BILL ANALYSIS �
AB 1050
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1050 (Ma) - As Amended: April 25, 2011
REVISED
Majority vote. Fiscal committee.
SUBJECT : Telecommunications: taxes and fees.
SUMMARY : Requires the State Board of Equalization (BOE), upon
an appropriation being made for that purpose, to convene a
working group, by March 1, 2012, to develop recommendations for
an equitable and uniform method of collecting state and locally
authorized "communications taxes, fees, and surcharges" from
prepaid communications end-use consumers. Specifically, this
bill :
1)Contains the following legislative findings and declarations:
a) Maintaining effective and efficient telecommunications
services, 911 emergency systems, telecommunications-related
public policy programs to promote universal service, and
various local programs across the state benefits all
citizens;
b) Under existing law, "communications taxes, fees, and
surcharges," including the Emergency Telephone Users
Surcharge Act, telecommunications universal service
surcharges, local 911 emergency system surcharges, and
utility user taxes, are important funding mechanisms to
assist state and local governments with the deployment of a
variety of important services and programs to the citizens
of this state;
c) Providers of communications services are required to
collect and remit "communications taxes, fees, and
surcharges" on various types of communication service
revenues, as provided by existing state or local law;
d) Under existing law, there is a method for collecting
"communications taxes, fees, and surcharges" from postpaid
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communications end-use consumers. However, there is no
method for collecting "communications taxes, fees, and
surcharges" from prepaid end-use consumers;
e) Consumers purchase prepaid communications services at a
wide variety of retail locations and other distribution
channels, as well as through service providers;
f) Prepaid communications services are an important and
growing segment of the communications industry; and,
g) To ensure equitable contributions from end-use consumers
of postpaid and prepaid communications services, there
should be standardization with respect to the method used
to collect "communications taxes, fees, and surcharges"
from end-use consumers of prepaid communications services.
2)Requires the working group to report its recommendations to
the Legislature by April 30, 2013.
3)Specifies that the BOE working group shall include stakeholder
representatives, including the Public Utilities Commission
(PUC), the California Technology Agency, local government
entities, law enforcement agencies, mobile telephony service
providers, retailers, and consumer groups.
4)Defines "communications taxes, fees, and surcharges" to mean
any and all state and local-authorized taxes, fees, and
surcharges on communications services, including:
a) Surcharges authorized under the Emergency Telephone
Users Surcharge Act;
b) Charges authorized by the PUC, including:
i) The California High Cost Fund-A program surcharge;
ii) The California High Cost Fund-B program surcharge;
iii) The Deaf and Disabled Telecommunications Program
surcharge;
iv) The California Teleconnect Administrative Committee
program surcharge;
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v) The California Advanced Services Fund program
surcharge;
vi) The Moore Universal Telephone Service Act; and,
vii) PUC reimbursement fees.
c) Local 911 or access line taxes, fees, or surcharges;
and,
d) Local utility user taxes.
EXISTING LAW imposes a surcharge on amounts paid for intrastate
telephone communication service under the Emergency Telephone
Users Surcharge Act. Surcharge amounts are paid to the BOE on a
monthly basis by telephone service suppliers. Revenues are
credited to the State Emergency Telephone Number Account, to be
spent for limited purposes, including to pay the Department of
General Services for its costs administering the "911" emergency
telephone number system.
FISCAL EFFECT : The BOE estimates that this bill would not
impact revenues that BOE collects for the state.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Recently, there has been a growing demand for prepaid
wireless services, where consumers pay for services (i.e.
minutes) "pay-as-you-go," without entering into contracts.
Around 80% of prepaid services are purchased from
traditional retailers, such as grocery stores, drug stores,
and big-box stores, rather than directly from a carrier.
Since most prepaid customers do not have a direct
relationship with a carrier, and do not enter into a
contract with a monthly bill, there is no statewide
mechanism to collect the same communications taxes and fees
from prepaid wireless customers that are currently
collected from postpaid wireless services.
2)This bill is sponsored by the Cellular Telecommunications
Industry Association ( CTIA), which states:
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�W]e have begun the process of convening all impacted
stakeholders into a working group including local
governments, public safety groups, providers of 911
response, consumer groups, retailers, wireless carriers,
the Board of Equalization and the CPUC. We are confident
that we can emerge from this stakeholder process with
recommendations for a uniform, statewide point-of-sale
collection methodology for prepaid services that would be
competitively neutral, uniformly administered and
transparent to consumers, similar to that adopted in 14
other states.
3)Proponents state, "AB 1050 will provide needed modernization
of the current monthly-billing-system of collection, which
does not work for prepaid communications services, as well as
establish a reliable means of revenue collection that will
benefit state and local government entities and law
enforcement agencies."
4)Opponents state, "The local Utility Users Tax is a local
general-purpose tax and should not be included in the broad
review of taxes, fees and surcharges on prepaid
telecommunications services that the BOE would be required to
conduct under the provisions of AB 1050. This bill is a
direct impingement upon local control of local fees or taxes."
5)The BOE notes the following in its staff analysis of this
bill:
a) The BOE is involved in one telephone communications tax
program, the state's 911 Surcharge, and has no involvement
in the seven various �PUC]-administered surcharges, the
over 100 city and county �utility user taxes], or other
local EMS fees or taxes that involve telephone
communications . "�T]he BOE is responsible for the tax
administration of the state 911 Surcharge; the �PUC] and
the �California Technology Agency] are involved in the
identification and licensing of service suppliers and
setting the 911 Surcharge rate. Except for the state 911
Surcharge, the BOE has no knowledge, expertise, or opinion
regarding the various state and local surcharges, taxes,
and fees imposed on telecommunication services. Therefore,
it would not seem that the BOE is qualified to act as the
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convener."
b) BOE staff is willing to be involved in the process as an
interested party . "This measure would require the BOE, as
the convener, to be a main participant in conducting a
public process to develop and make a recommendation for an
equitable and uniform method of collecting communications
taxes, fees, and surcharges from end-user consumers of
prepaid communication services. The BOE is committed to
providing quality customer service. As part of that
commitment, the BOE provides information and advice to the
Legislature, industry groups, taxpayers, and other
interested parties regarding tax and fee programs that the
BOE currently administers.
"The proposed BOE involvement and responsibilities are
beyond the BOE's scope and mission. Other than the 911
Surcharge, the BOE does not have a role or expertise in the
tax collection or administration of the various state and
locally authorized taxes, fees, and surcharges, and it
would be unable to make policy decisions or take on the
responsibility for taxes it has no expertise in.
"Moreover, this bill could set a precedent for more of
these types of "public process" recommendations to the
Legislature, which could jeopardize the BOE's core mission
as a tax administration agency.
"BOE staff is willing to be involved in the process as an
interested party with regard to its duties under the state
911 Surcharge Law, but not as a principal convener of a
"public process" making recommendations on issues that are
outside its area of expertise.
"Alternatively, the author may want to consider placing the
responsibility for a legislative recommendation with the
Legislative Analyst's Office or an independent commission
that can then rely on the interested parties to provide
technical assistance and information."
c) The service suppliers currently pay the 911 Surcharge
for prepaid communication services . "The 911 Surcharge Act
requires the BOE to enforce the provisions of that Act and
authorizes the BOE to prescribe, adopt, and enforce rules
and regulations relating to its administration and
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enforcement. In 2000, the BOE amended Regulation 2401,
Definitions, and adopted Regulation 2403, Prepaid Telephone
Calling Cards, to clarify the application of the 911
surcharge on dollar amounts or value of minutes deducted
upon use from prepaid telephone cards. These regulations
were adopted to address confusion regarding the application
of tax to prepaid telephone calling cards within the
telecommunications industry.
"Although there are different forms of prepaid
communication services, in general, the service suppliers
have been reporting the 911 Surcharge consistent with
existing statutes and regulations."
d) Technical amendment . "This bill proposes to add Section
41127.9 to the �Revenue and Taxation Code]. It is
suggested that either the bill language be uncodified or
that it be moved to an appropriate place in the Public
Utilities Code or the Government Code since the 911
Surcharge Act, where it is currently placed, pertains
solely to the collection and administration of the 911
Surcharge."
6)Committee Staff Comments :
a) Background : A number of surcharges and taxes are
assessed on telecommunications services by both the state
and local governments. These taxes and surcharges are
collected by telecommunications carriers and remitted, as
directed, to the appropriate authorities.
i) PUC-mandated telecommunications surcharges :
Currently, there are six PUC-mandated telecommunications
surcharges, referred to as "all-end-user" surcharges,
which support various public programs in California. The
rates vary from program to program and are adjusted
periodically, based on forecasted demand. The six
current programs are:
(1) The Universal Lifeline Telephone Service,
which provides discounted basic telephone services to
eligible California households;
(2) The Deaf and Disabled Telecommunications
Program, which serves Californians with hearing,
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vision, speech, cognitive and mobility disabilities;
(3) The California High Cost Fund-A, which
provides a source of supplemental revenues to 14 small
local exchange carriers to minimize any rate disparity
between rural and metropolitan areas;
(4) The California High Cost Fund-B, which
provides subsidies to carriers of last resort for
providing basic local telephone service to residential
customers in high-cost areas;
(5) The California Teleconnect Fund, which
provides a 50% discount on selected telecommunications
services to qualifying schools, libraries,
government-owned and operated hospitals and health
clinics, and community based organizations; and,
(6) The California Advanced Services Fund, which
promotes universal service in unserved and underserved
areas in the state by awarding funding to qualifying
certificated applicant carriers.
ii) PUC user fee : Each year, the PUC determines an
appropriate fee to be paid by telecommunications carriers
to help finance the PUC's annual operating budget. This
fee is based on the telecommunications carrier's gross
intrastate revenue, excluding inter-carrier sales,
equipment sales and directory advertising.
iii) The Emergency Telephone Users Surcharge Act : As
noted above, existing law imposes a surcharge on amounts
paid for intrastate telephone communication service.
Service suppliers are required to collect the surcharge
at the time of billing.
iv) Local taxes, fees and surcharges : Finally, BOE
notes that there are a range of locally imposed taxes,
fees, and surcharges on communications services.
b) Why does this bill task the BOE with convening a working
group to develop recommendations? : As noted above, this
bill would require the BOE to convene a working group to
develop recommendations for an equitable method of
collecting communications taxes, fees, and surcharges from
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prepaid consumers. While the BOE is currently responsible
for administering the "911 surcharge," it possesses no
familiarity with the various PUC-administered surcharges or
the wide array of locally-imposed charges. Given this
fact, it seems inappropriate to task the BOE with the lead
role in convening a group of stakeholders.
c) Is legislation really needed to convene a working
group? : Committee staff appreciates the author's desire to
facilitate a thoughtful process for recommending sound
policy in this area. At the same time, however, it is not
clear to Committee staff why legislation is needed to bring
the relevant stakeholders together. The BOE has already
stated its willingness to participate in such a process.
Alternatively, the author could ask the Legislative
Analyst's Office for its recommendations on the subject.
d) Related legislation : AB 2545 (De La Torre), of the
2009-10 Legislative Session, would have required the PUC to
conduct a "public process" to develop recommendations for
an equitable and uniform method of collecting state and
locally-imposed communications taxes, fees, and surcharges
from prepaid consumers. AB 2545 died on the Senate
inactive file.
e) Double-referral : This bill was double-referred with the
Assembly Committee on Utilities and Commerce, which passed
this bill out on a 13-0 vote on April 11, 2011. For
additional discussion of this bill, please refer to that
committee's analysis.
f) Technical amendments :
i) On page 2, line 8, insert "surcharges imposed
pursuant to" after "including";
ii) On page 3, line 28, insert "representatives from"
before "the Public"; and,
iii) On page 3, line 33, strike "local" and insert
"locally".
REGISTERED SUPPORT / OPPOSITION :
Support
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CTIA (sponsor)
AT&T
Opposition
Los Angeles County Board of Supervisors
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098