BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 300 HEARING: 8/21/13
AUTHOR: Perea FISCAL: Yes
VERSION: 8/14/13 TAX LEVY: No
CONSULTANT: Miller
PREPAID MOBILE TELEPHONY SERVICES: STATE SURCHARGE & FEES:
LOCAL CHARGES COLLECTION
Changes the point of collection for prepaid mobile services
taxes and fees to point of sale and clarifies the
imposition of tax is directly on the consumer, not the
carrier.
Background and Existing Law
I. Surcharges & Taxes Current law assesses a number of
state surcharges, taxes, and fees on telecommunications
services. Telephone service providers collect and remit
these taxes and surcharges to either California Public
Utilities Commission (CPUC) or the Board of Equalization
(BOE), as specified. For prepaid wireless, the taxes and
surcharges are remitted by the carriers based on estimates
of utilization.
Emergency Telephone Users Surcharge (911 Surcharge). Under
existing law, the 911 Surcharge Act imposes a surcharge
(currently .50%) on amounts paid by every person in the
state for:
Intrastate telephone communication service in this
state, and
Voice over Internet Protocol (VoIP) service that
provides access to the "911" emergency system by any
service user utilizing the digits 9-1-1 in this state.
The 911 Surcharge Act requires a service supplier to
collect the surcharge from each customer at billing. It
also requires the surcharge to be added to, and stated
separately in, a service supplier's billings to the service
user. The tax is administered by BOE.
AB 300 -- 8/14/13 -- PageB
The current 911 tax rate is .50% on intrastate telephone
and VoIP but may be adjusted by the California Technology
Agency (CTA), or its successor agency, Office of Emergency
Services up to 0.75%. These funds pay for the 911
emergency telephone number system and administrative costs.
Local Taxes, Fees, and Surcharges . Locally imposed taxes,
fees, and surcharges on communications services, such as
911 or access line taxes, fees, surcharges and utility user
taxes (UUTs), may also be imposed by cities and counties on
the consumption of utility services, including telephone
service.
CPUC-Mandated Telecommunications End-User Surcharges .
Currently, six CPUC-mandated telecommunications surcharges
support various public programs in California. The
surcharges are imposed on the end user who remits the fees
to the CPUC. The six surcharge programs are adjusted
periodically by the CPUC to account for fund changes. The
six programs are:
Universal Lifeline Telephone Service 1.15%. This program
provides discounted basic telephone (landline) services
to eligible California households.
Deaf and Disabled Telecommunications Program 0.2%.
The CPUC implemented three telecommunications programs
for California residents who are deaf, hearing
impaired, or disabled.
California High Cost Fund-A 0.4%. This fund
provides a source of supplemental revenues to 14 small
local exchange carriers for the purpose of minimizing
any rate disparity between rural and metropolitan
areas.
California High Cost Fund-B 0.3%. This fund
provides subsidies to carriers of last resort to
provide basic local telephone service to residential
customers in high-cost areas that certain carriers
currently service, as specified. The fund keeps basic
telephone service affordable to meet CPUC's universal
service goal.
AB 300 -- 8/14/13 -- PageC
California Teleconnect Fund 0.59%. Another
program established by CPUC to meet universal service
goals. This fund provides a 50% discount on selected
telecommunication services to qualifying schools,
libraries, government-owned and operated hospitals and
health clinics, and community-based organizations.
California Advanced Services Fund 0.14%. A
two-year program that ran from January 1, 2008 to
January 1, 2010, to provide grants to "telephone
corporations" to fund unserved and underserved areas
with broadband services. The Legislature extended the
program beyond January 1, 2013, pursuant to SB 1040
(Padilla, 2010), which also established two new
program elements: The Rural and Urban Regional
Broadband Consortia Account and The Broadband
Infrastructure Revolving Loan Account.
CPUC User Fee (Reimbursement Account) . The CPUC determines
annually the appropriate fee to be paid by the
telecommunications carriers. CPUC calculates the user fee
based on the telecommunications carrier's gross intrastate
revenue, excluding inter-carrier sales, equipment sales,
and directory advertising. The fee, which is remitted to
CPUC, finances CPUC's annual operating budget.
Telecommunications carriers with annual gross intrastate
revenues in excess of $750,000 remit this fee quarterly, by
the 15th of April, July, October, and January.
Telecommunications carriers with annual gross intrastate
revenues of $750,000 or less remit the fee annually on or
before January 15.
II. Prepaid Wireless. The telecommunications industry has
experienced advances in technology, shifts in the
competitive markets, and major changes in service and price
structures. The state's universal service programs were
established at a time when circuit-switched wireline
telephone service was the main telephone service used by
California households, but these programs have developed
with technology. In 2001, the Legislature enacted SB 896
(Poochigian) to conform to the Federal Mobile
Telecommunications Sourcing Act, and provided that all
wireless calls are sourced to the subscriber's residential
or business address, and thus provided that any taxation of
AB 300 -- 8/14/13 -- PageD
wireless telecommunications also be sourced to the
jurisdiction(s) of the address. In 2008, SB 1040 (Kehoe)
required interconnected VoIP service providers to
contribute to the state 911 program funded by a customer
surcharge on intrastate service. The Federal
Communications Commission (FCC) recognized that, as an
ever-growing number of customers get voice service from
VoIP rather than landline providers, the funding base for
universal service programs diminishes.
Telephone service has been provided on a postpaid basis
where customers get a monthly bill for calls made and
services received in the prior month. With prepaid
service, customers pay in advance for a predetermined
amount of calling minutes, typically loaded onto a calling
card or directly onto a mobile phone, with options to
reload once the calling minutes are used. According to
CTIA, the Wireless Association, prepaid wireless is an
expanding multi-billion dollar business, with nearly a
quarter of the nation's 300 million wireless consumers
currently using prepaid service. Prepaid service is popular
for "backup" phones kept in the car for emergencies and
"starter" phones for children so it is easy to control
usage, and is an attractive option for low-income customers
unable to afford a long-term contract or pass a credit
check. About 30 percent of prepaid service is sold
directly by a provider to a customer, ether online, over
the phone, or otherwise. The other 70 percent is sold
through retailers such as grocery stores and big-box
stores, to which providers sell prepaid cards on a
wholesale national basis.
Recon Analytics analyst and FierceWireless contributor
Roger Entner found that new wireless customers in the first
quarter chose no-contract service over contract service by
a 10 to 1 ratio. Entner found that the nation's wireless
carriers added around 140,000 contract customers in the
first quarter, far fewer than the 660,000 no-contract
customers. The chart below illustrates
III. Current state taxation & litigation. All Prepaid
Wireless carriers pay state surcharges and taxes directly
to the BOE (pursuant to regulation 4203) or the CPUC
(pursuant to the public utilities code). The CPUC and the
BOE allow these payments to be made based on their reported
AB 300 -- 8/14/13 -- PageE
intrastate sales.
TracFone is the nation's largest provider of prepaid
wireless; TracFone only offers prepaid telephone services.
In 2007, TracFone sued the County of Los Angeles for
utility user taxes it paid but later determined were
tax-exempt. The trial court held that TracFone lacked
standing to seek a refund of a tax that it was not obliged
to pay, but only to collect. However, in 2008, The Court
of Appeal reversed the previous decision, concluding
TracFone did have standing to seek a refund. The court
accepted TracFone's argument that it had no administrative
means to collect taxes from consumers who bought its
prepaid wireless service cards and phones throughout the
country and that TracFone was required by the County's
ordinances to pay the tax before challenging it.
Similar to TracFone v. The County of Los Angeles, the trial
court entered judgment in favor of the City of Los Angeles
in 2009 also against TracFone related to the UUTs.
Pursuant to its municipal code, the City of Los Angeles
imposes a 10% UUT within the city. TracFone, as a provider
of telephone services is required to collect the tax and
transfer it to the city. The California Court of Appeal
reversed the judgment of the Superior Court of Los Angeles,
and held that TracFone had standing to seek a refund of the
10% utility user tax imposed on users of telephone service
residing within city limits it paid the City of Los Angeles
and awarded TracFone a refund of taxes paid. The Court held
that the law did not apply to TracFone, or other service
providers, who did not collect the taxes from their
customers and that TracFone did not just "volunteer" to pay
the taxes, but did so to avoid penalties and interest.
In 2003, TracFone sought clarification through CPUC staff
about whether CPUC fees and surcharges apply to its
service. TracFone claims to have relied on staff indicating
that it was exempt, an argument CPUC later rejected. The
CPUC opened a formal investigation against TracFone in
2009, I.09-12-016, and in February 2012 approved a decision
concluding that TracFone is a telephone corporation subject
to its jurisdiction and is required to pay CPUC fees and
surcharges (D.12-02-032). In March 2013, a state appellate
court denied TracFone's petition for review of that
decision. On July 11, 2013 a Presiding Officer's Decision
(POD) was issued that concluded that TracFone owes the
AB 300 -- 8/14/13 -- PageF
total amount of past due fees and surcharges and ordered
them to pay $24,425,262.48 which represents that full
amount, including accrued interest. According to the POD,
TracFone does not owe penalties because of several
mitigating factors, such as TracFone's good faith efforts
to confirm its interpretation of the law with the CPUC's
Communications Division staff and because TracFone will
bear the entire cost of the past due amounts. TracFone and
the CPUC's Safety and Enforcement Division both appealed
the POD and the assigned Administrative Law Judge must now
write a Modified POD (MOD POD) that will appear for a vote
on the commission's voting meeting agenda not less than 30
days prior to its mailing.
According to CPUC, TracFone and all other prepaid providers
are now remitting all necessary state surcharges and fees
from both their postpaid and prepaid customers. The CPUC
denied requests of carriers during the TracFone proceeding
to review the obligations of all prepaid service providers
to pay CPUC fees and surcharges and establish a collection
mechanism. CPUC maintains that it "intentionally does not
prescribe any collection method for any kind of wireless
service, leaving carriers complete discretion to implement
the method that best meets their business needs."
IV. Intrastate revenue . Federal law states that telephone
service providers may only assess surcharges and taxes on
calls made within the state. The Federal Communication
Commission (FCC) provides three ways to determine
intrastate minutes:
1. Safe harbor set by the FCC at 69.2%
2. Books and Records maintained by the telephone
service providers
3. Traffic studies by the providers
Proposed Law
I. Point of Sale Collection On or after January 1, 2015
until January 1, 2020, Assembly Bill 300 changes the rate
and method of computation and collection of taxes and
surcharges for mobile pre-paid wireless services (MTS
surcharge) in California. Specifically, the bill imposes
the tax directly on the consumer at the point of sale as
follows:
1. AB 300 requires sellers to collect the surcharge
from the prepaid consumer at the time of each prepaid
AB 300 -- 8/14/13 -- PageG
mobile telephony services "retail transaction" in this
state.
2. Similar to the sales tax, AB 300 requires the
surcharge and local charges to be imposed as a
percentage of retail sales price.
3. The bill also requires the surcharge to be
separately stated on an invoice, receipt, or other
similar document provided to the prepaid consumer, or
otherwise disclosed electronically to the prepaid
consumer.
The bill defines a "retail transaction" to mean "the
purchase of prepaid mobile telephony services, either alone
or in combination with mobile data or other services, from
a seller for any purpose other than resale in the regular
course of business."
Surcharge Liability . Similar to the sales tax, the MTS
surcharge is imposed on the customer, but AB 300 requires
the seller to remit these taxes. Any taxes collected but
not remitted are considered a debt to the state. AB 300
provides that a seller that collects an amount that exceeds
the MTS surcharge and local charges owing may refund those
amounts to the prepaid consumer. AB 300 provides that once
a customer pays the MTS surcharge, he or she is relieved of
future liability.
Vendor compensation . The bill provides that all retailers
that sell prepaid telephones shall receive 3% compensation
of the MTS surcharge for each sale.
Administration . AB 300 requires BOE to administer and
collect the MTS surcharge pursuant to the Fee Collection
Procedures Law (FCPL). The FCPL generally provides for
BOE's administration of fee programs. Among other things,
the FCPL provides for collection, reporting, return,
refund, and appeals procedures, as well as BOE's authority
to adopt regulations related to the FCPL's administration
and enforcement.
The bill specifically authorizes BOE to prescribe and adopt
tax administration and enforcement regulations including,
but not limited to, collections, reporting, refunds, and
appeals. In addition, the bill authorizes the BOE to
prescribe, adopt, and enforce any emergency regulations as
AB 300 -- 8/14/13 -- PageH
necessary to implement the Act.
The bill also requires BOE to: (1) establish procedures for
a seller to document when a sale is not a retail
transaction, and (2) establish procedures for sharing
specified MTS surcharge collection information upon the
request of the CPUC or the Office of Emergency Services
(OES).<1>
After registering with BOE, the MTS surcharge is due and
payable to BOE quarterly on or before the last day of the
next month following each calendar quarter. In addition, a
return for the preceding calendar quarter must be filed
with BOE using electronic media at the time of payment.
MTS Surcharge Calculation . AB 300 requires BOE to
calculate the MTS surcharge rate annually, no later than
November 1 each year commencing November 1, 2014, by
combining the 911 surcharge rate and all the end user CPUC
rates.
911 Surcharge Rate . The surcharge rate established
pursuant to the 911 Surcharge Act as of October 1 of each
year, which shall be the surcharge rate established for
intrastate telephone communication service in this state,
by using 78.5 percent of the total charges as being the
intrastate portion of the charges. See proposed amendments
The bill amends the 911 Surcharge Act to detail how the OES
must determine the 911 surcharge rate and the MTS surcharge
rate. The OES is required to "use 78.5 percent of the
total charges as being the intrastate portion of the
charges." CTA must notify BOE of the surcharge amount by
October 15 of each year, commencing with October 15, 2014.
CPUC End-User Surcharges . AB 300 requires the sellers to
impose CPUC charges as well as established and published by
CPUC; the bill requires CPUC to compute, commencing October
1, 2014:
-------------------------
<1> The bill references the Office of Emergency Services;
however, the CTA currently administers the 911 program.
Effective 1/1/14 OES will officially be responsible for
911-services pursuant to Governor Brown's reorganization
plan.
AB 300 -- 8/14/13 -- PageI
A reimbursement fee as a percentage of the sales
price for prepaid mobile telephony services, and
The cumulative of the telecommunications universal
service surcharges as a percentage of the sales price
for prepaid mobile telephony services.
AB 300 does not restrict the CPUC's authority to adjust the
reimbursement fees or universal service fees or require
that they only be adjusted once annually.
AB 300 provides the CPUC with enforcement authority "to
ensure the proper remittance over retail transactions"
pursuant to the Act where the prepaid MTS provider is also
the seller. However, CPUC must collaborate with BOE in the
exercise of its enforcement authority.
Local Taxes and Surcharges . AB 300 prescribes 8 rates that
cities and counties may asses in relation to the Utility
User Taxes. The bill requires BOE to post on its Internet
Web site, no later than each December 1, the combined total
of the rates of MTS surcharge and the rate or rates of
local charges for each local jurisdiction. The posted
combined rate applies to all retail transactions during the
calendar year beginning April 1st following the posting.
However, the bill provides an exception when a local agency
notifies BOE that the local charge(s) is inaccurate, is no
longer imposed, or has decreased. In such cases, the bill
requires BOE to promptly post the recalculated rate(s).
The change becomes operative on the first day of the
calendar quarter commencing more than 60 days from the date
of the local agency notification.
Retail Sale Location . To account for internet sales, AB
300 prescribes various ways that a sale occurs in this
state, both an in-store purchase and: if the consumer's
address is in this state (known-address transaction). A
consumer's address is in this state under any one of the
following circumstances:
The retail sale involves shipping of an item to be
delivered to, or picked up by, the prepaid consumer at
a location in the state.
The prepaid consumer's address is known by the
seller to be in the state. The consumer's address is
considered to be "known by the seller" if the seller's
AB 300 -- 8/14/13 -- PageJ
records maintained in the ordinary course of business
indicate that the prepaid consumer's address is in the
state and the records are not made or kept in bad
faith.
The prepaid consumer provides an address during
consummation of the retail transaction that is in the
state, including an address provided with respect to
the payment instrument if no other address is
available and the address is not given in bad faith.
The mobile telephone number associates with a
location in this state.
AB 300 states that a retail transaction occurs at only one
location for local charge determination.
Transaction Location . For a known-address transaction, the
bill allows the seller to collect the MTS surcharge and
local charges that corresponds to the prepaid consumer's
five digit postal ZIP Code.
This measure discharges a seller from any additional MTS
surcharge or local charges and also relieves the seller
from refunding amounts collected and remitted to BOE if:
A seller relies in good faith on BOE-provided
retail location information to match either a
point-of-sale transaction location, or the five digit
postal ZIP Code of the prepaid consumer's
known-address, to the applicable MTS surcharge and
local charges amount;
A seller collects that amount from the prepaid
consumer; and
A seller remits the amount to BOE in compliance
with the Act.
AB 300 also discharges the seller from any additional local
charges, and relieves the seller from refunding amounts
collected and remitted, if the seller, with due diligence
and in good faith, relies on credible information to match
the prepaid consumer's five digit postal ZIP code to the
correct local charge, even if the ZIP code corresponds to
more than one local charge in a known-address transaction.
AB 300 -- 8/14/13 -- PageK
Miscellaneous Provisions . The MTS surcharge applies to the
entire price where prepaid mobile telephony services are
sold in combination with mobile data services or any other
services or products for a single price except if:
The prepaid MTS is sold with a cellular telephone
and the purchase price for the prepaid mobile
telephony services component is separately disclosed
to the consumer on a receipt, invoice, or other
written electronic documentation provided to the
prepaid consumer, the prepaid MTS surcharge and local
charge apply only to the prepaid mobile telephony
services amount.
A minimal prepaid MTS amount is sold in a single,
non-itemized bundled price with a cellular telephone;
the seller may elect not to apply the surcharge or
local charge. For these purposes, a minimal amount
includes a service allotment denominated as 10 minutes
or less, or $5 or less.
Revenues . Pursuant to existing law, BOE must deposit the
funds as follows:
The 911 surcharge portion of the MTS surcharge
would be deposited into the Prepaid MTS 911 Account,
which this bill creates in the MTS Surcharge Fund.
The CPUC surcharges portion of the MTS surcharge
would be deposited into the Prepaid MTS CPUC Account,
which this bill also creates in the MTS Surcharge
Fund.
Definitions . This bill includes several definitions of key
terms, including, but not limited to mobile data service
and mobile telephony service.
II. Local Prepaid Mobile Telephony Services Collection Act
AB 300 provides statewide uniformity for UUTs assessed on
prepaid mobile phone services, stating "it is the
intention of the Legislature that this part shall preempt
the provisions pertaining to the tax or charge rate, base,
and method of collection contained in all local ordinances,
rules, or regulation concerning the imposition of a local
AB 300 -- 8/14/13 -- PageL
charge upon the consumption of prepaid mobile telephone
services, to the extent those provisions are inconsistent
with the provisions of this part and Part 21 (commencing
with Section 42000). It is not the intent of the
Legislature to otherwise preempt, limit, or affect the
general authority of local jurisdictions to impose a
utility user tax, local 911 charge, or any other local
charges."
AB 300 provides that the any local taxes, pursuant to the 8
rates in the bill, must be paid at the same time and in the
same manner as that described in the "point of sale"
provisions, provided that on or before September 1, 2014,
the local agency enters into a contract with the BOE.
The bill parallels the local sales and use tax collection
(Bradley Burns, transactions and use tax in prescribing how
locals shall contact with BOE. In the contract, the local
agency must certify to BOE: (1) that its ordinance applies
its local charge to prepaid MTS and that the local agency
agrees to indemnify, and hold harmless BOE for any and all
liability for damages that may result from collection
pursuant to the contract; and, (2) the amount of the local
911 charge or the applicable tiered rate for a utility user
tax.
If a local agency increases its local charge after
September 1, 2014, the local agency must provide BOE with
written notice of the increased local charge on or before
December 1st, with collection of the local charge to
commence April 1st of the next calendar year.
Notwithstanding any other law, on and after January 1,
2015, the bill replaces all UUTs with the 8 rates in the
bill.
Local Act Administration . The bill requires BOE to perform
all functions incident to the collection of the local
charges of a city or county. In addition, BOE must collect
the local charges in the same manner as the MTS surcharge
in the MTS Act, subject to specified limitations. Those
limitations, for which the city or county is responsible,
include:
Defending any claim regarding the validity of
the ordinance in its application to prepaid MTS.
AB 300 -- 8/14/13 -- PageM
Interpreting any provision of the ordinance,
except to the extent specifically superseded by the
Local Act.
Responding to specified customer claims for
refund.
Certifying that the city or county ordinance
applies the local charge to prepaid MTS and agrees
to indemnify and hold harmless BOE, its officers,
agents, and employees for any and all liability for
damages that may result from collection of the local
charge.
Reallocation of local charges as a result of
correcting errors relating to the location of the
point of sale of a seller, or the known address of a
consumer, for up to two past quarters from the date
of knowledge.
The Local Act authorizes BOE to prescribe and adopt rules
and regulations as may be necessary or desirable for the
administration and collection of local charges and the
distribution of the local charges collected.
The Local Act limits BOE's audit duties to verification
that the seller complied with the Act and allows BOE to
contract with a third party to:
Allocate and transmit collected local charges
in the Prepaid Mobile Telephony Services Fund to the
appropriate local jurisdictions.
Audit proper collection and remittance of the
local charge.
Respond to requests from sellers, customers,
boards, and others regarding local charges.
The bill applies existing disclosure laws to any third
party contract, and prohibits contingent fee arrangements
as payment for services rendered.
AB 300 -- 8/14/13 -- PageN
III. Intent Language . AB 300 states that it is the intent
of the Legislature that the 911 surcharge and CPUC
surcharge and fee remittance obligations of a prepaid MTS
provider shall continue to remain subject to the law
existing prior to the effective date of this act until
January 1, 2016. The law existing prior to the effective
date of this act remains applicable for each of the
following:
The collection of surcharges, the liability for
which accrued prior to January 1, 2015.
The making of any refunds.
The disposition of money collected.
The commencement of any action or proceeding
pursuant to this part.
IV. Operative Date . As an urgency measure, the bill becomes
effective immediately. However, the MTS surcharge is
operative January 1, 2015, and would remain in effect until
January 1, 2020. On January 1, 2020, all provisions of the
bill are repealed.
V. Example . Assuming the PUC, as amended, determines the
intrastate percentage should be set at 78.5%, the MTS
surcharge works as follows:
If I buy $100 worth of prepaid services from a third party
retailer, the state taxes, fees and surcharges imposed on
my transaction would be:
911 surcharge (0.50%): First, multiply 0.50% by
78.5% making the 911 portion of the MTS surcharge rate
.3925%. That would be multiplied by the price of
mobile telephony services. . The 911 portion would be
$0.39 (.3925% x $100)
CPUC surcharges: The 6 cumulative CPUC surcharges
and user fee total 2.984% (2.84:% + .18%). That
amount would also be multiplied by 78.5% (2.984% x
78.5%= 2.34%) to arrive at the CPUC portion of the MTS
AB 300 -- 8/14/13 -- PageO
surcharge. The PUC portion of the MTS surcharges would
total $2.34.
The vendors would be compensated at 2% (as amended)
of MTS collected or $.054 vendor compensation.
In the City of Sacramento, the UUT is 2.5% (also
one of the 8 tiers). My total UUT would be $2.50 (100
x 2.5%), not subject to the intrastate percentage.
On a $100 price of prepaid voice, talk and text, I would
pay $5.284 in state taxes and surcharges. <2>
Amendments
The author will take the following amendments in committee:
Intent language : the author will add intent language to
this bill stating that nothing in this bill is intended to
reduce revenue to these funds and programs. In determining
loss or gain over the current year, the computation of
revenue shall include market information including:
pre-paid industry growth, new entrants to the market, and
inflation.
Revenue "overlay ." The bill states intent language that
payments to the funds shall continue once the point-of-sale
provisions are enacted. The author will amend the bill to
specify that all telephone service providers will continue
to pay to both BOE and CPUC administered taxes and
surcharges, pursuant to existing law in 2013 through
December 31, 2015.
Tax computation . The bill relies an arbitrary 78.5% rate
to compute intrastate revenue; these taxes, surcharges and
fees must be based on intrastate minutes. Instead, the
author will amend the bill to require telephone service
providers to remit intrastate data to CPUC. CPUC will
-------------------------
<2> Mobile telephony services are not subject to the sales
tax as they are not tangible personal property. If I
purchased the $100 of service in a bundle that included a
cell phone (tangible personal property), I would also be
subject to the sales tax.
AB 300 -- 8/14/13 -- PageP
aggregate the data and provide the percentage to BOE
annually to compute the tax.
Vendor compensation . The author will amend the bill to
reduce vendor compensation from 3% to 2% of the MTS
surcharge only for retail locations that make "indirect
sales." Retail sellers that are also carriers will not
receive any vendor compensation.
Sunset . The author will amend the bill to reduce the
sunset provisions from 5 years to 3 years. The provisions
of the bill, including the MTC surcharge, shall sunset on
January 1, 2018. The bill shall provide that if there is a
delay in the point-of-sale imposition of the tax, the
sunset shall be extended accordingly to no more than 3
years.
State Revenue Impact
The BOE provides both a preliminary revenue and cost
estimate for AB 300 as follows.
In 2015, due to the revenue overlay (see amendments), this
measure results in a net revenue gain in the amount of
$38.2 million ($39.3 million AB 300 revenue - $42.5 million
forgone revenue + $41.4 million carrier revenue).
Beginning in 2016, this measure results in a $3.2 million
revenue loss annually until the January 1, 2020, sunset
date, assuming the 78.5% intrastate percentage. As
proposed to be amended, the bill will sunset in 2018 and
the intrastate percentage will be adjusted so the
correlating revenue loss will be lower.
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| AB 300 Estimated |Curren|Current Law | AB | AB 300 |
| Prepaid Revenues | t |2011-12 BOE | 300 | BOE |
| |Rates | Calculated |Rates| Calculated |
| | | | | Revenue |
|-------------------------+------+------------+-----+------------|
|Estimated CA Prepaid | |$1,195,392,0| | |
|Wireless Revenue Base | | 00 | | $1,447,041,024 |
|-------------------------+------+------------+-----+------------|
| | | | | |
|-------------------------+------+------------+-----+------------|
AB 300 -- 8/14/13 -- PageQ
|Estimated PW 911 | 0.50%| |0.39%| |
|Surcharge Revenue: | |5,976,960 | | |
| | | | | 5,679,636 |
|-------------------------+------+------------+-----+------------|
|Estimated PW ULTS | 1.15%| |0.90%| |
|Revenue: | |13,747,008 | | |
| | | | | 13,063,163 |
|-------------------------+------+------------+-----+------------|
|Estimated PW DDTP | 0.20%| |0.16%| |
|Revenue: | |2,390,784 | | |
| | | | | 2,271,854 |
|-------------------------+------+------------+-----+------------|
|Estimated PW CHCF-A | 0.40%| |0.31%| |
|Revenue: | |4,781,568 | | |
| | | | | 4,543,709 |
|-------------------------+------+------------+-----+------------|
|Estimated PW CHCF-B | 0.30%| |0.24%| |
|Revenue: | |3,586,176 | | |
| | | | | 3,407,782 |
|-------------------------+------+------------+-----+------------|
|Estimated PW CTF | 0.59%| |0.46%| |
|Revenue: | |7,052,813 | | |
| | | | | 6,701,971 |
|-------------------------+------+------------+-----+------------|
|Estimated PW CASF | 0.14%| |0.11%| |
|Revenue: | |1,673,549 | | |
| | | | | 1,590,298 |
|-------------------------+------+------------+-----+------------|
|Estimated PW CPUC User | 0.18%| |0.14%| |
|Fees: | |2,151,706 | | |
| | | | | 2,044,669 |
|-------------------------+------+------------+-----+------------|
|Total 911 and Public | 3.46%| $ |2.72%| $ |
|Purpose Fees | |41,360,563 | | 39,303,081 |
----------------------------------------------------------------
BOE estimates the costs to administer the program to be
$9,132,000 for 2014-15, $9,565,000 for 2015-16, $10,837,000
for 2016-17, and $10,668,000 for 2017-18 and ongoing.
Comments
1. Purpose of the bill . According to the author: Everyone
who uses phone services pays a small monthly fee as part of
their bill to help fund 911 and support other important
AB 300 -- 8/14/13 -- PageR
state and local programs. However, for the fastest growing
segment of wireless users, prepaid wireless services, there
is no collection mechanism for them to pay these fees.
Approximately 25% of all wireless customers are now prepaid
customers. The current system leaves state and local
governments without a reliable, predicable means for
ensuring collection of these revenues, depriving state 911,
local governments and other public purpose programs of
critical funding. By modernizing state [statutes] and
implementing a method of point-of-sale collection on
prepaid wireless services, AB 300 ensures revenue for 911
systems, local governments and other public purpose
programs. It would modernize our collection system to
ensure that prepaid wireless customers pay the same,
existing taxes and fees that all other phone customers are
currently required to pay. In doing so it will ensure more
funding to maintain effective and efficient 911 systems,
while also benefitting local governments and other public
purpose programs.
2. Revenue . Opponents of this measure say that its
provisions are "not only expensive, but also superfluous"
because the bill creates a complicated and expensive
structure of the collection and payment of public purpose
surcharges. By changing the collection and the incidence
of tax to point of sale, the revenue is absorbed by
administrative costs, and less certain. Furthermore,
according to the CPUC, it is illegal for the CPUC
surcharges to be paid for at point-of-sale; BOE
administered 911 tax is not subject to such an
interpretation. The uncertainty inherent in any projection
of future revenue is exacerbated by the fact that prepaid
service is a rapidly growing market segment and the need to
estimate what portion of service will be for calls within
California versus interstate. Industry claims that revenue
will increase because carriers now calculate surcharges
based on wholesale cost of prepaid service, which is at
least ten percent less than the retail price of service
that the surcharge required by this bill will be based on.
Industry also points to the bill requiring the surcharge to
apply to minutes of service for data rather than just voice
minutes currently, which will increase revenue, especially
as customers' data use increases.
The CPUC counters that the industry's prediction of a
revenue windfall is an illusion because carriers currently
AB 300 -- 8/14/13 -- PageS
are required to remit based on retail sales revenue,
administrative costs would outweigh any best-case revenue
increase, and estimates do not accurately account for the
30 percent of prepaid service the providers currently sell
directly to the customer rather than wholesale. In
addition, the CPUC claims that the bill's requirement to
calculate the prepaid surcharge rate based on a "safe
harbor" estimate of 63 percent of revenues being intrastate
is problematic. According to the CPUC, at least one
prepaid service provider (TracFone, which has about 35
percent of California's prepaid market share) currently
remits based on a "books and records" methodology that
shows 84 percent of revenues as intrastate.
To at least partially address the revenue concerns and
provide some safeguards the bill will be amended in three
ways:
1. Impose a three year sunset. The bill will express
legislative intent that for the sunset to be extended,
the provisions of the bill must generate as much
revenue as the current collection method.
2. Require carriers to pay as they do today for one
year while the new tax begins
3. Change the intrastate percentage on which the tax
is based to be calculated by the CPUC on real
intrastate numbers.
3. Regressive tax . By changing the incidence of the tax
to point-of-sale and given the nature of the prepaid
marketplace, AB 300 is a regressive tax because it imposes
additional taxes on those least likely to be able to afford
them. AB 300 does not contemplate taxes and fees on
lifeline services although AB 1407 (Bradford) imposes taxes
and fees on lifeline customers. Lifeline services provide
access to telephony services for people that meet certain
poverty requirements. The Committee may wish to amend the
bill to ensure that no additional taxes and fees are
imposed on lifeline services.
4. Local taxes . While there is dispute over revenue as it
relates to the CPUC surcharges and 911-tax, most local
governments are not receiving the UUTs prescribed by their
local ordinances for pre-paid mobile services. In support
of the measure, Muni Services cites the growing pre-paid
sector and concerns that the associated revenue loss to
local governments will continue to grow. The following
AB 300 -- 8/14/13 -- PageT
information relates to UUT ordinances statewide:
There are 157 public agencies with UUT ordinances.
125 of those UUT ordinances apply to wireless.
Approximately 75 of the 125 wireless UUT ordinances
are voter-approved. About a 5-10 of those 75 voter
approved ordinances use "older" definitions that may
or may not qualify under AB 300.
62 cities have a "technology neutral" definition of
wireless which is likely to comply with AB 300.
To accommodate the retailers, AB 300 prescribes only eight
rates that local governments may assess as UUTs, instead of
the over 40 rates that exist today. In doing so, some
local governments may have to amend their ordinances to be
"technology neutral" or apply to pre- and post-paid
wireless. For those that do not change their ordinances or
hold new elections, this bill may make local governments
liable for imposing an unlawful tax. Proposition 218
provides that an ordinance must go back before the voters
if an ordinance provides a new, increase or extended tax.
Muni Services, a supporter of AB 300, does not believe the
provisions of this bill violate Proposition 218. The
Committee may wish to consider amending the bill to clarify
who is liable if a tax is found to be unlawful due to the
prescriptive nature of AB 300.
5. Vendor compensation . As amended, AB 300 compensates
indirect vendors (retail locations not owned by a carrier)
for collecting this new tax at point-of-sale with 2% of the
MTS surcharge (PUC & 911 taxes and surcharges) at every
sale (they are not compensated on the sales price, see
example). There are only three other taxes-each of them
for specific products-that compensate vendors for tax
collection: tire fee, e-waste and timber tax. The
California Retailers Association provides two examples of
the increased workload that justifies vendor compensation:
(1) a large retailer sells 300 variations of prepaid cards
they sell. (2) A medium sized retailer has 19 brands of
cards. Within those brands, there are 97 different options
for amounts and types of cards (domestic, international,
specific country such as Mexico, etc.) Each of those has
to be programmed separately in order to collect the proper
fee. Until recently, there was no vendor compensation in
the state because the privilege of doing business in a
state with such a large population was compensation enough.
The Committee may wish to consider the precedential nature
AB 300 -- 8/14/13 -- PageU
of vendor compensation.
6. Federal preemption . The central policy question of AB
300 is whether point-of-sale is the appropriate method to
collect taxes and surcharges for prepaid wireless services.
The 911 fee is a consumer tax with no federal preemption
or interaction. The PUC argues that federal law pre-empts
the provisions of AB 300 for purposes of PUC surcharges and
argue that these surcharges cannot be imposed at
point-of-sale. The PUC cites two legal arguments: first,
federal statute clearly says that it is the responsibility
of the carriers (not a third party retailer) to remit
universal service funds. Second, federal statute also says
that regulations adopted by states shall not be
inconsistent with the FCC's rules. FCC rules specify that
carriers employ either safe harbor, traffic study, or books
and records methods to calculate universal surcharge
revenues owed. As of July 1, 2013, 30 states have enacted
(6 are yet implemented) the National Conference of State
Legislatures model legislation which imposes the E911 fee
(either flat or percentage based) on each "retail
transaction." Supporters of this measure state that there
has been no legal challenge on any of them. The committee
may wish to amend the bill to add a provision that the
bill's terms are not severable; if one provision is
stricken, all are.
8. Related Legislation . AB 2545 (de La Torre, 2010)
required a public process to recommend a prepaid wireless
service collection mechanism and was essentially a study
bill. It failed passage on the Senate floor.
AB 1050 (Ma, 2012) required a point-of-sale collection of
state and local surcharges on prepaid service somewhat
similar to this bill. AB 1050 died in the Senate Committee
in Governance and Finance.
Assembly Actions
Assembly Floor (65-1)
Assembly Appropriations Committee (17-0)
Assembly Revenue and Taxation Committee(9-0)
Assembly Utilities and Commerce Committee(13-0)
AB 300 -- 8/14/13 -- PageV
Support and Opposition (8/14/13)
Support : CTIA-The Wireless Association (Sponsor); American
Federation of State, County and Municipal Employees
(AFSCME); AT&T; Boost ; California Association of Counties
(CSAC); California Fire Chiefs Association ; California
Professional Firefighters (CPF); Muni Services; City of
Santa Barbara; City of Lynwood; California Hispanic
Chambers of Commerce; California Communications
Association; Chambers of Commerce Alliance of Ventura and
Santa Barbara Counties; Fresno Chamber of Commerce; Greater
Bakersfield Chamber of Commerce; Lancaster Chamber of
Commerce; Los Angeles Chamber of Commerce; San Francisco
Chamber of Commerce; South Bay Association of Chambers of
Commerce; Torrance Chamber of Commerce; Valley Industry and
Commerce Association; Sprint; T-Mobile; TracFone Wireless;
US Cellular; Verizon; Virgin Mobile; California's
Independent Telephone Companies.
Opposition : California Grocers Association; California
Public Utilities Commission; Consumer Federation of
California; Division of Ratepayer Advocates; The
Greenlining Institute; The Utility Reform