Contributed by: Donald Maynor, Esq.
No one would disagree that digital communications, and especially digital video products, are one of the fast growing segments of our economy, especially along generational lines. Landline phones are becoming extinct, and smartphones, laptops and tablets now have access to a kaleidoscope of digital products.
In California, approximately 100 of the 150 local agencies with a utility users’ tax ordinance have voter-approved ordinances, many with technology-neutral definitions that apply to “video services,” regardless of technology for delivering those services. In many of these successful local ballot measures, the cities were able to lower the UUT rate as a result of closing the “technology loopholes,” which often discriminated against older and poorer residents who could not afford investing in the latest technology. The average UUT rate among California public agencies is approximately 5.5%.
In approving the “tax modernization” ballot measures by overwhelming margins, the local voters also gave the “tax administrator” the responsibility of monitoring new developments in the “communication/video” landscape, and issuing periodic “administrative rulings” that would give tax-collecting service providers necessary guidance for collecting the City’s voter-approved UUT in a non-discriminatory manner. The goal of such rulings is to assure competitive fairness (for providers of video services) and tax fairness for the consumers of such services.
Over the top TV (OTT) or Streaming Video
The “modern” UUT ordinances specifically apply to “video programming” regardless of the technology used to deliver such programming. Traditionally, “video services” were only provided by cable TV companies. During the last decade, however, “video programming” similar to those programs provided over cable TV have been provided by a variety of companies using new technologies, including over satellite and broadband. Under federal law, “satellite TV” is exempted from local taxes.
Two of the largest providers of broadband networks, Verizon and AT&T began offering cable-like services several years ago over their broadband networks (FIOS TV and U-verse). These two companies currently collect and remit UUT on their video programming services sometimes called IP-TV.
More recently, an increasing number of companies (many new ones) are now offering video programming services over the internet, called “over the top tv” or OTT or Streaming Video. These OTT services are similar to the video programming provided by CATV, satellite, and Verizon (Fios) and AT&T. Approximately, 19 states are currently applying their sales taxes to OTT services (California does not tax digital goods like OTT).
OTT Tax Ruling Requested
At the request of certain OTT providers, California cities with UUT ordinances that apply to “video services,” regardless of technology, are now in the process of determining whether to issue an “administrative ruling” regarding the application of UUT to OTT, with a prospective “start-up” date (likely in early 2017). Importantly, the action of the local tax administrator of applying and interpreting the existing local law to a particular video service, must be done in a manner that is consistent with the requirements of Proposition 218 (no new tax without voter approval), as well as the “nexus” laws regarding the duty to collect a tax. In doing so, the goal is to honor the voters’ mandate.
Those California cities that issue an administrative ruling regarding OTT will do so in collaboration with the OTT industry representatives and other entities (tax software companies) responsible for tracking the application of local taxes on utility services.
Donald Maynor, Esq. is a long-time Bay Area municipal law lawyer specializing in utility users’ taxes. For the past twenty-five years, Mr. Maynor has participated with MuniServices in a UUT Program assisting approximately 60 UUT public agencies with the implementation of their UUT ordinances. Mr. Maynor authored much of the “modern UUT ordinance” that has received voter-approval in many California jurisdictions.