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R2003-0171 11-10-03 RESOLUTION NO. R2003-171 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS, OPPOSING THE PASSAGE OF SENATE BILL 150 (SB 150), ALSO KNOWN AS THE INTERNET TAX NON-DISCRIMINATION ACT, AND URGING THE U. S. SENATORS FOR THE STATE OF TEXAS TO OPPOSE THE BILL, WHEREAS, the United States Senate is considering passage of SB150, also known as the Internet Tax Non-Discrimination Act, and WHEREAS, this bill could exempt telecommunications providers from certain local government taxes, including franchise fees, for cable and telephone service, and WHEREAS, the Texas Comptroller has estimated that the State of Texas may lose one billion dollars per year in sales tax revenue if SB150 is approved and becomes law, and WHEREAS, 435 Texas cities, including Pearland, impose a sales tax telecommunication services which will be reduced by passage of SB150, and WHEREAS, the City of Pearland is concerned regarding the loss of revenue to both the City and State that will result from passage of SB150. BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PEARLAND, TEXAS: Section 1. That the City opposes the passage of SB150 and urges the U. S. Senators who represent the state of Texas to oppose the bill. PASSED, APPROVED and ADOPTED this the 10th dayof November , A.D., 2003. TOM REID MAYOR RESOLUTION NO. R2003-17'1 ATTEST: , N G L~)~ ~C~, 'i'-R,~C SECRETARY APPROVED AS TO FORM: DARRIN M. COKER CITY ATTORNEY 2 • xc: Mayor, Council, City Manager, DeputyCity Manager, Exec. Dir. Comm Serv. & City Attorney From: Young Lorfing, City Secretary 10/31/03 CX(11) October 28, 2003 Number 30 FEDERAL INTERNET TAX. LEGISLATION WILL HAVE NEGATIVE FISCAL IMPACT ON CITIES AND STATE it Earlier this year, the U.S. House of Representatives passed its version of the Internet Tax Non - Discrimination Act (H.R. 49) despite warnings of its severe negative impacts. The Senate is poised to vote on the companion bill, S. 150, and holds the only hope of protecting local government interests. We need direct contact with our two U.S. senators, before S. 150 goes to the floor, letting them know that this bill, as currently written, will create serious long-term financial problems for Texas cities. Language in S. 150 will deprive cities of billions of dollars in tax and fee revenue. The Internet tax moratorium, originally intended to prevent the taxation of Internet transactions, is set to expire on October 31, 2003, absent Congressional action H.R. 49 and S. 150 are the results of the desire to extend and expand upon the existing moratorium. These pieces of legislation have been heavily influenced by cable and telecom industry lobbyists; now this legislation could exempt all telecommunications providers from local government taxes, including franchise fees (right-of-way fees) for cable and telephone. Specifically, the language in S. 150/H.R. 49 creates the following problems: 1. Lost Sales Tax Revenues. Lost revenue to both the state and local governmental entities will be staggering if the legislation passes in its current form. Specifically, the legislation would expand the definition of "internet access service' to include telecommunications services "to the extent such services are used to provide Internet access " This resulting change will potentially cost the State of Texas oue billion dollars a year in lost sales tax revenue* from telecommunications services, according to numbers provided by the Texas comptroller. Additionally, Texas cities will lose an amount over and above the state figure because they can adopt a local -option sales tax on telecommunications services. As of October 1, 2003, approximately 435 cities have imposed local sales taxes on telecommunications services. The original Internet Tax Non -Discrimination Act was intended to exempt Internet service providers, so that sales taxes were not applied to monthly charges for Internet access (services like AOL and Earthlink). However, nothing in the original legislation was intended to exempt telecommunications services from paying applicable sales taxes. Unfortunately, the current versions of S. 150/H.R. 49 create a huge loophole that would allow all underlying Note: \Vhen you receive this TML Legislative Update, please make copies of it and distribute them to members of the governing body and to depart- ment heads as appropriate. TML sends only one copy to each city, and we rely on those who receive it to distribute it. Thanks for your help. Published by the Texas Municipal League 1821 Rutherford Lane, Suite 400, Austin, Texas 78754-5128 • 512-231-7400, Fax 512-231-7490 • www.tml.org telecommunications service providers to escape paying applicable state and local taxes. g Since almost all forms of telecommunications media (wireless, cable, DSL, plain -old telephone lines) can allow Internet access, they could all potentially be exempt from applicable taxes. 2. Lost Revenue for Use of Public Rights -of -Ways. The current language would threaten the ability of cities to impose franchise fees as. `rent" for use of public rights -of -way on such companies as telecommunications and cable service providers that use public property for private profit. Specifically, the fact that right-of-way compensation in Texas is based on access line counts creates the very real possibility that telecom companies will argue that "franchise fees" are akin to a tax which would be prohibited under the federal act. Telecom companies have argued for years that franchise fees are really taxes, not rents for use of public land. 3. Effective Immediately. Recent experiences have shown us that telecom companies will move quickly to stop paying state and local taxes when the opportunity presents itself. Since the bill could become effective immediately, it has the potential to affect next fiscal year's revenues for both the state and cities. For instance the state would have to make up a one billion dollar shortfall and cities could have to immediately cut their budgets or raise taxes to deal with unexpected revenue decreases. 4. Expensive Litigation. The biggest problem with S. 150/H.R. 49 is that all the negative impacts are not truly known because the proposed legislation is so poorly drafted. If enacted in its current form, this legislation will lead to numerous legal challenges with many of those lawsuits coming at the expense of the taxpayers and shareholders that this Act is supposed to help. For more information and to view a sample letter on S. 150/H.R. 49, please visit the TML homepage at www.tml.org and click on `Congressional Alert' or call the TML Legislative Department. ETJ SUBDIVISION AGREEMENT DEADLINES APPROACHING Prior to the 2001 legislative session, both the city and the county could regulate the subdivision of property in the city s extraterritorial jurisdiction (ETJ), and plat filed in this area had to be approved by both the city and the county The 2001 Legislature enacted Chapter 242 of the Local Government Code to address this situation Chapter 242 provides that a city and a county may not both regulate subdivisions in an ETJ. Rather, each city must enter into an agreement with the county (or counties, if the city is situated in more than one county) that identifies the entity authorized to regulate subdivision plats and approve related permits in the ETJ. The agreement may grant authority to the city or the county, or it may divide the ETJ into areas regulated either by the city or the county. The agreement may also establish one joint office that is authorized to exercise the regulatory authority. Chapter 242 does not generally apply to Harris County or counties on the international border. H.B 1204, which passed during the 78th Legislative Session, modifies several provisions of Chapter 242. Most importantly, the bill requires a city and a county that have not entered into an agreement by January 1, 2004 (in the case of a city with a population of 100,000 or more) or January 1, 2006 (in the case of a city with a population of 99,000 or less) to enter into arbitration. Each party is equally liable for the costs of arbitration. Cities that have not entered into agreements should be aware of these impending deadlines.