcllarge '-CA
CAAdvanced SlVcS Fund (CASF}
CA Relay srwtcomm Device Fund
Rancho Palos Verdes City UUT
Total cummtChal'Qastcm••••
-----· --'-·--·
.21
.88
.06
$2.44
.24
.14
.04
.29
.n
~r
$1.90
$36.33
summary for Sharon Yarber: ••••I
Your Plan
MORE EVERY' UNL TLK&TXT 169
(see pg 3)
Have more questions aboUt your cnarves?
Get details tor usage charges at
www.verizonwireless.com. Sign Into My
Venzon to View Online BIB and cllck on
ca11s, Messages & Data.
Monthly Charges
Tablet Une Access 07116 -08/15 10.00
$10.00
Usage and Purchase Charges
Data IA11owan11el UHtl I Blllabl8 j Coat
Unblllad Usage fn>m Previous Months
Megabyte usage mlJ(Jabytes I : .332
cummt Data UAge
Megabyft U&age magalrjles I ~== I 338.217 j
Tu~Data ioo
Total Usage and Purchan Charges $JJO
Verfr.on Wltvless' surcharges+
Regulafnry Charge .oi
Adminlstrati'llJ Charge .06
S.08
Total carrant Charges 1 $1 o.08
•Percentage-based tms, lees, and surcharges apply 1D chalges for 1mr line, !llclualng over&Qe
cllarges, plus 1111s llne'e ehem of account charges.
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-·-----.. --·---.. -·-·--· ·--· --·-· -···--··:-----· --· .. ·--·-------··-__ ..,. .. __ .... N ---___ .... ----.
tnvolce Number Acoount Number ~ Page
10/08 3of4 I ... ... . -·---·-. ___ .. _________ --. --
. . . .
Summary for Sharon Yarber: ••••I
Your Calling Plan
Ameltca's Choice 11900 Any unum NaiW end
un11m JN car11ng $69.99 040'1 ·
$59.99 m011thly access charge
900 momtlly general allowance minutes
$.40 per minute after allowance
NATL IN cattln.g-UnUm
Unlimited IN Callbig minutes
Uni Right & Weelrand Min
UnllmitBd OFFPE.AK
Charges
Monthly AcceR Chargu
currentcentngPlan04/16-05115
Varbian Wfnllllll' Surcllalgu
Fed UnlVersal Ser«ce Charge
Reglflatary Charge
Admfnlslratlve Charge
CA Sta!D P.U.C. Fee
Taxes. GoVammeldlll SUn:flarges Ind Fees
CAS1819911 Fee
CA Sbd8 High Cost Fund (BJ
CATelflconnactFundSUrchg
CAStl1B High coat Ftmd (A)
Uf911ne SUreharae -CA
CAAdwnc:ed Svrcs Fund (CASF)
CARelaySrvc/Comm Davice Fund
Rancho Palos Verdes City Wt
Tatat cunvnt Cllasgasfoi C I
Usage Charges
Voice
calllng Plan nifnutfJS
INCaPlng mlnuttJs
NlghtJWaekend minuta
411 connec:t ca/IS
Mowanca
900
Unllmitlel
--
Uaad Bmable
458 --
237 -
123 --
4 4
59.99
5.96
1.48
.07
.70
.12
.34
.18
.09
.09
.76
.16
.13
~
$10.74
COst ---
5.96
Totat Voice $5.116
Total Usage Chruvn $6.86
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EXHIBIT ''2''
EXHIBIT "2"
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CITY OF RANCHO PALOS VERDES
MEMORANDUM
TO:
FROM:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
CAROL W. LYNCH, CITY A1TORNEY
DATE: JULY 15, 2014
. . SUBJECT: ORDINANCE REDUCING THE UTILITY USER TAX RATE FROM
3% TO 2.76% 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(['>
RECOMMENQAIIQNS
1. ADOPT RESOLUTION NO. 2014--_; A RESOLUTION OF THE CITY
COUNCIL OF THIS 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 TJiE 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
BACKQRQYND
In 1993, the City Council adopted the City's Utility Users Tax ("Tax" or "UUT").
The amount of the Tax Is 3%. JHs Imposed on City residents who use telephone
service, electricity, co-generated electricity, natural gas, and water.
Subsequently, the voters of the state of Callfomla adopted Proposition 218.
Even though the City's Tax had been rn effect prior to the adoption Of Proposition
218, In order fcirthe City to continue to oolleotthe Tax legally, voter approvaf was
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required. Accordingly, In 2004, th& City COuncH placed the Tax on the ballot, and
the voters ratified the eXistlng Tax at the same 3% rate that had been adopted by
the City Council.
Like many utility users taxes, the telephone portion of the City's Tax originally
was imposed upon telephone 8$1'Vice that was subject to the Federal Excise Tax
("FEr}, bea,tuse, at that time, it W8$ believed that the FET could be Imposed
upon the broadest categories·of telephone services. The FET was used r~utlnely
by municipalities a& the baefs for Imposing a utility user tax, so those local taices
also would be imposed on the b~dest range of telephone services.
However, a decision by a federal court Invalidated a portion of the methodology
that was used fn the FET. Subsequently, rn 2006, the Internal Revenue Service
· · Issued a ruling stating that the FET does not apply to most common telephone
bllllng plans, such as one-rate plans that charge a flat rate for au calls. am
Caltfomla Municipal Law Handbggk Section 5,50.) Thua, llke moat utlflty usani
taxes In the state, the basfa of the lmpoartlon 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 deffnJtlons of telephone servlcea upon Which to Impose the
utility users tax; others did not amend their ordlnanQes, whleh still contain the
reference to the FET; and others, like Rancho Palos Verdes, amended their
ordinances without voter approval to delete thtj 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 zooe, 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
al?proval should not be required. ·The City Council took this ~ctlon, rather than
placing the Tax on the baflot again, because the City's voters had ratffied the
City's Tax fairly recently, and it was unclear whether changing the definition of
the t•phone service upon whiQh the Tax could be Imposed would require voter
approval. Subsequent cases have addressed that Issue and have clarffied 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 deflnltione 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 ndt completely fair to Ctty residents who use
telephone services and currently 11re 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 reducl!19 the
;
R6876.000 lfl 720561 v2 2
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rate of the City's UUT. The ordlnan®I that moclemlzes 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 coursa,. another tax rate also could be selected by the City
Council and presented to the voters.
History of UY!
Approximately $2.6 mlllion of UUT is deposited fnto the City's General Fund
annually. About $0.7 million of this amount is based upon telecommunications
services (telephone land tine, long distance, and celfular service), and the
remainder is based upon efectrfoity, ·gas and water service. A five-year hJstory of
tJUT follows: r ··~--........ _. ______ ,,,_ ... ____ , .. _~t,;; .. ~;;~; ~;~-·· ....... ···~·
I $3,000,000
$:?,500,000
j $2.~
I s~ooo
. i $l,OOO,OOO
l $500,000
$-
FVUJ..11 FY1H2
t. . . ......... ,. ...• , ........................................................ _ ......... _ .... -.................. ~""' • -... • .......... _ ......... .
Losa of yur -8udaet lmect
Ptl3·14
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 $7.3 million will
be transferred to the Capital Improvement Projects (CIP) Fund for Infrastructure
repair, repracement and improvement. Based upon the operating and capital
needs of the City, the City Council has determined that the UUT rate of 3%
continues to be a necessary General Fund revenue source.
The FY14-15 General Fund budget 1$ balanced by a thin margin. If the General
Fund were to lose a revenue source such as UUT, the Impact to the cunent lever
of service would be significant. Even:-if there 18 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 wm be depleted, and
R.6876.000 lll 720S6lv2 3
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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 addltlonal 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 1he state
and federal governments.
Oue to conservative budget management, the City's General Fund does have a
history of filvorable expenditure Variances, whlOtr 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 avaflabllity of restricted
revenue dedicated to Infrastructure, the City Council recently modified its Pollc.y
No. 41 -Reserve Policies to transfer favorable General Fund expenditure
variances to the CIP Fund for additional infraatrUcture funding. There are
currently 3 components of Infrastructure subsidies from the General Fund:
1. Annual transfer for the resk:lentlal street rehabilitation program (FY14-15
budget of $3 mllllon);
2. Annual transfer equivalent to the City's transient occupancy tax revenue
(FY14-15 budget of $4 million; and
3. Annual transter 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 millJon for storm drain Improvements.
However, even with the large General Fund subsidies for infrastructure, projects
with estimated cosUI totallng at least $28 mHllon have been Identified In the 2014
Five-Year Capital Improvement Plan that remain unfunded over the next five
years.
FfacaJ Jmoact of Bats Reduction.
As part of a potential UUT modemizatfon ballot measure, the City Council may
consider a proposed reduction to the UUT ram, as suggested by Councflmember
Campbell. The annual fiscal Impact of the proposed quarter-percent reduction
(from 3% to 2. 75%) rs a revenue decrease ,of about $221,675.
FY14-15 Bud eted Ol.11'3% 2 660100
o .. 15% Reduction from S% to 2.85% 133,005
0.25% Reduction frcini 3% to 2.75% $ 221 675
0.5% ReductJon from 3% to 2.5% 443 SSQ
The fiscal impact of the City Councll's altematlves are as follows:
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1. Jf the City Council 'fakes 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 possfble: .
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
annuat UUT.
staff recommends that the City Counc111ncJude 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 restdenbJ While still providing the majority of the current
revef"!ue stream from the· UUT to the City to fund City ~ervlces.
Pl§QusSIQtl
The benefit t9 the City's residents of placing the City's UUT on the upcoming
November ballot Is obvious. ff the voters were to approve an ordinance that
modernizes the City's UUT at a reduced rate, such as 2.75%, the residents will
recelVe. the benefit of the Jeduotlon of the rate of the UUT. In addition, by
modemfzing the UUT, newer telephon~lated services will be ~ated the same,
so that telephone users In the City are treated alike. In addition, by placing the
measure on the ballot at the eartle,st 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 ln November
2016, when the next regular City Municipal election wilf occur.
If the City Councff 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 ele~on date that ts 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 o.f
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
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reduotions Jn revenues that the City Intended would be used to repay tho
City for .loans made previously to the Rancho Palos Verdes
Redevelopment Agency for expenditures to address landslide damage
and Increase land stability Within fonner Redevelopment Project Area No.
1.
2. The Portuguese Bend landstlde is a farge active Jandsllde that continues
to move and adversely affects public infi'aatructure, Including· Palos
Verdes Drive South, a· maj~r arterial street Jn the City. The constant
damage ~used by 1he landslide requires constant and increased City
expenditure& to maintain PVDS as a vfable arterial street.
3. During the recession, the State took money monies that prevfously were
allocated to citl" to rvduce the State's budget deficit, a.nd It Is expected
that slmllar actions will occur again In the future fn response to downturns
In the economy.
4. ·The cost to the City of complying with state and.federal ofean water rules
continues to lncrvae each yoar. .
5. The City has many unfunded Important Infrastructure projects, which are
discussed al>Qve, totaling more than $28 million, lnoludlng unfunded
projects to improve City streets ($4.7 million). and storm drains ($9.4
mlHlon). a. ·The City of Rancho Palos Verdes seeks to maintain current levels of
publlc safety and ponce services Within the City, even though the cost of
such seivlces continues to Increase, fnoluding the City's contribution to the
County llabillty trust fund for faw enforcement services, which the City has
been notified will increase agafn In fiscal year 15--16.
7. The cost saving measures the City has empJoyed in reoent years to
maintain a balanced City budget will not be sufficient tD avoid future cuts
to services provided by the City to the community, whfch would have a
negative Impact upon publfc safety and the character of the community in
Rancho Patoe Ven:tes. ·
If the City Council concurs with the· above findings and that the ortHnance
reducing the rate of the UUT and modernizing fts provisions should be placed on
the ballot for the upcoming election In November 2014, Instead of having to wait
until the next regular City eleotfon in November 2015, then the City Council
should adopt the attached resolution; the adoption of the resolution requires a
unanimous vote.
CONCLU§ION
In addition to ctdoptfng the attached resolution, the City Council should review the
attached ordinance and determine. tf the City Council agrees with staffs
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 ·
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. I
CITY OF RANCHO PALOS VERDES
OFFICE OF THE CITY CLERI<
Via Email and Certified Mail
August 28, 2014
Stephen J. Schultz, Esq.
Marks, Finch, Thornton & Baird
4747 Executive Drive, Suite 700
San Diego, CA 92121
Subject: Rancho Palos Verdes Utility Users Tax on Certain Telephone Services:
Claim for Refund and Other Relief
Dear Mr. Schultz:
The claim presented by your firm on behalf of your client, Sharon Yarber, dated on
August 13, 2014, which was emailed to the City on August 13, 2014, delivered by Norco
Overnight mail on August 14, 2014, and received by certified mail on August 15, 2014,
is being returned because it was not presented within the time required by law. See, for
example, Rancho Palos Verdes Municipal Code Section 3.24.030; Government Code
Sections 901 and 911.2. Any claims you have made for alleged erroneous or illegal
collection of any taxes that occurred more than one year before the date this claim was
presented to the City on August 13, 2014, have not been presented within the time
allowed by law; and no action has been, or will be, taken on any portions of this claim
accruing more than one year before the date this claim was presented to the City.
Carla Morreale
City Clerk
cc: Carolynn Petru, Acting City Manager
Dennis Mclean, Director of Finance
Carol Lynch, City Attorney
30940 HAWTHORNE BLVD./ RANCHO PALOS VERDES, CA 90275·5391 / (310) 544·5217 I FAX (310) 544-5291 / WWW.PALOSVERDES.COM/RPV
@PRINTED ON RECYCLED F'APER
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