HomeMy WebLinkAboutItem 02 Telecommunications Business License Tax AGENDA ITEM SUMMARY Meeting Date: 2/10/2014
Meeting Type: Work Session
Staff Contact/Dept.: Len Goodwin, DPW Staff Phone No: x3685
Estimated Time: 30 minutes
S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Provide Financially Responsible and
Innovative Government Services
ITEM TITLE: TELECOMMUNICATIONS BUSINESS LICENSE TAX
ACTION REQUESTED:
Staff requests Council direction on implementing a telecommunication business license tax.
ISSUE
STATEMENT:
Should the City implement a telecommunication business license tax on all telecommunications companies using rights of way and operating within the city limits by changing Springfield Municipal Code 4.600 Definitions and 4.706 Fee for
Use of Public Ways?
ATTACHMENTS:
1: Council Briefing Memorandum 2: Proposed Ordinance
DISCUSSION/
FINANCIAL
IMPACT:
Currently, under Springfield City Code, a telecommunications company with
facilities in the City’s right-of-way pays a fee for use of the right-of-way. Other
cities charge utilities a fee a franchise fee or a business license fee.
Incumbent Local Exchange Carriers (ILEC), companies leftover from the break-up
of the Bell monopoly in the 1980s, are taxed differently from other utilities creating a disparity in the market. Under State statute, cities are limited to charging ILECs
7% on the revenue from local exchange service for use of a city’s right of way. “Local Exchange Service” revenue is only that revenue that results from the dial tone access charge, approximately $12.60 per month. Revenue generated from the
other telecommunication services—such as cellular backhaul, voicemail, call forwarding, caller identification, call waiting, and other modern amenities—are not calculated as a part of the 7% fee. In contrast to ILEC, other utilities (such as
Comcast) are charged a fee of 5% of gross revenue—essentially all of the revenue the company earns.
CenturyLink, the local ILEC, pays the City seven percent of the local exchange charge (that charge is about $12.60 a month per customer). On the other hand,
Comcast, CenturyLink’s principal competitor in Springfield, pays based on five
percent of the total bill (about $65 per month per customer).
The 2013 Oregon Legislative Assembly attempted but failed to resolve the
discrepancy. Another attempt to change is law is anticipated for the 2014 session, however, the proposal currently discussed has clear disadvantages for cities. As an
alternative, staff suggests that the City change the right-of-way user fee from a fee for using the right-of-way to a tax on doing business. The tax would not be subject to the preemption. No change is proposed for the rate—currently five percent of
gross revenue.
M E M O R A N D U M City of Springfield
Date: 2/10/2014
COUNCIL
BRIEFING
MEMORANDUM
To: Gino Grimaldi, City Manager
From: Len Goodwin, DPW Director
Subject: TELECOMMUNICATIONS BUSINESS
LICENSE TAX
ISSUE: Should the City implement a telecommunication business license tax on all telecommunications companies using rights of way and operating within the city limits
by changing Springfield Municipal Code 4.600 Definitions and 4.706 Fee for Use of
Public Ways?
COUNCIL GOALS/
MANDATE:
Provide Financially Responsible and Innovative Government Services
BACKGROUND:
Currently, under Springfield City Code, a telecommunications company with facilities in
the City’s right-of-way pays a fee for use of the right-of-way. Other cities charge utilities a fee a franchise fee or a business license tax.
Incumbent Local Exchange Carriers (ILEC), companies leftover from the break-up of
the Bell monopoly in the 1980s, are taxed differently from other utilities creating a
disparity in the market. Under State statute, cities are limited to charging ILECs 7% on the revenue from local exchange service for use of a city’s right of way. “Local Exchange Service” revenue is only that revenue that results from the dial tone access
charge, approximately $12.60 per month. Revenue generated from the other
telecommunication services—such as cellular backhaul, voicemail, call forwarding,
caller identification, call waiting, and other modern amenities—is not calculated as a part of the 7% fee. In contrast to ILEC, other utilities (such as Comcast) are charged a fee of 5% of gross revenue—essentially all of the revenue the company earns.
The distinct fees resulted when the 1989 Legislative Assembly passed ORS 221.515 and
preempted local governments’ abilities to set fees for the use of the right-of-way for ILECs. Charges on other providers, however, were not limited. Ultimately, this creates an anomaly and has significant impact on both the customers and the cities. The
inconsistent fees results in consumers’ decisions based on based on government charges,
rather than on the basis of the services or charges generated by the carrier.
One potential, and undesirable, effect of the anomalous treatment of the telephone
providers is that it injects government revenue and tax policy into a customer’s decision
about telephone service. Customers should be making their decision on choosing a
telephone provider on the basis of the services and fees charged by the carrier, not on the
basis of what government charges the carrier is obligated to pay. As much as possible, those fees and charges should be consistent, regardless of carrier. While there are
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obvious cases where there should be differences, for example between carriers who use public rights of way and those who do not, these differences should be based on the
nature of the business, not on legislative policy decisions.
In addition to the sound business reasons for making local fees transparent, there is a
risk of litigation should the change not be made. Section 253(c) of the 1996 Act provides
that “Nothing in this section affects the authority of a State or local government to …require fair and reasonable compensation form telecommunications providers, on a
competitively neutral and non-discriminatory basis, for use of public rights-of-way on a
non-discriminatory basis…” Although no court has held that the preemption by State
law creates an inconsistency with the federal requirement, the allegation has been made
in a number of cases and may, in some future case, be found meritorious .In 2013, the Oregon Legislative Assembly considered a House Bill developed by Comcast—the
largest non-ILEC phone company— that proposed changes to resolve the distinction
between utilities. Under House Bill 2455-7 preemption would be eliminated, resulting
in every phone company charged on the same revenue formula basis. The Bill,
however, did not succeed despite the support from cities and the League of Oregon Cities.
During that same period, the City of Portland developed a local solution to address the
problem. Portland converted its existing right-of-way use fee to an approach that is not
subject to preemption. Portland revised its code to convert the existing right-of-way use fee to a business license tax imposed on companies that use the public right-of-way to
provide telephone service. Like Springfield, the right-of-way use fee was five percent—
that rate was not changed when the charge was converted from a fee to a tax. However,
the ability to capture more of the ILECs’ revenue, no longer limited to only local access
service revenue, resulted in a large increase in revenue for the City of Portland. Similarly changes to Springfield’s Code could produce significant revenue for the
General Fund. Staff hesitates to project an estimate at this time as CenturyLink has
declined to give the City information on its gross revenues.
The proposed changes would benefit the consumer by removing the element of distinct public fees and taxes from the decision on which telephone service to select. Even
though the changes would result in a small impact on individual customers the change
would make it possible for consumers to make a choice based on the quality and nature
of a company’s service. The tax would be at the same rate as presently in the Municipal
Code – 5 percent of gross revenue.
While CenturyLink challenged the Portland ordinance in Circuit Court last year, the
Court granted summary judgment to Portland. The case is now pending before the
Oregon Court of Appeals. There is no timetable for a decision but we believe that the
Circuit Court opinion is sound and will likely be sustained on appeal. Additionally, Comcast intends to introduce a new bill during the 2014 Legislative Assembly.
Unfortunately, however, Comcast is now working with the incumbent providers and is
likely to propose a measure that will severely undercut local governments—potentially
reducing the rates that all telecommunications companies pay. Therefore, at this time, staff recommends that the City move ahead with a local ordinance to follow the Portland model. If the ordinance is adopted before the Legislature acts, we believe that
Springfield’s action will not be preempted.
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RECOMMENDED ACTION: Staff recommends changing Springfield Municipal Code sections 4.600 Definitions and 4.706 Fee for Use of Public Ways to establish a
Telecommunication Business License Tax which will replace the Utility License Fee
currently used at the City. If Council concurs, they may direct staff to present an
ordinance in the form of the attached draft for a first reading and public hearing at the
next available opportunity.
Attachment 1 - Page 3
ORDINANCE NO. ___________
AN ORDINANCE AMENDING THE SPRINGFIELD MUNICIPAL CODE SECTION
4.600 “DEFINITIONS” TO ADD/AMEND DEFINITIONS TO
TELECOMMUNICATION BUSINESS LICENSE TAX, AND AMENDING SECTION
4.706 “FEES FOR USE OF PUBLIC WAYS”, SECTION 4.712 “REGULATORY FEES AND COMPENSATION NOT A TAX”, SECTION 4.714 “PENALTIES AND
INTEREST FOR LATE PAYMENT”, AND SECTION 4.716 “AUDITS”,
AND ADOPTING A SEVERABILITY CLAUSE
WHEREAS, telecommunication companies who have facilities in the City’s right-of-way
are required to pay a fee to the City for its use of its right-of-way;
WHEREAS, some cities charge such a fee as a franchise fee, while in other cities it may
be in the form of a business license or, as the City does, as a right-of-way use fee;
WHEREAS, an incumbent local exchange carriers (ILEC) is the default service provider
for a local telephone service and state statute limits the City to charging 7% on the
revenue from the local exchange service for use of the City’s right-of-way;
WHEREAS, local exchange revenue is the revenue from the dial tone access charge on a
bill and there is no limit on what cities may charge competitive local exchange carriers
(CLEC);
WHEREAS, the “phone company” of yesteryear has evolved over time and today’s
phone companies offer many different services did not previously exist including cell
backhaul, voice mail, call forwarding, caller identification, call waiting, and others; and
WHEREAS, the City now wishes to establish a method of charging for the true use of
the right-of-way.
NOW, THEREFORE, the City of Springfield ordains as follows:
Section 1. Section 4.600 “Definitions” of the Springfield Municipal Code is hereby
amended to include the following two additional definitions:
“Internet Service. Internet Service means a service that includes
computer processing applications, provides the user with additional or
restructured information, or permits the user to interact with stored
information through the internet or a proprietary subscriber network.
‘Internet service’ includes provision of internet electronic mail, access to
the internet for information retrieval, and hosting of information for
retrieval over the internet or the graphical subnetwork called the world
wide web. ‘Internet‘ means the international computer network of both
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federal and nonfederal interoperable packet switched data networks,
including the graphical subnetwork called the world wide web.”
“Public Safety Radio System. Public safety radio system means a radio
system whose licensing and use of radio transmitters by state and local
government and non-government entities is regulated by the Federal
Communications Commission as engaged in public safety activities.”
Section 2. Section 4.600 “Definitions” “Telecommunications service” of the Springfield
Municipal Code is hereby amended to read as follows:
“Telecommunications service. The providing or offering for rent, sale or
lease, or in exchange for other value received, of the transmittal of voice,
data, image, graphic and video programming or any other information
between or among points by wire, cable, fiber optics, laser, microwave,
radio, satellite or similar facilities, with or without benefit of any closed
transmission medium and without regard to the nature of the transmission
protocol employed, but does not include:
(1) cable television services;
(2) private telecommunications network services;
(3) over-the-air radio or television broadcasting to the public-at-
large from facilities licensed by the Federal Communications Commission
or any successor thereto;
(4) direct-to-home satellite service within the meaning of
Section 602 of the Telecommunications Act of 1996;
(5) services provided solely for the purpose of providing internet
service to the consumer;
(6) public safety radio systems;
(7) mobile service within the meaning of 47 U.S.C. § 153(33)
(2012); and
(8) services to devices exclusively utilizing electromagnetic
spectrum unlicensed by the Federal Communications Commission.”
Section 3. Section 4.706 of the Springfield Municipal Code is hereby repealed
and rewritten to read as follows:
“(1) (a) All persons providing utility services shall pay to the City of
Springfield a tax in the amount of five percent of gross revenues, as
herein defined, subject to limitations in other state or federal laws.
(b) All utilities owned and operated by the City of Springfield,
except a municipal utility as defined in ORS 757.005(1), shall pay to the
City of Springfield a utility tax fixed by resolution of the council.
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(c) All persons subject to the tax imposed by subsection (a) who
are parties to a franchise or public way use agreement shall be entitled to
a credit against the tax due under subsection 9a) in the amount of the
payments made pursuant to such franchise or public way use agreement.
(2) This fee shall be in addition, and not in lieu of any taxes, fees or
charges provided under this Municipal Code.
(3) Unless otherwise agreed such tax or fee shall be paid quarterly, on
or before the 45th day following the end of the calendar quarter.”
Section 4. Section 4.710 “Compensation for City Property” of the Springfield
Municipal Code is hereby amended to read as follows:
“If the right is granted, by lease, license, franchise or other manner, to
use and occupy city property other than the public ways for the
installation of facilities, the compensation to be paid shall be fixed by the
city and shall be separate and distinct from any taxes or fees imposed in
sections 4.702 through 4.708.”
Section 5. Repeal Section 4.712 “Regulatory Fees and Compensation Not a Tax” from
the Springfield Municipal Code.
Section 6. Section 4.714 “Penalties and Interest for Late Payment” of the Springfield
Municipal Code is hereby amended to read as follows:
“If any tax or fee provided for herein shall not be timely paid, a penalty in
the amount of 10 percent of such fee shall be assessed and due as of the
date the underlying tax or fee was due. Interest on taxes, fees and
penalties shall accrue at the rate of one and one-half percent per month,
commencing with the 15th day after the tax, fee or penalty shall be due.”
Section 7. Section 4.716 “Audits” for the Springfield Municipal Code is hereby
amended to read as follows:
“The city may examine the books and records of the utility to verify the
amounts due under a franchise, public way use agreement or fee or tax as
provided in section 4.706. The utility shall either maintain such books and
records at a location within the state of Oregon or, in the alternative, shall
provide them to the city when requested, at no expense to the city. In the
event such examination discloses an underpayment in the amount due to
the city of more than five percent, the city may impose a penalty of 10
percent of the additional amount due, plus costs of the audit, and interest
as provided herein from the original date due.”
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Section 8. Severability Clause. If any section, subsection, sentence, clause,
phrase or portion of this Ordinance is, for any reason, held invalid or unconstitutional by
a court of competent jurisdiction, such portion shall be deemed a separate, distinct and
individual provision and such holding shall not affect the validity of the remaining
portion hereof.
Section 9. Effective Date of Ordinance. This Ordinance shall take effect 30 days
after its adoption by the Council and approval by the Mayor.
ADOPTED by the Common Council of the City of Springfield this ___ day of _________,
2014, by a vote of _____ for and ____ against.
APPROVED by the Mayor of the City of Springfield this ______ day of ______________,
2014.
_______________________
Mayor ATTEST:
__________________________
City Recorder
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