Donald H. Maynor, Esq. SCAN NATOA Santa Monica, California May 24 , 2007

1. Donald H. Maynor, Esq.SCAN NATOASanta Monica, CaliforniaMay 24, 2007 “Utility Users Tax Update”

2. LITIGATION UPDATE:What did we learn? • Verizon Wireless and AT&T Wireless v. City of Los Angeles: Potential danger of making administrative interpretations. • FET lawsuits: Potential danger of referencing another body of law. • Torrance Appellate Court Decision: CATV

3. Torrance UUT on CATV • Application of UUT to advertising and home shopping: adverse appellate court decision (Time Warner v. City of Torrance, Nov. 22, 2006) • History of non-taxation/audits • Weak ordinance language: plain meaning rule • Lesson learned: - Good ordinance language needed (specific) - Active and consistent enforcement program

4. Keys to Effective Enforcement of UUT on Video • Modern Ordinance with broad functional definitions and specific examples • Voter-approved (Prop. 218 – see telecom) • Tax interpretations and audits – do so with care! Get help! • Bundling rule (vital): Sit down with company and work it out. • Effect of Internet: downloading movies and programming; Internet moratorium

5. Modern “Communications Tax” Ordinance • Single “communications” tax on voice and video services. • Modern functional definitions of video: technology-neutral and all users treated the same – tax equity. • Taxes “transport” of voice, data and video, and includes copper, DSL, Cable modem, T-1 and private communication services • See Daly City UUT Ordinance (uutinfo.org)

6. Administrative Interpretations • If rendered in writing, view it as an ordinance enactment! • If you render a written interpretation, limit to specific facts, as submitted (like IRS private letter ruling). • If in doubt, render in favor of taxation, and prepare to litigate. • If voter approved, you may tax less than approved, and later tax the entire amount

7. Bundling Rule If any nontaxable charges are combined with and not separately stated from taxable service charges on the customer bill, the combined charge is subject to tax unless the service supplier identifies, by reasonable and verifiable standards, the portions of the combined charge that are nontaxable and taxable through the service supplier's books and records kept in the regular course of business, and in accordance with generally accepted accounting principles, and not created and maintained for tax purposes. The service supplier has the burden of proving the proper apportionment of taxable and non-taxable charges.

8. UUT and Bundled Services CATV or IP-TV (franchised) • Internet access/transport combo • Voice • Video/TV programming • Other items (taxable and non-taxable $100 package How much is internet access (non-taxable)?

9. Non-traditional Providers (non-franchised?) No physical presence: nexus? Programming/movies/ games/music downloaded by customer Are internet downloads taxable? UUT and New Internet Content Services

10. Hostile Legislation • Internet Tax Freedom Moratorium (permanent ban on state and local taxes on DSL and cable broadband – S.156 and HR 743 • Listen to Senate Commerce, Science and Transportation Hearing: May 23, 2007

11. Donald H. Maynor don@uutlaw.com 650-327-2894