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Collection Method for Taxes on Prepaid Mobile Services Sent to Governor

September 19, 2013
Last Thursday the Legislature passed and sent to Governor Brown AB 300 (Perea), a bill that establishes a collection method for state and local taxes and fees levied on consumers of prepaid mobile telephone services. 
 
Because of the nature of prepaid wireless services, cities have not had a reliable means to collect utility users taxes (UUTs) and local 9-1-1 fees. AB 300 will provide a workable collection method. 
 
Provisions of AB 300 are the product of nearly four year negotiations between proponents, lawmakers and stakeholders. Similar measures have been introduced in previous sessions, but always stalled out before garnering legislative approval primarily due to a lack of policy consensus. This year, however, negotiations were more productive with several compromises reached in policy discussions. The League has been active in both previous and current session negotiations to act as a conduit for all California cities and ensure the final product contains workable policies.  
 
While AB 300 is not perfect, after years of tough negotiations cities signaled to the League that the final provisions were acceptable. The bill includes a three year sunset provision to allow time to test the success of the bill. League staff will be watching closely for problems that need to be addressed should the bill become law. In particular cities should be aware of the following provisions of the bill:
  • Tiered Rates for UUTs: AB 300 creates a standardized tiered-rate and collection method for local UUTs. The current local rate will determine which tier a city falls in. The tiers are: 0 percent, 1.5 percent, 2.5 percent, 3.5 percent, 4.5 percent, 5.5 percent, 6.5 percent, 7.5 percent and 9 percent.
  • Retailer Compensation: Retailers will receive 2 percent of revenues collected for compensation to collect. This is the first time that cities will pay retailer compensation for collection of a tax. Cities have agreed to this compensation only because of the very unique situation with prepaid mobile telephone services, and the League has communicated to the Legislature that this does not signal an acceptance of the retailer compensation for other taxes. 
  • Board of Equalization Administrative Costs: The Board of Equalization (BOE) has estimated that administrative costs will be approximately $10 million annually, but has not provided a breakdown of how much will be the state portion, and how much will be the local portion. 
If cities have a position on AB 300, they should submit a letter to the Governor now. As the League did not have a position, a sample letter is not available; however, League staff is available to answer any questions. Please contact League Legislative Representative Jennifer Whiting if your city would like to submit a position letter or have any AB 300 related questions or concerns.


 
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