BILL ANALYSIS Ó
AB 300
Page 1
GOVERNOR'S VETO
AB 300 (Perea)
As Amended September 6, 2013
2/3 vote
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|ASSEMBLY: |65-1 |(June 6, 2013) |SENATE: |31-4 |(September 11, |
| | | | | |2013) |
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|ASSEMBLY: |72-2 |(September 12, | | | |
| | |2013) | | | |
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Original Committee Reference: U. & C.
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 911 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)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.
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5)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.
6)Provides that all retailers that sell prepaid telephones
receive 2% compensation of the MTS surcharge and local charges
for each sale.
7)Requires BOE administer and collect the MTS surcharge,
establish procedures for a seller to document when a sale is
not a retail transaction, and establish procedures for sharing
specified MTS surcharge collection information upon the
request of the PUC or Office of Emergency Services (OES).
8)Requires OES to prepare a summary of the calculation of the
proposed surcharge and make it available on its Internet Web
site.
9)Requires PUC to annually compute, commencing October 1, 2014,
PUC's reimbursement fee and six universal service program
fees, to post notice of those fees on its Internet Web site
and to notify the BOE of the amounts, which would be adjusted,
as specified.
10)Requires BOE to calculate the MTS surcharge rate annually by
combining the state 911 surcharge rate, all the end user PUC
rates, and the PUC reimbursement fee.
11)Creates statewide uniformity for user utility taxes (UUTs)
assessed on prepaid mobile phone services and preempts
existing provisions pertaining to the tax or charge rate, base
and method of collection contained in all local ordinances,
rules or regulations concerning the imposition of a local
charge upon the consumption of prepaid mobile telephone
services, to the extent those provisions are inconsistent with
the new provisions, as specified.
12)Provides that any local taxes, pursuant to the eight rates in
this bill, must be paid at the same time and in the manner as
that described in the "point of sales" provisions, provided
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that on or before September 1, 2014, the local agencies enters
into a contract with BOE.
13)Specifies that a local agency must certify to BOE:
a) 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
results from collection pursuant to the contract.
b) The amount of the local 911 charge or the applicable
tiered rate for a utility user tax.
14)Requires BOE to post on its Internet Web site annually 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 year beginning April 1 following the posting.
15)Prescribes various ways that a sale occurs in the state, both
an in-store purchase and if the consumer's address is in the
state.
16)Allows the seller to collect the MTS surcharge and local
charges that corresponds to the prepaid consumer's five digit
postal zip code.
17)States the MTS surcharge applies to the entire prices where
prepaid mobile telephony services are sold in combination with
mobile data services or any other services or products for a
single price with certain exceptions.
18)Specifies how BOE must deposit the funds.
19)Requires BOE to perform all functions incident to the
collection of the local charges of a city or county. BOE must
collect the local charges in the same manner as the MTS
surcharge, as specified.
20)Applies existing disclosure laws to any third party contract,
and prohibits contingent fee arrangements as payment for
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services rendered.
21)Requires wireless carriers providing prepaid mobile telephony
service to continue to remit to the PUC the surcharges
established for telephone corporations on the intrastate
portion of the revenues received for prepaid mobile telephony
service through December 31, 2015, in addition to the any
amounts collected and remitted to the PUC pursuant to the MTS.
22)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.
23)States the intent of the Legislature that prepaid customers,
who qualify for the Universal Lifeline Telephone Service,
shall not pay the prepaid MTS surcharge when purchasing
prepaid mobile telephony services at a carrier-owned retail
location.
The Senate amendments :
1)Change the rate and method of computation and collection of
taxes and surcharges for mobile prepaid wireless services in
California.
2)Impose the MTS surcharge and local charges on a prepaid
consumer rather than a seller; however, requires the seller to
collect and remit the MTS surcharge and local charges.
3)Provide that all retailers that sell prepaid telephones shall
receive 2% compensation of the MTS surcharge and local charges
for each sale.
4)Provide that carriers waive the right to the 2% vendor
compensation when they are the seller of the prepaid mobile
services.
5)Require OES to prepare a summary of the calculation of the
proposed surcharge and make it available on its Internet Web
site.
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6)Create statewide uniformity for UUTs assessed on prepaid
mobile phone services.
7)Prescribe, to account for Internet sales, various ways that a
sale occurs in the state, both an in-store purchase and if the
consumer's address is in the state.
8)Allow the seller to collect the MTS surcharge and local
charges, for a known-address transaction, that corresponds to
the prepaid consumer's five digit zip postal zip code.
9)Impose a three-year sunset.
10)State legislative intent that for the sunset to be extended,
the provisions of the bill must generate as much revenue as
the current collection method.
11)Require carriers to pay as they do today until December 31,
2015, while the new tax begins.
12)Change the intrastate percentage on which the tax is based to
be calculated by the PUC on real intrastate numbers.
13)Extend the exemption of the prepaid MTS surcharge to eligible
LifeLine consumers.
14)Strike the reseller language in the Lifeline section and
moved the LifeLine exemption to the Revenue and Taxation Code.
FISCAL EFFECT : According to the Senate Appropriations
Committee, the Board of Equalization (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. PUC would also need approximately $250,000 in
start-up costs in 2014-15. The bill permits MTS sellers to
retain 2% of collected surcharges for reimbursement of costs.
The annual cost would be $800,000 to $1 million. Unknown annual
costs to OES to determine the state 911 system surcharge.
Additional revenues approximately $40.3 million in 2015 for the
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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.
COMMENTS :
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 PUC's operations, and several surcharges to pay for state
universal service programs administered by PUC as follows:
a) California High Cost Fund A and B;
b) Deaf and Disabled Telecommunications program;
c) California Teleconnect Fund;
d) California Advanced Services Fund;
e) Lifeline Telephone Service.
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These state fees total about 2.5% of intrastate service.
Local 911 fees and 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.
3)Proposed collection method : Starting January 1, 2015, this
bill imposes on prepaid consumers a prepaid MTS surcharge,
which sellers shall collect at the time of each retail
transaction. Specifically, this surcharge shall be imposed as
a percentage of the sales price. Beginning January 1, 2016,
this prepaid MTS surcharge shall be imposed in lieu of any
charges imposed under the Emergency Telephone Users Surcharge
Act for prepaid MTS. The new MTS surcharge shall also be
imposed in lieu of the Public Utilities Commission surcharges
for prepaid MTS. Sellers shall be required to register with
the State Board of Equalization (BOE) and the prepaid MTS
surcharge shall be due and payable to the BOE quarterly.
This bill also enacts the Local Prepaid Mobile Telephony
Services Collection Act. Specifically, on and after January
1, 2015, local charges imposed by a local agency on prepaid
MTS shall be collected by sellers in the same manner as the
prepaid MTS surcharge described above. Specifically, this
bill suspends the authority of cities and counties to impose a
utility user tax on the consumption of prepaid MTS at the rate
specified by ordinance. Instead, the local agency shall use a
tiered rate structure, with rates ranging from 0 to 9%. The
bill also suspends the authority of cities and counties to
impose a 911 charge applicable to prepaid MTS at the rate
specified by ordinance. Instead, the city or county shall use
a statutorily specified rate structure. Applicable charges
will be collected by the BOE and held in trust for the local
taxing jurisdiction. The BOE is authorized to contract with a
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third party for purposes of administering this act.
In addition, the bill authorizes third-party sellers to deduct
and retain 2% of the amounts collected from prepaid consumers
for the prepaid MTS surcharge and local charges. Carriers
waive the right to the 2% vendor compensation in their stores
when they are the seller of the prepaid mobile services.
4)Impact on surcharge revenue : Proponents of this measure
predict this measure will bring a revenue windfall to the
state. Thus opponents argue against this claim noting that
because carriers currently 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% of prepaid service the providers currently
sell directly to the consumer.
To address many of these concerns and provide some consumer
safeguards, this bill imposes a three-year sunset. The bill
will: 1) express legislative intent that for the sunset to be
extended, the provisions of the bill must generate as much as
revenue as the current collection methods, 2) require carriers
pay as they do today for one year while the new tax begins,
and 3): change the intrastate percentage on which the tax is
based to be calculated by the PUC on real intrastate numbers.
5)Treatment of eligible LifeLine consumers : The LifeLine
program provides discounted basic telephone service to
eligible low-income California households. Presently there is
no LifeLine program for wireless though the PUC has an open
proceeding to develop the rules for such a program. Earlier
versions of this bill did not contemplate taxes and fees on
lifeline services. The bill extends the exemption of the
prepaid MTS surcharge to eligible LifeLine consumers. The
exemption is applied only to the amount paid for the portion
of the prepaid mobile telephony service that the lifeline
program specifies is exempt from the surcharges and fees that
comprise the prepaid MTS surcharge.
6)Sunset provision : Finally, the provisions of the Prepaid
Mobile Telephony Services Surcharge Collection Act and the
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Local Prepaid Mobile Telephony Services Collection Act
automatically sunset on January 1, 2018, to evaluate the
program.
GOVERNOR'S VETO MESSAGE :
This bill would establish an additional system for
collecting and remitting fees, surcharges and taxes
applicable to prepaid mobile services. These charges
would be collected from prepaid customers and remitted
to the Board of Equalization, while fees collected
from postpaid customers would continue to be remitted
directly to the Public Utilities Commission, State 911
Fund and local governments.
There is no question that the state needs an effective
system for capturing local taxes related to the sale
of prepaid phones. The solution, however, proposed by
this bill is duplicative, complex and will result in
significant and unnecessary costs to the state.
I encourage the author to partner with the local
governments and State Agencies affected by these
revenues and craft a bill with a more cost effective
solution.
Analysis Prepared by : DaVina Flemings / U. & C. / (916)
319-2083
David Ruff / REV. & TAX. / (916) 319-2098
FN: 0002940