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RPVCCA_CC_SR_2014_10_21_04_Telecommuniction_UUT_Refund_ProcessCITY OF RANCHO PALOS VERDES MEMORANDUM TO: FROM: DATE: SUBJECT: REVIEWED: HONORABLE MAYOR & CITY COUNCIL ME;~s DENNIS McLEAN, DIRECTOR OF FINANCE CAROL LYNCH, CITY ATTORNEY OCTOBER 21, 2014 TELECOMMUNICATION UTILITY USER TAX REFUND PROCESS CAROLYNN PETRU, ACTING CITY MANAGE~ RECOMMENDATION Adopt Resolution No. 2014 -_, approving the process to be used for issuing telecommunications utility user tax (UUT) refunds to taxpayers and directing staff to have claims processed and UUT refunded in accordance with that process. BACKGROUND On August 13, 2014, the City received a claim filed by the law firm of Marks Finch on behalf of Sharon Yarber, a resident, for utility user tax (UUT) collected and remitted by telecommunications providers. The City's Municipal Code (subsection 3.30.150) limits claims for UUT refunds to one year preceding the date of the filing of the claim with the City. Actual UUT collected from telecommunication providers for the one-year period ended August 13, 2014 is calculated to be approximately $668,000. On August 19, 2014, the City Council took action to suspend collection of UUT from telecommunication providers, and established a UUT Telecommunication Claim Account. During the week of August 25, 2014, Staff mailed letters to ninety-two (92) telecommunications providers directing them to suspend collection of UUT from the City's taxpayers. California Public Utility Code section 799(a)(5) provides that utility companies are not required to implement tax changes by local agencies any earlier than 60 days following receipt of written notification. If the 60th day is not the first day of the month the compliance deadline is extended until the first day of the following month. Therefore, if a notice was not received by September 1, 2014, it is possible that telecommunications 4-1 TELECOMMUNICATION UTILITY USER TAX REFUND PROCESS October 21, 2014 Page 2of4 providers may continue to collect UUT until December 2014. All UUT collected from telecommunication providers since August 13, 2013, the beginning of the one-year claim period allowed by the City's Municipal Code, has been, or will be, transferred to the Claim Account, and will not be recorded in the City's revenue ledger. The total amount transferred to the Claim Account may be equivalent to up to 17 months of remittances. On September 16, 2014, the City Council retained the services of Daley & Heft, LLP to represent the City regarding Ms. Yarber's claim and lawsuit and to provide advice to the Council and Staff regarding the UUT refund claim process. On September 22, 2014, a class action lawsuit was filed on behalf of Sharon Yarber pertaining to the UUT on telecommunications services. Despite that under the Municipal Code, claims for tax refunds can only go back one year from the date the claim was filed, Ms. Yarber's lawsuit seeks a refund of the UUT that was collected by the City from August 1, 2006 to the present, plus interest. The lawsuit asserts causes of action for declaratory and injunctive relief, money had and received, unjust enrichment and violations of State law, including the California Constitution and the Government Code. The Daley & Heft law firm will defend the City in this lawsuit. DISCUSSION Refund Claim Process Scott Noya of Daley & Heft has advised the City to immediately establish a refund claim process, and has provided guidance to Staff based upon his firm's experience in similar lawsuits and best practices. Staff has prepared a Request for Proposals (RFP) from third- party claims administrators. The RFP outlines a refund process to include mailed notices to every address in the City, published notices in both the Palos Verdes Peninsula News and the Daily Breeze and on the City's website, the provision for electronic submittal of claims, and the following three options for the City's taxpayers to obtain a refund. 1. Submit a claim form provided by the City either electronically or by mail, including the telecommunications provider(s), account number(s), and a signature releasing the City from any further claims and costs related to the payment of utility user tax on telecommunications services. A flat-rate refund of $25 would be issued for each landline account and wireless account, as applicable. The flat-rate refund is based upon data reported by CTIA-The Wireless Association®, an international nonprofit membership organization that has represented the wireless communications industry since 1984. As reported by CTIA, the average new monthly revenue per unit for wireless plans in 2013 was $48.79. Multiplying that amount by the City's 3% UUT rate results in an estimated average of $24.88 paid during the 17-month UUT refund claim period. This estimate may be slightly overstated, as the entire revenue amount may not be subject to the UUT and because the telecommunication service providers may stop UUT collection a month (or more) earlier than the compliance deadline of December 2014. Staff reviewed a small sample of actual telecommunications bills (for both landline and wireless plans) 4-2 TELECOMMUNICATION UTILITY USER TAX REFUND PROCESS October 21, 2014 Page 3of4 supplied by City employees who are also City residents. The estimated total UUT collected for these accounts over 17 months ranged from $12.58 to $24.14. Therefore, Staff recommends a flat-rate refund amount of $25. If a resident paid more than $25 per account during the claim period, additional claim options are recommended and described below. 2. Submit a claim form provided by the City either electronically or by mail, along with a copy of a single bill for each telecommunications account (note: a single account may include service for multiple telephone numbers). The UUT listed on the single bill would be multiplied by 17 months to establish the refund amount. 3. Submit a claim form provided by the City either electronically or by mail, along with full documentation of telecommunications service for each telecommunications account for all of the months of the claim period to obtain a refund equal to the actual amount of telecommunications UUT paid during the period covered by the Claim Account. These options were designed to minimize the burden of proof that must be demonstrated by the taxpayer for the amount of tax paid, and offers two separate methods to maximize a refund in the event a household or business has paid a higher amount of telecommunications UUT than the flat-rate refund. The RFP will be sent to at least six (6) third-party claims administrators. Daley & Heft has previously conducted an RFP process involving competitive proposals from five of those companies. Once all proposals are received and reviewed, and follow-up inquiries are made by Staff, a recommended claims administrator will be presented to City Council for approval. Staff recommends that the refund claims period remain open for six (6) months following the initial mailing of notices and claim forms to residents and businesses and initial publication of the availability of telephone UUT refunds. Valid claims timely submitted on or before the six month deadline will recover telephone UUT paid dating back to August 2013, based on selection of one of the three (3) available refund options. Public Outreach In addition to the noticing process outlined above, public outreach will include announcements on the City's website, articles in both the fall and spring editions of the City's newsletter, and announcements at City Council meetings and RPVtv. FISCAL IMPACT Based upon actual claims experience of other agencies, Staff expects that the Claim Account may be sufficient to provide for refunds, and the costs of administering those refunds. At this time, no budget adjustment is requested; however, if claims response is 4-3 TELECOMMUNICATION UTILITY USER TAX REFUND PROCESS October 21, 2014 Page 4 of 4 greater than expected, Staff will advise the City Council and make a recommendation for a budget adjustment as necessary to provide for the costs of legal counsel and the claims administrator. Staff is currently scheduled to return to City Council on November 18th with proposed budget adjustments to offset the loss of UUT for FY14-15. Attachment: RESOLUTION NO. 2014-_, A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES APPROVING A PROCESS FOR REFUNDING UTILITY USER TAX THAT WAS COLLECTED BY TELECOMMUNICATION PROVIDERS FROM THE CITY'S TAXPAYERS BETWEEN AUGUST 13, 2013 AND DECEMBER 31, 2014 AND DIRl=CTING THAT CLAIMS FOR REFUNDS BE ADMINISTERED AND PAID PURSUANT TO THAT PROCESS 4-4 RESOLUTION NO. 2014-_ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES APPROVING A PROCESS FOR REFUNDING UTILITY USER TAX THAT WAS COLLECTED BY TELECOMMUNICATION PROVIDERS FROM THE CITY'S TAXPAYERS BETWEEN AUGUST 13, 2013 AND DECEMBER 31, 2014 AND DIRECTING THAT CLAIMS FOR REFUNDS BE ADMINISTERED AND PAID PURSUANT TO THAT PROCESS WHEREAS, 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; and WHEREAS, subsequently, the voters of the State of California adopted Proposition 62 and Proposition 218; and WHEREAS, the City Council placed the Tax on the ballot, and the voters ratified the existing Tax at the same 3% rate; and WHEREAS, the City's Tax originally was imposed upon all telephone services that were subject to the Federal Excise Tax ("FET'). In response to litigation, in 2006, the Internal Revenue Service issued a ruling stating that the FET does not apply to most common telephone billing plans; and WHEREAS, in response to these events, some cities, including Rancho Palos Verdes, amended their ordinances without voter approval to delete the reference to the FET and replaced it with other terms to cover telephone services that had been subject to the FET. Other cities placed their UUT measures on the ballot, and some cities took no action. Subsequent litigation has claimed that changes to UUT (such as the one made by the City in 2006) also require voter approval; and WHEREAS, recently, new legal challenges and claims have been filed against other cities that did not place their amended utility user taxes on the ballot. Attorneys in those cases have claimed damages and substantial attorney's fees; and WHEREAS, on August 19, 2014, the City Council directed Staff to notify the entities that provide telecommunications services to City residents and businesses to cease Collecting the UUT on behalf of the City until such time as revisions to the City's Utility User Tax are approved by a majority of the City's voters; the City Council further directed Staff to establish a separate account commitment encumbrance of the City's General Fund, which shall be referred to as the "Utility User Tax Telecommunication Claim Account" or "UUT Claim Account," and to place within that account the estimated amount of the total Utility User Tax collected by telecommunication providers from taxpayers in the City and remitted to the City during the twelve (12) month period beginning August 13, 2013, along with all Utility User Tax received from 4-5 telecommunication providers after August 19, 2014, until the providers comply with the City's notice to suspend collection of the UUT; and WHEREAS, on October 21, 2014, a process for presenting and paying claims for refunds of UUT was presented to the City Council; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF RANCHO PALOS VERDES DOES HEREBY FIND, RESOLVE AND ORDER AS FOLLOWS: SECTION 1. The following process for administering claims for refunds of UUT on telecommunications services, which shall be administered by a claims administrator that will be selected by the City Council, for UUT that was paid and collected during the period from August 13, 2013 through December 31, 2014, is hereby approved: Mailed notices shall be sent to every address in the City. In addition, notices shall be published in both the Palos Verdes Peninsula News and the Daily Breeze and on the City's website. Claims may be submitted by mail or electronically within six months of the date of the notice, with the following three options for the City's taxpayers to obtain a refund. 1. Submit a claim form provided by the City either electronically or by mail, including the telecommunications provider(s), account number(s), and a signature releasing the City from any further claims and costs related to the payment of utility user tax on telecommunications services. A flat-rate refund of $25 would be issued for each landline account and wireless account, as applicable. If a resident or business has paid more than $25 per account during the claim period and · wishes to seek a refund for the higher amount, two additional claim options are available, as described below: 2. Submit a claim form provided by the City either electronically or by mail, including the telecommunications provider(s), account number(s), and a signature releasing the City from any further claims and costs related to the payment of utility user tax on telecommunications services, along with a copy of a single bill for each telecommunications account (note: a single account may include service for multiple telephone numbers). The UUT listed on the single bill would be multiplied by 17 months to establish the refund amount. 3. Submit a claim form provided by the City either electronically or by mail, including the telecommunications provider(s), account number(s), and a signature releasing the City from any further claims and costs related to the payment of utility user tax on telecommunications services, along with full documentation of telecommunications service for each telecommunications account for all of the months of the claim period to obtain a refund equal to the actual amount of telecommunications UUT paid during the period covered by the Claim Account. 4-6 SECTION 2. Staff is hereby directed to cause claims to be processed and refunds to be paid pursuant to the process set forth above. PASSED, APPROVED and ADOPTED this 21st day of October 2014. Mayor ATTEST:. CITY CLERK STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES )ss CITY OF RANCHO PALOS VERDES ) I, Carla Morreale, City Clerk of the City of Rancho Palos Verdes, hereby certify that the above Resolution No. 2014-_ was duly and regularly passed and adopted by the said City Council at a regular meeting held on October 21, 2014. 4-7