AgdaPkt 2006-07-24 - Laserfiche WebLink

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5.4A Page 1 July 24, 2006 Subject Utility User's Tax Recommendation Adoption of an urgency ordinance and introduction of a regular ordinance amending Sections 32.501, 32.502 and 32.519 of the Redwood City Municipal Code to clarifythatthe City shall continue its long-standing practice of applying its utility users tax ordinance to intrastate services in a manner consistent with the intent and purpose of the city's utility users tax ordinance and consistent with the Internal Revenue Service's interpretatiofl of the Federal Excise Tax (the "FEToi)prlorto Notice 2006-50 issued by the Treasury Department on May 25, 2006. Outcome The adoption of this urgency ordinance and approval of a regular ordinance will clarify that the City will continue its historical application of its utility user's tax to intrastate services without an increase in existing taxes. Background Since 1983, th~City of Redwood City has imposed a telephone user's tax on every person in the City using intrastate telephone communication services. Presently, the tax is imposed at a rate of 5% of the charges billed. On May 25, 2006, the Trea~ury Department issued Notice 2006-50 in which it announced it is conceding the legal dispute over whether it should be applying the FET to long distance telephone calls where the charges for the services are ba~ed on time only and not time and distance. Effective August 1, 2006, the Internal Revenue Service will no longer apply the FET to long distance and bundled long distance services (including wireless, VolP and credit card calls). Bundled service is local and long distance service provided under a single plan that does not separately state the charges for local telephone service. The Treasury Department's May 25 Notice reverses its prior Revenu;e Rulings and long-held interpretation of the FET, and ignores its own statutory and aqministrative bundling rules. Analysis The proposed amendment is not intended to be construed as imposing a new tax, or extending or inC?~easing an existing tax. Instead, by this amendment, the City reaffirms that it will continue i~~ long-standing practice of applying its utility users tax to intrastate services in a manner consistent with the intent and purpose of the City's utility users tax ordinance and consistent with the I RS I interpretation of the FET prior to Notice 2006-50 issued by the Treasury Depa~ment on May 25,2006. Pursuant to Se~tion 16 of the City Charter. the proposed urgency ordinance will become effective immediately upon its adoption. Adoption of the proposed urgency ordinance is necessary for the immediate preservation of pUblic peace, health or safety. The total _.