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Exh 6AAGENDA ITEM #6A JULY 09, 2001 City of Atlantic Beach City Commission Meeting Staff Report Agenda Item: Resolution No. 01-14, of the City of Atlantic Beach electing not to require permit fees from providers of communication services, increasing the local communications service tax, and providing for notice to the Department of Revenue. Background This resolution addresses one aspect of the Communication Services Tax Simplification Tax Law that will go into affect October 1, 2001. Please read the attached overview of the law before uroceeding. The Florida League of Cities provided this executive summary that exnlains the overall arovisions of the new law. The following .resolution onh• addresses the nation as described on Wage three of the summary to add a small percentage to our pre-determined rate in lieu of charging uermit fees to communication service aroviders. This is a resolution for an election not to require and collect permit fees from any providers of communications services that use or occupy municival roads or rights-of- wav for the provision of communications services. and for an election to increase the local communications services tax by 0.12%. Each municipality and county is required to make an election regazding permit fees under section 337.401(3)(c), Florida Statutes (2000), and notify the Department of Revenue. Current law states that the Depaztment of Revenue must be notified of the election by certified mail postmarked on or before July 1, 2001. This date is changed in section 34, Enrolled CS/CS/SB 1878 by the 2001 Florida Legislature to July 16, 2001. A copy of section 337.401, Florida Statutes (2000), and a copy of the pertinent sections of Enrolled CS/CS/SB 1878 are attached for your review. The communications service tax rate was set by the state for the City of Atlantic Beach. The rate was set at an amount that is intended to keep our revenues neutral with respect to the current taxes and franchise fees that the new state law prohibits us from charging. The conversion rate for Atlantic Beach for October 2001 to September 2002 is 6.4%, the rate for October 2002 forward is 5.9%. The .12% referenced in tlvs resolution is intended to be in lieu of permit fees and would be added to this state determined rate. If we choose to charge permit fees, .12% would be deducted from the state determined rate. This is a total rate difference of .24% depending on the election made. Based on the elections of AGENDA ITEM #6A JiJLY 09, 2001 other cities made to date, Florida League of Cities has indicated that virtually every city has opted for the .12% increase rater than to charge a permit fee. The City's current permit fee is $25. The basis for revenue estimates for which the rate will apply for the City of Atlantic Beach from the providers according to the League of Cities was approximately $4.9 million. The rates as determined by the state will go into effect without any further action from the City. If the estimates are good, the City of Atlantic Beach should benefit from this tax reform by an additional $25,000 depending on sales. Currently we receive approximately $270,000 from taxes and franchise fees and the new rate should generate approximately $295,000. Based on recent estimates provided by the Florida League of Cities, the permit fee portion would generate $11,760 of revenues compared to the $1,500 to $1,800 we currently receive. If the City elects to require and collect permit fees from any providers of communications services that use or occupy our roads or rights-of--way, the City must abide by the permit fee restrictions provided in section 337.401(3)(c)l.a., Florida Statutes (2000), including, for example, a cap of $100 per permit. In addition, the state determined local communications services tax rate shall be automatically decreased by 0.12% (Section 337.401(3)(c)l.a A certified copy of this Resolution on permit fees and any tax increase will be sent by certified mail postmarked on or before July 16, 2001 to: Revenue Accounting - Communications Services Tax, Florida Department of Revenue, Post Office Box 6609, Tallahassee, Florida 32399-b609. Recommendation: To approve Resolution No. 01-14 Attachments: Executive Summary, Florida League of Cities' Analysis of the Communications services Tax Simplification Law Resolution No. 01-14 AGENDA ITEM #6A JULY 09, 2001 Executive Summary Florida League of Cities' Analysis of the Communications Services Tax Simplification Law During the 2000 Regular Session, the Florida Legislatuue created the "Communications Services Tax Simplification Law" (CS/CS/CS/SB 1338 or Chapter 2000-260, Laws of Florida), bringing with it the most comprehensive fiscal reform effort by the Legislature in the past fi$een years. The legislation creates a new simplified tax structure for communications services which will be codified in a new Chapter 202 of the Florida Statutes. It combines seven different state and Ioca2 taxes or fees and replaces these revenues with a two tiered tax composed of a state tax and a local option tax on communications services. The new tax structure will be effective October 1, 2001. The major provisions of the bill aze as follows. Tax Base The Simplified Communications Services Tax, both the state. tax and local communications services tax, is imposed on a broad base of telecommunications and cable services and does not discriminate between services or providers. The tax base includes the transmission of voice, data, audio, video, or other information services, including cable services, by or through any medium or method now in existence or herea$er devised, including electronic, radio, satellite, cable, optical, and microwave. This broad tax base reflects the intent that all communications services be taxed at the same rate and that taxes and fees be competitively neutral. Also, most existing disparities between state and local level taxes will be eliminated through the imposition of the Simplified Communications Services Tax. State and Local Communications Services Tax The Simplified Communications Services Tax is comprised of two separate and distinct taxes. A state tax and a local option communications services tax each having its own rate. Each tax wiIl be sepazately stated on a customer's bill. Effective October 1, 2001, the existing state sales tax on telecommunications services is replaced with a new state level communications services tax that will be combined for administrative purposes with the state gross receipts tax. The state will also tax direct-to-home satellite service and will distribute the proceeds to local governments through the Half-Cent Sales Tax Program. Effective October 1, 2001, the new local communications services taxes will automatically become effective in municipalities and the unincorporated areas of counties at rates developed using local government and industry data from 1999. (The revenues being replaced by the local communications services tax aze referred to as the "replaced revenue services.") While 1999 data is being used to establish rates to be implemented in 2001, local governments should not experience any decrease in revenues because the rates developed will be applied to taxable transactions occurring in the yeaz 2001. Therefore, while the rate being applied is based on informafion from 1999, the amount of revenues generated is not limited to the amount of revenue 1 AGENDA ITEM #6A JULY 09, 2001 generated in 1999, Thereafter, municipalities and counties will have the authority to alter by ordinance local communications services tax rates up to a maximum tax rate which duplicates their maximum revenue raising capacity under current law. Municipalities and charter counties will have a uniform maximum tax rate and non-charter counties will also have a uniform maximum tax rate. A municipality or county will not have a lower or different maximum tax rate if it has not actually exercised its maximum revenue raising capacity. So, under the bill, a municipality or county need not take any action to increase or preserve its maximum tax rate authority. For municipalities and charter counties, the replaced revenue sources consists of: the municipal public service tax on telecommunicafions (the municipal utility tax 7% and 10% options) including pre-paid calling arrangements; franchise fees on cable and telecommunications service providers; and, depending upon elections made at the local level, permit fees relating to placing or maintaining facilities in rights-of--way. For non-charter counties, the replaced revenue source consists only of franchise fees on cable service. The tax imposed by a municipality will apply to communications services that originate or terminate in Florida and aze chazged to a service address in the municipality. The tax imposed by a county will apply to communications services that originate or terminate in Florida and aze chazged to a .service address in the unincorporated area ofthe county. Tax Rates The state's Revenue Estimating Conference ("REC") is tasked with determining several new tax rates at the state and local government levels. The REC will make rate recommendations to the Legislature for consideration during the 2001 Regular Session. At the state level, the rates to be calculated include revenue-neutral rates for the gross receipts tax and the new state tax. At the local level, the REC will develop two tax rates: 1. an individual conversion or "initial" rate for each municipality and county; and 2. a maximum or "revenue capacity" rate that will be the same for all municipalities and charter counties (non- charter counties will have a different maximum rate). The conversion or "initial" rate will vary for each municipality and county based on the amount of revenues fo be replaced and the tax base within. each individual municipality and county. The conversion or "initial" rate for each municipality and county is designed to accomplish two main goals. First, allow a smooth transition at the local level by eliminating the necessity to re-enact or adopt various new tax rates due to the changes created by the Legislature. Second, to account for varying consumption patterns in some jurisdictions. It is possible that the conversion rate in certain jurisdictions will exceed the maximum rate established by the Legislature. Conversion or "initial" rates will become effective automatically on October 1; 2001. The REC will also calculate maximum or "revenue capacity" rates for local governments. The maximum rates will duplicate the current "capacity" of the replaced revenue sources, so that jurisdictions which currently levy taxes and fees at less than the legal maximums will not experience a reduction in revenue raising authority. Municipalities .and counties that have "initial" rates below the maximum rates will be authorized to increase the rates by ordinance up to the maximum rate. 2 AGENDA ITEM #6A JULY 09, 2001 Realizing that the data for the conversion or "initial" rates may not be accurate for each jurisdiction or certain unique consumption patterns may exist, the biII authorizes a municipality or county to exercise emergency taxing authority by ordinance if needed to replace any revenues. The bill establishes a process for emergency taxing authority. Franchise Fees Under the bill, municipal and county authority tc require franchise fees of telecommunications and cable service providers is eliminated as of October 1, 2001, when the new tax is effective. However, the local government tax rates aze increased to offset for lost franchise fee revenues and revenue capacity. The bill removes franchise fee authority primarily because similar communications services may be provided by service providers using local government rights-of--way and by service providers not using such rights-of--way. Under the bill, it is the intent to have all communications services providers in a particular municipality or county pay the same rate, making the amount paid by providers of similar services nondiscriminatory and competitively neutral. Municipalities and counties retain all non- franchise fee regulatory authority over the use of rights-of--way by communications services providers. Municipalities and counties also retain the authority to collect franchise fees from other users or occupants of the rights-of--way. Permit Fees The bill states an intent to treat all providers of communications services that use or occupy local government roads or rights-of--way for the provision of communications services in a nondiscriminatory and competitively neutral manner with respect to the payment of permit fees. Municipalities and counties aze given the option of continuing to require permit fees from communications services providers or increasing the local communications services tax rate in lieu of permit fees. Each municipality and county must make this one time selection and inform the Department of Revenue by July 1, 2001, with the election taking effect October 1, 2001. Municipalities and counties specifically retain all existing authority to require and collect permit fees from other users or occupants of the roads or rights-of--way and to set appropriate permit fee amounts. Public Rights-of--Way Regulations Municipalities and counties retain the authority to manage and regulate all users of the public rights-of--way, including communications services providers, under their police powers; however, the bill alters the franchising process effective January 1, 2001 and again effective October I, 2001. Section 337.401, Florida Statutes, is amended effective January 1, 2001 to state that municipalities and counties must treat telecommunications companies in a nondiscriminatory and competitively neutral manner when imposingrules or regulations governing the use of rights- of-way. Rules or regulations relating to telecommunications companies' use of rights-of--way must be generally applicable to all telecommunications companies and may not require a telecommunications company to apply for or enter into an individual license, franchise or other agreement as a condition of placing telecormunications facilities in the rights-of--way. 3 AGENDA ITEM #6A JULY 09, 2001 Telecommunications services providers are to be regulated under general ordinance provisions regulating the use of the rights-of--way. For municipalities and counties that have already adopted a general ordinance regulating the use ofrights-of--way by telecommunications service providers, the bill does not require adoption of a new ordinance. After January 1, 2001, in addition to any other notice requirements, a municipality or county that adopts an ordinance governing a telecommunications company placing telecommunications facilities in the rights-of--way must provide notice to the Secretary of State's office. This notice is to be published on the Secretary of State's website. The failure of a municipality or county to provide such notice does not render the ordinance invalid. Telecommunications services providers that use the rights-of--way must continue to pay the statutorily authorized franchise fees in section 337.401, Florida Statutes; (generally 1% for local services providers) until the Simplified Communications Services Tax becomes effective October 1, 2001. However, the payment of franchise fees is no longer contingent upon entering into franchise agreements. It is important to note that these changes to section 337.401, Florida Statutes, effective January 1, 2001, do not impact the franchising activities for cable service providers. All municipal and county authority regazding the negotiation of cable franchises, including in-kind contributions and community benefits, is retained as provided under federal law. However, section 337.401, Florida Statutes, is amended again effective October 1, 2001, and cable service providers will then have to be treated similazly to telecommunications services providers regarding the use of rights-of--way, but local governments continue to retain the authority to negotiate for in-kind services. Section 337.401(3)(e) and (f), Florida Statutes, are amended to remove franchise fee authority on communications services providers effective October 1, 2001. The authority of municipalities and counties to require franchise fees from providers of communications services, with respect to the provision of such services, is specifically preempted by the state. The bill identifies unique circumstances applicable to providers of communications services when compared to other utilities occupying municipal or county rights-of--way and states the reasons for the different treatment of communications services providers. The primary reason is that similar communications services may be provided by providers that use and do not use rights-of--way. It is the stated state desire to treat providers of communications services in a nondiscriminatory manner and to have the taxes, franchise fees and other fees paid by providers of communications services be competitively neutral. Municipalities and counties retain all authority to collect franchise fees from other users or occupants of the rights-of--way. Cable In-Kind Contributions While the bill does not propose immediate changes to the authority of municipalities and counties to negotiate for cable in-kind requirements, institutional networks, and contributions for the use or construction of public, educational, or governmental access facilities, the Legislature did recognize the uniqueness of such agreements. The Legislature noted that federal law currently only imposes on providers of cable service the requirements for in-kind contributions 4 AGENDA ITEM #6A JiTLY 09, 2001 and that under section 337.401, Florida Statutes, in-kind contributions cannot be required from. providers of telecommunications services. The Legislature also noted potential competitive inequities between cable service providers and providers of video programming through wireless, satellite, Internet; and other delivery systems. The Legislature has directed the appropriate legislative committees to study and evaluate, during the 2001 Regulaz Session, an appropriate state policy regarding these issues including the option of placing a value on in-kind contributions and including this as a part of the computation of replaced revenues under section 202.20, Florida Statutes. This would mean that the value of in-kind contributions could be offset by cable service providers against the tax imposed under Chapter 202, Florida Statutes. Advisory Committee The Department of Revenue will appoint an advisory committee to assist it on implementation and transition issues and identify issues for further legislative consideration. The committee is to be appointed by August 1, 2000 and include state and local government, industry, and consumer representatives. Centralized Administration The Department of Revenue will administer the state and local communications services taxes. Each provider will file a single monthly return, accompanied by a single payment, for the state and local communications services taxes. The Department will distribute the local taxes to the jurisdictions which levied them. The audit function for the state and local communications services taxes will also be centralized with the Department. The Department is authorized to retain a portion of revenue generated under the local communications services tax for administrative expenses. Assignment of Customers for Local Taxes One of the most important features regarding the local communications services tax and a key aspect of the bill is the concept of "situsing" or identifying taxable transactions within a particular municipality or unincorporated area. Local governments must work with the Department of Revenue to properly identify service addresses to each municipality. and county. If municipalities and counties fail to provide the Department with accurate service address information, the municipality of county risks losing tax proceeds that it should properly receive. The bill creates several options which a communications services provider may use to assign customers for local tax purposes. Miscellaneous Provisions The bill contains numerous other provisions that aze described in more detail in the full Analysis. These other provisions relate to: bonding authority; compensation of providers; customer tax refunds; tax billing and reporting; Department rulemaking; prepaid calling arrangements; effective dates; and an extensive repealer clause. As of June 10. ?000 5 AGENDA ITEM #6A JULY 09, 2001 RESOLUTION NO. 01-14 A RESOLUTION OF THE CITY OF ATLANTIC BEACH, FLORIDA, RELATING TO REQUII2ING AND COLLECTING PERMIT FEES FROM PROVIDERS OF COMMUNICATIONS SERVICES AND INCREASING THE LOCAL COMMUNICATIONS SERVICES TAX; PROVIDING FOR INTENT; PROVIDING FOR ELECTION NOT TO REQUII2E AND COLLECT PERMTT FEES; PROVIDING FOR ELECTION TO INCREASE LOCAL COMMUNICATIONS SERVICES TAX; PROVIDING FOR NOTICE TO THE DEPARTMENT OF REVENUE; PROVIDING FOR SEVERABILITY; PROVIDING AN EFFECTIVE DATE. WHEREAS, section 337.401(3)(c)1., Florida Statutes (2000), requires each municipality to make an election regarding the payment of permit fees by providers of communications services and further requires each municipality to inform the Department of Revenue of the election by certified mail by July 1, 2001; and WHEREAS, a municipality may require and collect permit fees from auy providers of communications services that use or occupy municipal toads or rights-of-way for the provision of communications services. However, to ensure competitive neutrality among providers of communications services, a municipality that elects to exercise its authority to require and collect permit fees will have an automatic reduction in the rate of the local communications services tax for the municipality, as computed under section 202.20(1) and (2), Florida Statutes (2000), as amended, by a rate of 0.12%; and WHEREAS, alternatively a municipality may elect not to require and collect permit fees from amp provider of communications services that uses or occupies municipal roads or rights- of-way for the provision of communications services. If the municipality elects not to require and collect permit fees, the total rate for the local communications services tax as computed under section 202.20(1) and (Z), Florida Statutes (2000), as amended, for that municipality may be increased by ordinance by an amount not to exceed a rate of 0.12%; and WHEREAS, section 34, Enrolled CS/CS/SB 1878 by the 2001 Florida Legislature further amends section 337.401(3)(c)1., Florida Statutes (2000), to state that the Department of Revenue must be informed of a municipality's election by certified mail postmarked on or before July 16, 2001; and WHEREAS, section 34, Enrolled CS/CS/SB 1878 by the 2001 Florida Legislature further provides that if a municipality elects not to require and collect. permit fees from any provider of communications services that uses or occupies municipal roads or rights-of--way for AGENDA ITEM #6A JULY 09, 2001 the provision of communications services, the total rate for the local communications services tax as computed under section 202.20(1) and (2), Florida Statutes (2000), as amended, for that municipality may be increased by resolution by an amount not to exceed a rate of 0.12%. The bIll further provides if a municipality elects to increase its rate effective October 1, 2001, the municipality shall inform the Department of Revenue of such increased rate by certified mail postmarked on or before July 16, 2001; and WHEREAS, section 337.401(3)(c)1., Florida Statutes (2000), further provides that if a municipality does not make an election and notify the Department of Revenue, it is presumed that the municipality elects not to require and collect permit fees from. any provider of communications services that uses or occupies municipal roads or rights-of--way for the provision of communications services, and such municipality will be authorized to increase its tax rate by an amount not to exceed a rate of 0.12%; and WHEREAS, whatever election the municipality makes, such election shall take effect on October 1, 2001. NOW, THEREFORE, BE IT RESOLVED BY THE CITY OF ATLANTIC BEACH, FLORIDA.AS FOLLOWS: SECTION 1. Intent. It is the intent of the City of Atlantic Beach, Florida to make an election under section 337.401(3)(c)1., Florida Statutes (2000); as amended by section 34, Enrolled CS/CS/SB 1878 by the 2001 Florida Legislature, regazding the City of Atlantic Beach, Florida's decision on whether to require and collect permit fees from any providers of conmmunications services that use or occupy municipal roads or rights-of--way for the provision of communications services. SECTION 2. Election Not to Require and Collect Permit Fees. The City of Atlantic Beach, Florida elects not to require and collect permits fees from any provider of communications services that uses or occupies municipal roads or rights-of-way for the provision of communications services. As provided in section 337.401(3)(c)1., Florida Statutes (2000), this election shall take effect October 1, 2001. SECTION 3. Election to Increase Local Communications Services Tax. Pursuant to section 337.401(3)(c)l.b., Florida Statutes (2000), as amended by section 34, Enrolled CSICS/SB 1878 by the 2001 Florida Legislature, the City of Atlantic Beach, Florida elects to increase its total rate for the local communications services tax as computed under section 202.20(1) and (2), Florida Statutes (2000), as amended, by an amount of 0.12%, and this election shall take effect October 1, 2001. SECTION 4. Notice to the Department of Revenue. AGENDA ITEM #6A JiJI,Y 09, 2001 The City of Atlantic Beacb, Florida directs that notice of the above elections be provided to the Departrnent of Revenue by certified mail by July 16, 2001, as provided in section 34, Enrolled CS/CS/SB 1878 by the 2001 Florida Legislature. SECTION 5. Severability. The provisions of this Resolution are declared to be severable and if any section, sentence, clause or phrase of this Resolution shall, for any reason, be held to be invalid or unconstitutional, such decision shall not affect the validity of the remaining sections, sentences, clauses, and phrases of this Resolution but shall remain in effect, it being the legislative intent that this Resolution shall stand notwithstanding the invalidity of any part. SECTION 6. Effective Date. The effective date of this Resolution/Ordinance shall be immediately upon its passage by the City of Atlantic Beach, Florida. Attest: MAUREEN KING City Clerk JOHN S. MESERVE Mayor, Presiding Officer Approved as to form and correctness: ALAN C. JENSEN, ESQUIItE City Attorney