BILL ANALYSIS Ó
AB 300
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Date of Hearing: April 8, 2013
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Steven Bradford, Chair
AB 300 (Perea) - As Introduced: February 12, 2013
SUBJECT : Telecommunications: prepaid wireless services
SUMMARY : Establishes a uniform, statewide retail point-of-sale
collection mechanism for prepaid wireless services.
Specifically, this bill :
1)Enacts the Prepaid Mobile Telephony Service Surcharge and
Collection Act (MTS).
2)Establishes a prepaid MTS surcharge based upon a percentage of
the sales price of each retail transaction that occurs in the
state for prepaid wireless service. The prepaid MTS surcharge
would include the 9-1-1 user surcharge, and California Public
Utilities Commission (PUC) surcharges and any applicable local
user utility tax.
3)Requires a retail seller to collect the prepaid MTS surcharge
from a prepaid consumer and remit the amounts collected to the
State Board of Equalization (BOE).
4)Specifies the BOE to deposit the amounts collected in
specified accounts, within the State Treasury, after deducting
its administrative expenses.
5)Requires the PUC to annually compute the PUC's reimbursement
fee and six universal service program fees, to post notice of
those fees on its Internet Website and to notify the BOE of
the amounts, which would be adjusted, as specified.
6)Specifies the California Department of Technology (Department
of Technology) to annually compute the intrastate portion of
the 911 surcharge to be collected on prepaid wireless
services, to post notice of those charges and to notify the
BOE of the amount for the 9-1-1 user surcharge.
7)States that on or after January 1, 2015 and before an
unspecified date, a local charge imposed on the consumption of
prepaid mobile telephony services shall be collected from the
prepaid consumer at the same time and in the same manner as
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the prepaid MTS surcharge is collected, as specified, in lieu
of collection of those local charges by the city, county, or
city and county, including a charter city, county, or city and
county.
8)States that on or after January 1, 2015, and before an
unspecified date the authority of a city, county, or city and
county, which includes a charter city, county, or city and
county, to impose a utility user tax rate on the consumption
of prepaid mobile telephony service in the city, county, or
city and county at the rate as specified in an ordinance
authorized by law is suspended. It is the intent of the
Legislature to create a tiered method for collection of the
utility user tax rate.
9)Specifies that a change in a utility user tax rate or access
charge rate resulting from either the rate limitations or the
end of the period on and after January 1, 2015, and before an
unspecified date is not subject to voter approval under either
statute or Article XIII C of the California Constitution.
10)Requires local charges imposed by a city, county, or city and
county can be administered and collected by the BOE and
transmitted to the city, county, or city and county.
11)Revises the definition of mobile telephony services and
incorporates that definition for the purposes of the MTS Act.
EXISTING LAW :
1)States the PUC has regulatory authority over public utilities,
including telephone corporations, and is authorized to fix
just and reasonable rates and charges for services provided by
those public utilities.
2)Establishes the Public Utilities Commission Utilities
Reimbursement Account and authorizes the PUC to annually
determine a fee to be paid by every public utility providing
service directly to customers or subscribers and subject to
the jurisdiction of the PUC, except for a railroad
corporation.
3)Requires the PUC to establish the fee, with the approval of
the Department of Finance, to produce a total amount equal to
that amount established in the authorized PUC budget for the
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same year, and an appropriate reserve to regulate public
utilities, less specified sources of funding.
4)Establishes the state's telecommunications universal service
programs and authorizes the PUC to impose charges for the
purpose of funding those programs.
5)Defines mobile telephony services for purposes of the Public
Utilities Code.
6)Establishes the BOE with duties that include administering tax
and fee programs that provide revenue for state and local
government.
7)Fee Collection Procedures Law specifies procedures for BOE
collection of fees and taxes that fund programs administered
by other state agencies, including taxes and fees that
retailers collect from customers and remit to the BOE for
transfer to another agency.
8)Requires the Department of Technology to administer the
state's 9-1-1 emergency telephone system with funds derived
from a surcharge on intrastate communication service that
providers remit to the BOE, which transfers the funds to the
Department of Technology.
9)Authorizes cities and counties to collect User Utility Taxes
(UUTs) on utility and communications service that providers
collect from end users and remit to BOE, which transfers the
funds to local agencies.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "everyone who uses phone
service pays a small monthly fee as part of their bill to help
fund 911 and support other important state and local programs.
However, for the fastest growing segment of wireless users,
prepaid wireless services, there is no collection mechanism for
customers to pay these fees. Nearly 25% of all wireless
customers are now prepaid customers. The current system leaves
state and local governments without a reliable, predictable
means for ensuring collection of these revenues. AB 300 would
ensure state and local governments receive the necessary
resources for E911 programs by developing a statewide mechanism
to include prepaid services in the already-established
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collection of fees applied to wireless communication services."
1)Background : The state's current system for collecting taxes
and fees is based on carriers
having a contractual relationship with customers and collecting
those taxes and fees on a monthly bill. These consumers pay 911
fees that help fund the network costs associated with the
delivery of wireless 911 services. They also pay state-imposed
fees to fund telephone service for low-income households,
broadband for underserved areas and more, and local government
services such as police, fire, parks and libraries through local
utility user taxes.
According to CTIA-The Wireless Association, the prepaid wireless
market is anticipated to grow at a rate of 10% per year. Out of
300 million nationwide wireless consumers, it is estimated that
20% use prepaid services and California's share of the national
wireless market is 20%.
2)Collection of fess and surcharges for prepaid wireless
services : Current law imposes the state 911 user surcharge on
intrastate communications service, administered by the
California Technology Agency, a PUC Reimbursement Fee to pay
for the PUC's operations, and several surcharges to pay for
state universal service programs administered by the PUC as
follows:
California High Cost Fund A and B
Deaf and Disabled Telecommunications program
California Teleconnect Fund
California Advanced Services Fund
Lifeline Telephone Service
These state fees total about 2.5 percent of intrastate service.
Local 911 fees and User Utility Taxes (UUTs) are assessed on
service provided within the jurisdiction of the city or county
imposing the tax. UUTs vary by jurisdiction but not all cities
and counties impose them.
Post-paid fees and surcharges are easily assessed as they are
reflected on customer bills after service is used. With prepaid
service, there is no billing process. It is impossible for
providers or retailers selling prepaid service to determine
ahead of time how many minutes will be intrastate calls, nor
where the transaction will occur.
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1)Growing pains in California : Since prepaid consumers do not
have a direct relationship with
a communications provider, and do not enter into a contract with
a monthly bill, there is no statewide mechanism to collect the
same communications fees and surcharges from prepaid wireless
customers that are presently collected from post-paid customers.
Consequently, the state and local governments have no reliable
means for ensuring collection of these revenues. In other words,
these entities lose revenues for important services and program.
In light of growing demand for prepaid service and the lack of
billing relationship between the prepaid wireless user and the
provider of the prepaid wireless service, the wireless industry
has advocated nationwide a point-of-sale collection methodology
with model legislation endorsed in 2009 by the National
Conference of State Legislatures. According to CTIA, 27 states
have adopted point-of-sale legislation based on the model
statute.
California, however, is rather unique in comparison to other
states, as it not only has the 911 surcharge to collect, but
also a number of other state and local government surcharges,
which could make the collection methodology used by other states
more challenging to adopt. Presently there are three states that
use the proposed point-of-sale collection mechanism - Maine,
Nebraska, and Vermont.
2)Proposed collection method : This bill would require the
retail seller (or vendor) to collect
taxes and fees at the point-of-sale for prepaid wireless service
and remit funds collected to the BOE. The retail seller will be
permitted to deduct and retain 3% of the amounts collected which
represents their vendor compensation. The BOE would be
responsible for depositing these surcharges, less a 2%
administrative fee, into the newly established Prepaid Mobile
Telephony Services Surcharge Fund (MTS) created in the State
Treasury. The Prepaid MTS 911 Account and the Prepaid MTS PUC
Account will be created in the fund to receive the emergency
telephone users surcharge and the PUC universal service
surcharges.
3)Reconciling challenges with local UUTs: Numerous
jurisdictions have adopted a
local UUT which is imposed by a city council or by vote of the
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people. UUT's may be imposed as a special tax, earmarked for a
specific purpose, or a general tax to be used for a variety of
municipal service needs at the discretion of the local
government. Most of the UUTs have been enacted as general
taxes. UUT revenues commonly fund police, fire, parks, library,
and long-range land use planning serves and other related
services. Approximately 90-100 jurisdictions with UUT ordinances
are applicable to prepaid wireless service.
One of the challenges with establishing a uniform collection
method for the retailers is the collection of the various UUT
rates throughout the state. The varying rates could possibly
place a burden on the retailers. Programming fees/surcharges
into a retailer's point-of-sale system requires a lot of time
and resources to start up and maintain. However, the carriers
are conferring with representatives of local government and the
retail industry to reach agreement on a mechanism for the retail
point-of-sale collection of local UUTs in jurisdictions with
ordinances that apply such taxes to prepaid wireless services.
As previously stated, the bill permits the retailer to deduct 3%
as compensation which may provide some economic relief for
start-up and ongoing costs.
4)Splitting the baby : This bill inserts two more parties in the
transaction that is currently
between the PUC and the carriers. Presently, the carriers are
responsible for the collection and remittance of the fees and
surcharges to the PUC. According to the PUC, dividing the roles
for surcharge and user fee collection between postpaid and
prepaid services, and making the California retail industry
responsible for collecting the prepaid surcharges, reduces the
PUC's comprehensive oversight over carriers and the universal
service PPPs, creates inefficiencies and extra costs, and
invites carrier arbitrage. The PUC argues there would be two
different processes at the PUC - one for postpaid service and
one for prepaid service.
The Utility Reform Network (TURN) claims the provisions in AB
300 are expensive, unnecessary and potentially troublesome. TURN
explains that the large players in prepaid industry such as
Nexus Communications, Virgin Mobile, Cricket Wireless and
TracFone currently contribute to the state's public purpose
programs and 911 programs under a much simpler and more direct
structure. They represent the companies pay these surcharges
directly to either the PUC or BOE without the involvement of the
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retailers.
5)Ratepayer impact : Proponents of the bill opine that additional
revenues for the
State will be generated if this measure is enacted. Additional
revenue will be generated by applying existing state and local
fees and charges that are imposed on postpaid customers to
prepaid customers who currently do not pay into the various
funds. Moreover current remittances are based on wholesale
revenue and the new system under AB 300 would collect surcharges
based on retail sales revenue.
Conversely, the PUC believe the ratepayers will not receive any
benefits from this measure and the state public purpose funds
involved will not receive any additional revenue. They note this
will be an additional burden for the ratepayers because the
measure will increase costs for the administration of surcharge
collections by the retailers, BOE and PUC.
6)PUC enforcement efforts on prepaid services. TracFone is one
of the largest prepaid wireless
Service providers in the nation. In 2003, the PUC opened an
enforcement proceeding (I.09-12-016) against TracFone because
the company had not been remitting Universal Surcharge Funds in
accordance with statute and PUC decisions. TracFone asserts the
PUC did not have a method to calculate Universal Surcharge Funds
from carriers who utilize prepaid wireless cards. According to
TracFone, they received advice in 2003 from PUC staff that
TracFone should indicate 'zero' intrastate billing reports filed
with the PUC. Entering zero has the effect of not collecting or
remitting any Universal Surcharge Funds.
On March 13, 2013, the California Court of Appeal denied
TracFone's petition for writ of review TracFone petitioned the
court for a writ of review of two Phase 1 decisions in
Investigation (I.) 09-12-016: D.12-02-032 which found that
TracFone is a telephone corporation operating as a public
utility providing prepaid wireless telephony services in
California, and also for review of D.12-10-018 which denied
TracFone's application for rehearing of D.12-02-032 and also
denied its motion to stay that decision. D.12-02-032 determined
that TracFone violated provisions of the Public Utilities Code
and Commission orders and decisions in failing to pay the user
fees and public purpose program surcharges required by its
operating license/registration. TracFone was ordered to
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immediately begin collecting and remitting the applicable
surcharges and user fees; also, D.12-02-032 decided that the
amount of user fees and surcharges owed, if any, and whether
TracFone shall be subject to any penalties, would be determined
in Phase 2 of I.09-12-016.
If this bill were to move forward, it is unclear if the PUC
would retain its authority to conduct enforcement activity
against prepaid wireless carriers in certain instances. An
example, in the case where a prepaid wireless carrier acts as
the retail seller of prepaid wireless service, the burden is
then placed on the carrier to remit the taxes, fees and
surcharges prescribed in this measure. Therefore, the author and
this committee may wish to consider an amendment to state as
follows: the CPUC has enforcement authority to ensure the proper
remittances over retail transactions where the Prepaid MTS
provider is also the Seller .
7)Technical amendment : The author and this committee may wish to
make the following
technical amendment: Section 42100 (b) It is a matter of
statewide concern that local prepaid mobile telephony services
be collected in a uniform manner and for a limited number of
rates in order for the collection "to" be fair and uniform on a
statewide basis.
REGISTERED SUPPORT / OPPOSITION :
Support
AT&T
Boost
California Chapter of the National Emergency Number Association
(CALNENA)
California Hispanic Chambers of Commerce
California's Independent Telecommunications Companies (CITC)
Cal-Ore Telephone Company
CalTel
CTIA - The Wireless Association - Sponsor
Ducor Telephone Company
Pinnacles Telephone Company
Ponderosa
Sebastian
Sierra Telephone
Siskiyou Telephone
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Sprint
SureWest Communications
TDS
Verizon
Virgin Mobile
Volcano Telephone Company
Opposition
California Public Utilities Commission (CPUC)
The Utility Reform Network (TURN)
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083