The COVID-19 pandemic changed many things, including our use of voice communications. When our work environment shifted from the office to home, we started communicating talking to each other on landlines, mobile phones, and the computer. Generally speaking, voice activity drives the amount of UUT on telecommunications bills. However, even though voice communications over landlines, wireless, and VoIP increased, the UUT collections did not increase significantly. Although this outcome seems counter-intuitive, there are a couple of things to keep in mind.
First, many mobile phone users have switched to unlimited data plans from voice minutes/data plans. Even though these “bundled” plans are called out in most municipal codes, there are different methods by which providers can allocate plan dollars to voice-related activities and services. While we may see minutes used on our mobile phone bills, we may not see any UUT being charged on those minutes in the billing cycle. The quick transition to virtual meetings through VoIP providers such as Zoom and Microsoft Teams is worth mentioning too. Local agencies are now seeing a spike in UUT revenues from companies that provide virtual meeting technologies. This is a trend that is expected to continue for quite some time.
The second significant change that has occurred over the last several years is the increase in video streaming services. Historically, Americans signed up with a traditional cable company to provide television services. More recently the number of cable subscribers has declined as more of us have opted into subscription services like Netflix, Hulu, and the like. Many of these linear video programming services are not currently collecting UUT from their users even though municipal codes have been updated to include specific language to capture these utility providers.
There are various lawsuits in other parts of the country specifically related to this topic and at least one has sided with local government in respect to UUT. The primary legal basis used by local governments is that the streaming companies should be treated like cable companies because they are using the existing physical infrastructure to deliver their services and therefore should be subject to the rules that govern franchise agreements. However, these streaming companies argue that they have no physical infrastructure and are therefore not technically in the public right of way. While there are no lawsuits in California, there is one provider, Sling TV LLC, that has been collecting and remitting UUT to local agencies.
Another issue that is important to understand relates to electric utility providers and more specifically to Southern California Edison (SCE). Over the last several years local agencies have seen a decline in the UUT revenue collected and remitted by SCE. Some of these reductions are directly related to the switch to solar power by many residents and businesses. Through various legislative actions, solar energy is currently exempt from UUT.
The bigger issue, being litigated by the City of Torrance, et al., pertains to SCE’s application of the California Climate Credit on utility bills. To provide some background, the California Climate Credit is a credit bill that is part of California’s efforts to fight climate change. The credit is from a state government program that requires power plants, natural gas providers, and other large industries that emit greenhouse gases to buy carbon pollution permits from auctions managed by the Air Resources Board. The credit on your electricity and natural gas bills is your share of the payments from the State’s program.
In short, SCE chose to reduce the utility bill by the amount of the credit before applying the UUT. It is important to note that most municipal codes are written such that gross revenues, as defined, are subject to UUT. The effect of this practice reduces the revenue collected and remitted to local governments. The court, on appeal, has sided with local government, but there are still some potential legal challenges to the ruling.
What was for decades a truly stable source of local government revenue has been significantly impacted over the last several years. This is concerning because utility users taxes are instrumental to ongoing municipal operations and continuity of service delivery to communities across California.
Additionally, more information will be available at the [CSMFO Annual Conference in San Diego] in a session titled “A Practical Approach – Utility Users Tax Administration and Lessons Learned.” Vikki will be joined by Brigitte Elke, Finance Director from the City of San Luis Obispo to share experiences, perspectives and learn some best practices for managing the UUT portfolio in your agency.
Ms. Beatley has over 23 years of local government experience and more than 30 years of experience in finance and treasury/cash management. She was most recently the Director of Finance/City Treasurer for the City of Seal Beach where she had responsibility for all accounting operations, treasury management, financial analysis, and financial statement preparation, utility user’s tax, and parking permit program. Additionally, she was responsible for cashiering, meter reading, and utility billing for the City’s Water and Sewer.
She was also responsible for the financial oversight of the Successor Agency. Prior to that, she was the CFO for Mesa Consolidated Water District and an Investment/Revenue Officer for the City of Orange. Ms. Beatley is also an Adjunct Lecturer in the Master of Public Administration program at California State University Long Beach where she teaches Government Budgeting and Finance. She holds a Bachelor of Arts in Finance from California State University Fullerton and an Executive MBA from the University of Phoenix.
