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AGENDA BILL Agenda Item No. 5(H) Date: August 18, 2015 To: El Cerrito City Council From: Lisa Malek-Zadeh, Finance Director/City Treasurer Subject: Agreement with the State Board of Equalization Regarding Implementation of the Local Prepaid Mobile Telephony Services Collection Act ACTION REQUESTED Adopt resolutions: 1) Authorizing the City Manager to execute required documents by the State Board of Equalization (BOE) to collect a charge on pre-paid wireless service, and authorizing the City Attorney to certify specific information to the BOE, as required by statute; and 2) Authorizing the examination of records related to the collection of the charge on prepaid mobile telephony services. BACKGROUND/ANALYSIS Traditionally, the City’s utility users tax (UUT) is collected by wireless service providers who include the charge on their customers’ invoices. In contrast to this arrangement, customers who purchase pre-paid wireless services usually avoid paying any UUT due to collection complications. With pre-paid wireless, there is no contract, no invoices, and the prepaid wireless services are usually sold by retailers, not service providers themselves. It is estimated that approximately 70% of all pre-paid wireless services are sold by retailers. Since these transactions bypass our local UUT, the City does not realize this revenue. Additionally, traditional phone plan users are treated disparately and the burden of the UUT is not equally shared among all telephone users. Beginning January 1, 2016, Assembly Bill 1717 will take effect and solve the collection problem by requiring California retailers and on-line sellers to collect a charge on pre- paid mobile telephony services at the same time it collects sales tax on its other retail products, based on the point of sale (for retail stores in our City). Under this new law, all local jurisdictions have to contract with the BOE in order for the charge to be collected from consumers of prepaid wireless phone service. Staff recommends that the City Council adopt the proposed resolutions authorizing the City Manager to execute the necessary documents required by the State Board of ---PAGE BREAK--- Agenda Item No. 5(H) Equalization to collect the charge on pre-paid wireless service and authorize the examination of pre-paid mobile telephony services charge records by the City and its tax consultant Hinderliter, De Llamas, & Associates (HDL). The resolutions also authorize the City Attorney to certify specific information to the BOE, as required by AB 1717. FINANCIAL CONSIDERATIONS The cost for collection of these serv1ces will be covered by the additional revenue generated by this new revenue source. Scott anin City Manager Attachments: 1. Resolution authorizing implementation 2. Resolution authorizing examination Page 2 ---PAGE BREAK--- Agenda Item No. 5(H) Attachment 1 RESOLUTION NO. 2015–XX A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO APPROVING AN AGREEMENT WITH THE STATE BOARD OF EQUALIZATION FOR IMPLEMENTATION OF THE LOCAL PREPAID MOBILE TELEPHONY SERVICES COLLECTION ACT WHEREAS, on November 2, 2004, the people of the City of El Cerrito approved Measure K, authorizing Ordinance No.2004-5A and ratifying and continuing the City’s existing Utility Users Excise Tax Pursuant to section 4.04.30 of the El Cerrito Municipal Code, the UUT applies to prepaid mobile telephony services. (Chapter 4.04 of the Municipal Code was amended by Ordinance No. 2007-03 but did not affect the applicability of the UUT to prepaid mobile telephony services.); and WHEREAS, the Local Prepaid Mobile Telephony Services Collection Act (Rev. & Tax. Code 42100 et seq.) mandates the Board of Equalization (“Board”) to administer and collect a charge on prepaid mobile telephony services for all applicable local jurisdictions (Rev. & Tax. Code § 42103) that have a UUT that applies to such services; and WHEREAS, the Board will perform all functions incident to administration and collection of the charges on prepaid mobile telephony services for the City of El Cerrito; and WHEREAS, the Board requires that the City of El Cerrito enter into an “Agreement for State Collection and Administration of Local Charges” prior to implementation of the Local Prepaid Mobile Telephony Services Collection Act, and WHEREAS, the Board requires the City of El Cerrito to certify that the UUT applies to prepaid local telephony services, the current UUT rate, and that it will indemnify and hold harmless the Board from liability that might result from collection of the charge on prepaid mobile telephone services; and WHEREAS, the Board requires that the City Council of El Cerrito authorize the agreement. NOW THEREFORE, BE IT RESOLVED by the City Council of the City of El Cerrito that the “Agreement for State Collection and Administration of Local Charges” is hereby approved and the City Manager is hereby authorized to execute the agreement. BE IT FURTHER RESOLVED that the City Attorney is authorized to certify to the Board of Equalization that the UUT applies to pre-paid mobile telephony services, the current UUT rate, and that the City will indemnify and hold harmless the Board of Equalization from liability that might result from collection of the charge on pre-paid mobile telephony services. * * * * * ---PAGE BREAK--- Agenda Item No. 5(H) Attachment 1 I CERTIFY that at the regular meeting on August 18, 2015, the El Cerrito City Council passed this resolution by the following vote: AYES: COUNCILMEMBERS NOES: COUNCILMEMBERS ABSENT: COUNCILMEMBERS ABSTAIN: COUNCILMEMBERS IN WITNESS of this action, I sign this document and affix the corporate seal of the City of El Cerrito on August XX, 2015. Cheryl Morse, City Clerk APPROVED: Mark Friedman, Mayor ---PAGE BREAK--- Agenda Item No. 5(H) Attachment 2 RESOLUTION NO. 2015–XX RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO AUTHORIZING THE EXAMINATION OF PREPAID MOBILE TELEPHONY SERVICES SURCHARGE AND LOCAL CHARGE RECORDS WHEREAS, pursuant to Ordinance No. 2004-5A as amended by 2007-03 of the City of El Cerrito and the Local Prepaid Mobile Telephony Services Collection Act, the City of El Cerrito, hereinafter called Local Jurisdiction, entered into a contract with the State Board of Equalization, hereafter referred to as the Board, to perform all functions incident to the administration and collection of the prepaid mobile telephony services surcharge and local charges (Rev. & Tax. Code, § 42101.5); and WHEREAS, the Local Jurisdiction deems it desirable and necessary for authorized representatives of the Local Jurisdiction to examine confidential prepaid mobile telephony services surcharge and local charge records pertaining to the prepaid mobile telephony services surcharge and local charges collected by the Board for the Local Jurisdiction pursuant to that contract; and WHEREAS, the Board will make available to the Local Jurisdiction any information that is reasonably available to the Board regarding the proper collection and remittance of a local charge of the Local Jurisdiction by a seller, including a direct seller, subject to the confidentiality requirements of Sections 7284.6, 7284.7 and 19542 of the Revenue and Taxation Code; and WHEREAS, Sections 42110 and 42103 of the Revenue and Taxation Code sets forth certain requirements and conditions for the disclosure of Board of Equalization records and establishes criminal penalties for the unlawful disclosure of information contained in or derived from the prepaid mobile telephony services surcharge and local charge records of the Board. NOW THEREFORE, BE IT RESOLVED by the City Council as follows: Section 1. That the City Manager, Finance Director or other officer or employee of the Local Jurisdiction designated in writing by the City Manager to the Board is hereby appointed to represent the Local Jurisdiction with authority to examine prepaid mobile telephony services surcharge and local charge records of the Board pertaining to prepaid mobile telephony services surcharge and local charges collected for the Local Jurisdiction by the Board pursuant to the contract between the Local Jurisdiction and the Board. The information obtained by examination of Board records shall be used only for purposes related to the collection of the Local Jurisdiction’s prepaid mobile telephony services surcharge and local charges by the Board pursuant to the contract. Section 2. That the City Manager, Finance Director or other officer or employee of the Local Jurisdiction designated in writing by the City Manager to the Board is hereby appointed to ---PAGE BREAK--- Agenda Item No. 5(H) Attachment 2 represent the Local Jurisdiction with authority to examine those prepaid mobile telephony services surcharge and local charge records of the Board for purposes related to the following governmental functions of the Local Jurisdiction: a) Economic Development b) Code Enforcement The information obtained by examination of Board records shall be used only for those governmental functions of the Local Jurisdiction listed above. Section 3. That the City Manager, Finance Director or other officer or employee of the Local Jurisdiction designated in writing by the City Manager to the Board is hereby designated to examine the prepaid mobile telephony services surcharge and local charges records of the Board of Equalization pertaining to prepaid mobile telephony services surcharge and local charges collected for the Local Jurisdiction by the Board. The person or entity designated by this section meets all of the following conditions (Rev. & Tax. Code, § 42110, subd. a) has an existing contract with the Local Jurisdiction that authorizes the person to examine the prepaid mobile telephony services surcharge and local charge records; b) is required by that contract with the Local Jurisdiction to disclose information contained in or derived from, those records only to an officer or employee of the Local Jurisdiction authorized by the resolution to examine the information; c) is prohibited by that contract from performing consulting services for a seller during the term of that contract; d) is prohibited by that contract from retaining information contained in, or derived from, those prepaid mobile telephony services surcharge and local charge records, after that contract has expired. The contract between the Local Jurisdiction and Hinderliter, De Llamas & Associates (HDL) designated by the Local Jurisdiction to request information from the Board shall be subject to the following limitations (Rev. &Tax. Code, § 42103, subd. a) HDL shall, to the same extent as the Board, be subject to Section 55381, relating to unlawful disclosures. b) the contract between the Local Jurisdiction and HDL shall not provide, in whole or in part, in any manner a contingent fee arrangement as payment for services rendered. BE IT FURTHER RESOLVED that the information obtained by examination of the Board records shall only be used for purposes related to the collection of the Local Jurisdiction’s prepaid mobile telephony services surcharge and local charges by the Board pursuant to the contract between the Local Jurisdiction and Board, or for purposes related to other governmental functions of the Local Jurisdiction, as identified above in section 2. ---PAGE BREAK--- Agenda Item No. 5(H) Attachment 2 I CERTIFY that at the regular meeting on August 18, 2015, the El Cerrito City Council passed this resolution by the following vote: AYES: COUNCILMEMBERS NOES: COUNCILMEMBERS ABSENT: COUNCILMEMBERS ABSTAIN: COUNCILMEMBERS IN WITNESS of this action, I sign this document and affix the corporate seal of the City of El Cerrito on August 18, 2015. Cheryl Morse, City Clerk APPROVED: Mark Friedman, Mayor