BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 300
Author: Perea (D)
Amended: 8/22/13 in Senate
Vote: 27 - Urgency
SENATE ENERGY, UTIL. & COMMUNIC. COMMITTEE : 6-0, 7/2/13
AYES: Padilla, Fuller, Cannella, Hill, Knight, Wright
NO VOTE RECORDED: Corbett, De León, DeSaulnier, Pavley, Wolk
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 8/21/13
AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu
SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/30/13
AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg
ASSEMBLY FLOOR : 65-1, 6/6/13 - See last page for vote
SUBJECT : Telecommunications: prepaid mobile telephony
services: state surcharge and fees: local charges
collection
SOURCE : CTIA The Wireless Association
DIGEST : This bill, on or after January 1, 2015 and until
January 1, 2018, changes the point of collection for prepaid
mobile services taxes (MTS) from service providers to retailers
and clarifies the imposition of tax directly on the consumer, as
opposed to the carrier.
ANALYSIS :
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Existing law:
1. Establishes the State Board of Equalization (BOE) with
duties that include administering tax and fee programs that
provide revenue for state and local government.
2. 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.
3. Establishes the Public Utilities Commission (PUC) to
regulate utilities, including telephone corporations, and
establishes the PUC Reimbursement Fee to be collected from
utility customers and remitted to the PUC to fund its
operations.
4. Requires the PUC to administer several universal service
programs, to ensure that all customers have communications
service, funded by surcharges on intrastate communications
service.
5. Requires the Public Safety Communications Office (PSCO)
within the Office of Emergency Services (OES, formerly within
the California Technology Agency) to administer the state's
911 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 PSCO.
6. Authorizes cities and counties to collect User Utility Taxes
(UUTs) on utility and communications service that providers
collect from end users and remit to the BOE, which transfers
the funds to local agencies.
This bill will do all of the following:
1. Standard prepaid MTS surcharge . Changes the rate and method
of computation and collection of taxes and surcharges for
mobile pre-paid wireless services (MTS surcharge) in
California. Specifically, aggregates the PUC User Fee, the
state's six universal service surcharges, and the 911
surcharge into one "prepaid MTS surcharge" that will be
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determined by the PUC annually. The PUC may adjust the
surcharges to account for any past overcollection or
undercollection from prepaid service in the previous year.
The PUC must prepare a public document explaining the
calculation of the fee.
2. Point of sale collection . Imposes taxes (MTS surcharge plus
local charges) directly on the consumer at the point of sale.
Specifically, a seller must collect the taxes from the
prepaid consumer at the time of the "retail transaction" as a
percentage of the retail sales price. Requires the taxes 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. 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."
3. Surcharge liability . Imposes the MTS surcharge and local
charges on a prepaid consumer rather than the seller;
however, requires the seller to collect and remit the MTS
surcharge and local charges. Any unreturned amounts the
seller represents and collects as the MTS surcharge and local
charges owed by the prepaid consumer that are not actually
owed constitutes a seller's debt to the state, or jointly to
the state, for purposes of collection on behalf of, and to
the local jurisdiction imposing the charge, respectively.
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. The seller may refund those
amounts whether or not it submits the overpayment to the BOE
and no corresponding credit or refund is secured.
Provides that every prepaid consumer is liable for the MTS
surcharge and local charges until paid to the state.
However, a prepaid consumer's payment to a registered seller
relieves the consumer from further liability. Nothing in
this bill imposes any obligation upon a seller to take any
legal action to enforce the collection of the surcharge and
local charges imposed.
4. Vendor compensation . Provides that all retailers that sell
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prepaid telephones shall receive 2% compensation of the MTS
surcharge and local charges for each sale.
5. Administration . Requires BOE to administer and collect the
MTS surcharge pursuant to the Fee Collection Procedures Law
(FCPL), which 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.
Authorizes BOE to prescribe and adopt tax administration and
enforcement regulations including, but not limited to,
collections, reporting, refunds, and appeals. In addition,
this bill authorizes the BOE to prescribe, adopt, and enforce
any emergency regulations as necessary to implement this
bill.
Requires BOE to:
A. Establish procedures for a seller to document when a
sale is not a retail transaction.
B. Establish procedures for sharing specified MTS
surcharge collection information upon the request of the
PUC or OES.
After registering with BOE, the MTS surcharge and local
charges is due and payable electronically to BOE quarterly on
or before the last day of the next month following each
calendar quarter.
6. 911 surcharge rate . The surcharge rate established pursuant
to the 911 Surcharge Act as of October 1 of each year, will
be the surcharge rate established for intrastate telephone
communication service in this state, by dividing the costs
that OES estimates for the current fiscal year of 911 plans
approved, less the available balance in the State Emergency
Telephone Number Account in the General Fund, by its estimate
of the charges for intrastate telephone communications
services, the intrastate portion of prepaid telephony
services, and VoIP service to which the surcharge will apply
for the next succeeding calendar year. The surcharge rate
shall not be greater than 0.75% or less than 0.50%. In
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making its computation of the charges applicable to the
intrastate portion of prepaid mobile telephony services, OES
shall use the computation method developed by PUC. The OES
must notify BOE of the surcharge amount collected and the
surcharge amount applicable by
October 15 of each year.
Requires OES to prepare a summary of the calculation of the
proposed surcharge and make it available on its Internet
site. The summary shall contain the prior year's revenues to
fund 911 costs, projected expenses and revenues from all
sources, and the rationale for adjustments to the surcharge.
7. PUC end-user surcharges . Requires the PUC to compute,
commencing October 1, 2014:
A. A reimbursement fee as a percentage of the sales price
for prepaid mobile telephony services.
B. The cumulative of the telecommunications universal
service surcharges as a percentage of the sales price for
prepaid mobile telephony services.
Does not restrict the PUC's authority to adjust the
reimbursement fees or universal service fees or require that
they only be adjusted once annually.
Provides the PUC with enforcement authority "to ensure the
proper remittance over retail transactions" where the prepaid
MTS provider is also the seller. However, the PUC must
collaborate with BOE in the exercise of its enforcement
authority.
8. MTS surcharge calculation . Requires BOE to calculate the MTS
surcharge rate annually, no later than November 1 each year
commencing in 2014, by combining the state 911 surcharge
rate, all the end user PUC rates, and the PUC reimbursement
fee.
9. Standard local charges . Creates 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,
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rules, or regulation concerning the imposition of a local
charge upon the consumption of prepaid mobile telephone
services, to the extent those provisions are inconsistent
with the provisions, as specified. 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.
Provides that the any local taxes, pursuant to the eight
rates in this 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.
Notwithstanding any other law, on and after January 1, 2015,
the bill would replace all UUTs with the eight rates in this
bill.
Parallels the local sales and use tax collection (Bradley
Burns, transactions and use tax) in prescribing how locals
shall contract with BOE. Specifically, the local agency must
certify to BOE:
A. 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.
B. The amount of the local 911 charge or the applicable
tiered rate for a utility user tax.
States that if a local agency increases its local charge, 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 1 of the
next calendar year. If the local charge is no longer
accurate, no longer imposed, or has decreased, the local
agency must notify the BOE, who must promptly post the
recalculated rate.
10. Total taxes . Requires BOE to post on its Internet Web site,
no later than each December 1, the combined total of the
rates of the 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
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year beginning April 1 following the posting.
11. Retail sale location . To account for internet sales, this
bill prescribes various ways that a sale occurs in the 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:
A. 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.
B. 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 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.
C. 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.
D. The mobile telephone number associates with a location
in this state.
12. Transaction location . For a known-address transaction, this
bill allows the seller to collect the MTS surcharge and local
charges that corresponds to the prepaid consumer's five digit
postal ZIP Code.
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. 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.
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B. A seller collects that amount from the prepaid
consumer.
C. A seller remits the amount to BOE in compliance, as
specified.
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.
13. 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.
14. Revenues . States that BOE must deposit the funds as follows:
A. 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.
B. The PUC surcharges portion of the MTS surcharge would
be deposited into the Prepaid MTS PUC Account, which this
bill also creates in the MTS Surcharge Fund.
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15. Local Act administration . 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, as
specified. Those limitations, for which the city or county
is responsible, include:
A. Defending any claim regarding the validity of the
ordinance in its application to prepaid MTS.
B. Interpreting any provision of the ordinance, as
specified.
C. Responding to specified customer claims for refund.
D. 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.
E. 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.
Applies existing disclosure laws to any third party contract,
and prohibits contingent fee arrangements as payment for
services rendered.
Provides for a double collection of charges in 2015 by
allowing the simultaneous collection of the following:
A. The PUC surcharge.
B. The state 911 surcharge.
C. The new total tax, which includes the state 911
surcharge, all PUC surcharges, and would be remitted to
the BOE.
Beginning January 1, 2016, only the new total tax will be
collected until January 1, 2018, when all provisions of this
bill will be repealed.
Background
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Telephone service traditionally has been provided on a postpaid
basis where customers get a monthly bill for calls made and
services received during the previous month. Under prepaid
service, in contrast, 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 available minutes are exhausted.
According to industry estimates, prepaid wireless is an
expanding multi-billion dollar business nationally, 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. Lack of a long-term
contract is making prepaid service increasingly popular for all
wireless customers.
About 30% of prepaid service is sold directly by a provider to a
customer, ether online, over the phone, or otherwise. The other
70% is sold through retailers such as grocery stores and big-box
stores, to which providers sell prepaid cards on a wholesale
national basis, typically not knowing in which state the cards
will be sold or the service used.
Statewide fees and surcharges . Existing law imposes a fee on
intrastate communications service to support the state 911
system administered by PSCO, a fee to pay for the PUC's
operations, and six separate surcharges to pay for the following
state universal service programs administered by PUC:
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 the
PUC's universal service goal.
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Deaf and Disabled Telecommunications Program (0.2%) . The
PUC implemented three telecommunications programs for
California residents who are deaf, hearing impaired, or
disabled.
California Teleconnect Fund (0.59%) . Another program
established by the PUC 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 (0.164%) . 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 program
was extended beyond January 1, 2013, pursuant to SB 1040
(Padilla, Chapter 317, Statutes of 2010), which also
established two new program elements: the Rural and Urban
Regional Broadband Consortia Account and the Broadband
Infrastructure Revolving Loan Account.
Lifeline Telephone Service (1.15%) . This program provides
discounted basic telephone (landline) services to eligible
California households.
All of these fees are assessed as a percentage of a customer's
intrastate service, calls or data sent within the state of
California. These state and local surcharges are easily
determined and collected for post-paid service and included on
customer bills after the service is used. With prepaid service,
neither providers nor retailers selling prepaid service know in
advance how many minutes will be intrastate calls or whether
they will be made within the city or county where the
transaction occurs. For prepaid service sold at retail, there
is no direct billing relationship between the user and the
provider.
Local fees and surcharges . Local 911 fees and UUTs are assessed
on telephony service provided within the jurisdiction of the
city or county imposing the tax. UUTs range up to 11%, but not
all cities and counties impose them. About 100 cities have
utility tax ordinances imposing charges on prepaid service at
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about 35 different rates. Currently, with respect to prepaid
service, local fees and UUTs remain largely unpaid.
Current collection of surcharges on prepaid service . Given
growing customer demand for prepaid service, and lack of a
convenient way to determine intrastate use and bill prepaid
customers, 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 this bill's sponsor, CTIA, 31 states
have adopted point-of-sale legislation based on the model
statute, although none of these other states has multiple
surcharges like California. Most of the other states have only
a state 911 fee, with a few also having local 911 fees.
Point-of-sale legislation has been introduced in California
since 2009 but failed passage.
TracFone is the nation's, and California's, largest provider of
prepaid wireless service and provides only prepaid service,
unlike other carriers that offer both postpaid and prepaid
wireless service. In 2003, TracFone sought clarification
through PUC staff about whether PUC fees and surcharges apply to
its service. TracFone claims to have relied on staff indicating
that it was exempt. The PUC opened a formal investigation
against TracFone in 2009, and in November 2011 issued a decision
concluding that TracFone is a telephone corporation subject to
its jurisdiction and is required to pay PUC fees and surcharges
(D.12-02-032). In March 2013, a state appellate court denied
TracFone's petition for review of that decision. A second phase
of the PUC's proceeding is pending to determine the amount
TracFone owes in past due fees and surcharges and whether a
penalty is appropriate. Staff is seeking $12 to $20 million in
unpaid surcharges and fees, plus interest and penalties.
As a result of this proceeding, according to the PUC, TracFone
and all other prepaid providers are now collecting and remitting
all necessary state surcharges and fees from their postpaid and
prepaid customers. All telecommunications carriers, postpaid
and prepaid, calculate and report universal service surges
online using the Telecommunications and User Fees Filing System
and remit the owned monies to the PUC. The PUC 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
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business needs," which may include embedding the surcharges and
fees into the rates for service.
Because California has authority to impose surcharges only on
communications within its state borders, a customer's intrastate
minutes of use must be estimated in connection with certain
services. The Federal Communication Commission allows for three
different methods to make this allocation, including books and
records (actual data), traffic studies, or a "safe harbor"
estimates that about 63% of service revenues is for intrastate
calling and 37% interstate. AB 841 (Buchanan, 2011), which
required VoIP providers to pay state universal service program
surcharges, endorsed these same three methods for determining
intrastate VoIP service subject to the surcharge. TracFone,
which has about 35% of California's prepaid market share,
currently remits surcharges based on a "books and records"
methodology that shows that 84% of revenues are a result of
intrastate calls.
Prior Legislation
AB 1050 (Ma, 2012) would have required a point-of-sale
collection of state and local surcharges on prepaid service
somewhat similar to this bill. The bill died in the Senate
Governance and Finance Committee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
BOE estimates that it would incur annual costs of at least
$9 million to $11 million (special funds) to administer and
collect the new tax beginning in 2014-15 not including
certain costs yet to be determined.
PUC estimates annual costs of $350,000 for four permanent
positions. The PUC would also need approximately $250,000 in
start-up costs in 2014-15.
This bill permits MTS sellers to retain 2% of collected
surcharges for reimbursement of costs. The annual cost would
be $800,000 to $1 million.
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Unknown annual costs to OES to determine the state 911
system surcharge.
Additional revenues of approximately $40.3 million in 2015
for the double-collection of surcharges from consumers.
Annual costs, likely in the hundreds of thousands of
dollars, from the General Fund and various special funds to
the state as a user of telephony services.
SUPPORT : (Verified 8/30/13)
CTIA - The Wireless Association (source)
AFSCME
AT&T
Boost
California Communications Association
California Fire Chiefs Association
California Hispanic Chambers of Commerce
California Professional Firefighters
California State Association of Counties
California's Independent Telephone Companies
Chambers of Commerce Alliance of Ventura and Santa Barbara
Counties
Cities of Burbank, Cathedral City, Culver City, Glendale,
Lakewood, Lynwood, Modesto, Montclair, Palm Springs,
Pasadena, Rancho Cordova, Redwood City, Sacramento, Salinas,
San Luis Obispo, Santa Ana, Santa Barbara, Santa Monica, and
Selma
City and County of San Francisco
Fresno Chamber of Commerce
Greater Bakersfield Chamber of Commerce
Lancaster Chamber of Commerce
Los Angeles Chamber of Commerce
Muni Services
San Francisco Chamber of Commerce
South Bay Association of Chambers of Commerce
Sprint
T-Mobile
Torrance Chamber of Commerce
TracFone Wireless
US Cellular
Valley Industry and Commerce Association
Verizon
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Virgin Mobile
OPPOSITION : (Verified 8/30/13)
California Grocers Association
Public Utilities Commission
Consumer Federation of California
Division of Ratepayer Advocates
The Greenlining Institute
The Utility Reform Network
ASSEMBLY FLOOR : 65-1, 6/6/13
AYES: Achadjian, Alejo, Allen, Atkins, Bigelow, Blumenfield,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Conway, Cooley, Dahle, Daly,
Dickinson, Eggman, Fong, Frazier, Beth Gaines, Garcia, Gatto,
Gomez, Gonzalez, Gorell, Grove, Hagman, Hall, Harkey, Roger
Hernández, Jones, Jones-Sawyer, Levine, Linder, Lowenthal,
Maienschein, Mansoor, Melendez, Mitchell, Morrell, Mullin,
Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,
V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Stone, Ting,
Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, John A.
Pérez
NOES: Donnelly
NO VOTE RECORDED: Ammiano, Bloom, Chávez, Chesbro, Fox, Gordon,
Gray, Holden, Logue, Medina, Salas, Skinner, Yamada, Vacancy
JG:k 8/31/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
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