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Utility User Tax 3 July 2$, 2008 Proposition 218 and Earlier Updates to the UUT Aware of these developing issues the City of San Leandro updated the Telephone Users Tax section of its UUT in 2004 to recognize technological developments and to insulate the City's ordinance from any possible repeal of the FET. However, these changes were made at the City Council level and were not presented to the voters for approval. Lawsuits challenging the right of local taxing authorities to amend their ordinances, given theses types of changes, without voter approval are now pending against several California cities. Should these cases go against the Cities, then San Leandro's UUT updates made in 2004 maybe at risk. Potential Solution Given the legal challenges noted above many California cities have decided that the best course of action is to take a modern UUT (for telecommunications) to the voters and allow them to decide. Since the UUT is a general tax a majority vote is required to adopt or amend the tax. This is opposed to a two thirds majority which is required for special taxes. This approach, if approved by the voters, removes any legal threat to an important City revenue source, protects the City's ability to continue to deliver critical city services and imposes the tax fairly across all communication technologies. It should be noted that if the measure were to fail, then the existing ordinance would continue in effect, subject to the various legal and technological issues discussed earlier. Summary of Proposed Amendment to the City's ITUT The proposed amendment to the City's ordinance, which is attached for Council's review, would add Chapter 2-17 "Communication Users' Tax". This new section would supersede Section 2-4- 200 Telephone Users Tax and Section 2-4-216, Video Users Tax of the City's existing UUT. The following is a summary of the proposed ordinance: • The City's UUT ordinance for Gas and Electricity remains unchanged (6%) and is not being placed on the ballot. • If the new ordinance fails, then the current UUT ordinance continues in place. • The proposed ordinance includes a modern, functional definition of telecommunications and video services that is technology neutral, treating taxpayers the same regardless of the technology used, e.g. voice over internet, (Vo1P), IP-TV and private communication services. • Does not tax internet services such as digital downloads, (e.g. ringtones, games, music, books, etc.) • Does not change exemptions for low-income senior citizens and disabled persons. • Reduces the current UUT rate on Telephone and Video Users' from 6% to 5.7%.