San Jose Municipal Code Part 4 Imposition and Collection of the Tax

A. Establishment of telecommunications users tax. There is hereby imposed a tax upon every person with a billing address or service address in the city using telecommunications services, including intrastate, interstate, or international telecommunications services, and which is referred to in this chapter as the telecommunications users tax or the tax. The maximum tax imposed shall be at the rate of four and one-half percent (4.50%) of the charges made for such services and shall be collected from the service user by the service supplier or its billing agent. There is a rebuttable presumption that telecommunications services, which are billed to a billing address or service address in the city, are used, in whole or in part, within the city's boundaries, and such services are subject to taxation under this chapter. If the billing address of the service user is different from the service address, the service address of the service user shall be used for purposes of imposing the tax. As used in this section, the term "charges" shall include the value of any other services, credits, property of every kind or nature, or other consideration provided by the service user in exchange for the telecommunications services.

B. Sourcing rules. Mobile telecommunications service shall be sourced in accordance with the sourcing rules set forth in the Mobile Telecommunications Sourcing Act (4 U.S.C. Section 124). The director may issue and disseminate to service suppliers, which are subject to the tax collection requirements of this chapter, sourcing rules for the taxation of other telecommunications services, including but not limited to post-paid telecommunication services, prepaid telecommunication services, and private telecommunication services, provided that such rules are based upon custom and common practice that further administrative efficiency and minimize multi-jurisdictional taxation.

C. Authority for administrative rulings. The director may issue and disseminate to service suppliers, which are subject to the tax collection requirements of this chapter, one or more administrative rulings identifying those telecommunications services, or charges therefore, that are subject to or not subject to the telecommunications users tax.

D. Specific inclusions in telecommunications services. As used in this section, telecommunications services shall include, but are not limited to, charges for: connection, reconnection, termination, movement, or change of telecommunications services; late payment fees; detailed billing; central office and custom calling features (including but not limited to call waiting, call forwarding, caller identification and three-way calling); voice mail and other messaging services; directory assistance; access and line charges; universal service charges; regulatory, administrative and other cost recovery charges; local number portability charges; and text and instant messaging.

E. Certain exclusions from telecommunications services. As used in this section, telecommunications services shall not include digital downloads that are not Ancillary telecommunication services, such as music, ringtones, games, and similar digital products.

F. Multi-jurisdictional taxation. To prevent actual multi-jurisdictional taxation of telecommunications services subject to tax under this chapter, any service user, upon proof to the director that the service user has previously paid the same tax in another state or local jurisdiction on such telecommunications services, shall be allowed a credit against the tax imposed to the extent of the amount of such tax legally imposed in such other state or local jurisdiction; provided, however, the amount of credit shall not exceed the tax owed to the city under this chapter.

G. Collection of tax by service supplier. The tax on telecommunications services imposed by this chapter shall be collected from the service user by the service supplier. The amount of tax collected in one (1) month shall be remitted by the service supplier to the director, and must be received by the director on or before the twenty-fifth (25th) day of the following month.

H. Quarterly remittance of tax by service suppler.

1. A service supplier may elect to remit the taxes to the director on a quarterly basis if the annual amount of taxes collected is less than one hundred thousand dollars ($100,000.00).

2. A service supplier who qualifies under this subsection is not authorized to remit taxes on a quarterly basis until it has first completed the necessary application forms provided by the director and the director has approved the service supplier's application for quarterly remittance.

3. A service supplier authorized to remit taxes on a quarterly basis shall do so on or before the twenty-fifth (25th) day of the month following the end of a calendar quarter.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

If any nontaxable charges are combined with and not separately stated from taxable service charges on the service user's bill or invoice of a service supplier, the combined charge is subject to tax unless the service supplier or service user 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 or service user has the burden of proving the proper apportionment of taxable and nontaxable charges. If the service supplier offers a combination of taxable and nontaxable services, and the charges are separately stated, then for taxation purposes, the values assigned the taxable and nontaxable services shall be based on its 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 or service user has the burden of proving the proper valuation of the taxable and nontaxable services.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

For purposes of imposing a tax or establishing a duty to collect and remit a tax under this chapter, "substantial nexus" and "minimum contacts" shall be construed broadly in favor of the imposition, collection and/or remittance of the telecommunications users tax imposed under this chapter to the fullest extent permitted by state and federal law, and as it may change from time to time by judicial interpretation or by statutory enactment.

Any telecommunications service (including VoIP) used by a person with a service address in the city, which service is capable of terminating a call to another person on the general telephone network, shall be subject to a rebuttable presumption that "substantial nexus/minimum contacts" exists for purposes of imposing the tax, or establishing a duty to collect and remit the tax, under this chapter. A service supplier shall be deemed to have sufficient activity in the city for tax collection and remittance purposes if its activities include, but are not limited to, any of the following: maintains or has within the city, directly or through an agent or subsidiary, a place of business of any nature; solicits business in the city by employees, independent contractors, resellers, agents or other representatives; solicits business in the city on a continuous, regular, seasonal or systematic basis by means of advertising that is broadcast or relayed from a transmitter with the city or distributed from a location with the city; or advertises in newspapers or other periodicals printed and published within the city or through materials distributed in the city by means other than the United States mail; or if there are activities performed in the city on behalf of the service supplier that are significantly associated with the service supplier's ability to establish and maintain a market in the city for the provision of telecommunications services that are subject to the tax under this chapter.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

A. Manner of collection by service suppliers. The duty of service suppliers to collect and remit the taxes imposed by the provisions of this chapter shall be performed as follows:

1. The tax shall be collected by service suppliers insofar as practicable at the same time as, and along with, the collection of the charges made in accordance with the regular billing practice of the service supplier. Each service supplier shall hold in trust for the account of the city until payment is made to the city the amounts collected as taxes pursuant to this chapter. Where the amount paid by a service user to a service supplier is less than the full amount of the charge and tax which was accrued for the billing period, a proportionate share of both the charge and the tax shall be deemed to have been paid. In those cases where a service user has notified the service supplier of refusal to pay the tax imposed on said charges, Section 4.70.580 shall apply.

2. The duty of a service supplier to collect the tax from a service user shall commence with the beginning of the first regular billing period applicable to the service user where all charges normally included in such regular billing are subject to the provisions of this chapter. Where a service user receives more than one billing, one or more being for different periods than another, the duty to collect shall arise separately for each billing period.

B. Filing return and payment. Each person required by this chapter to collect the telecommunications users tax and remit payment of the collected taxes to the city shall file a return with the director, on forms approved by the director, on or before the due date. The full amount of the tax collected shall be included with the return and filed with the director. The director is authorized to require such additional information as he or she deems necessary to determine if the tax is being levied, collected, and remitted in accordance with this chapter. Returns are due immediately upon cessation of business for any reason.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08; Ord. 29145.)

A. Due date for taxes; delinquencies. Taxes collected from a service user are delinquent if not received by the director on or before the due date. Should the due date occur on a weekend or legal holiday, the return must be received by the director on the first regular working day following the weekend or legal holiday. A direct deposit, including electronic fund transfers and other similar methods of electronically exchanging monies between financial accounts, made by a service supplier in satisfaction of its obligations under this subsection shall be considered timely if the transfer is initiated on or before the due date, and the transfer settles into the city's account on the following business day.

B. Failure to collect or remit. If the person required to collect and/or remit the telecommunication users tax fails to collect the tax (by failing to properly assess the tax on one or more services or charges on the service user's billing) or fails to remit the tax collected on or before the due date, the director shall attach a first penalty of ten (10) percent of the amount of the delinquent remittance in addition to the delinquent remittance, and a second penalty of ten percent (10%) of the amount of the delinquent remittance in addition to the delinquent remittance and the first penalty, if the delinquent remittance is not paid on or before thirty (30) days following its due date, and shall pay interest on the delinquent remittance and all penalties assessed thereon, at the rate set forth in Chapter 1.17 of Title 1, until paid.

C. Penalties for fraud or gross negligence in reporting or remitting. The director shall have the power to impose additional penalties upon persons required to collect and remit taxes pursuant to the provisions of this chapter for fraud or gross negligence in reporting or remitting at the rate of twenty-five (25) percent of the amount of the tax collected and/or required to be remitted, or as recomputed by the director.

D. Penalties dues as tax. For collection purposes only, every penalty imposed and such interest that is accrued under the provisions of this section shall become a part of the tax herein required to be paid.

E. Authority to modify due dates. Notwithstanding the foregoing, the director may, in his or her discretion, modify the due dates for remittance of the tax imposed by this chapter.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

Any tax required to be paid by a service user under the provisions of this chapter shall be deemed a debt owed by the service user to the city. Any such tax collected from a service user which has not been remitted to the director shall be deemed a debt owed to the city by the person required to collect and remit the tax and shall no longer be a debt of the service user. Any person owing money to the city under the provisions of this chapter shall be liable in an action brought in the name of the city for the recovery of such amount, including penalties and interest as provided for in this chapter, along with any collection costs incurred by the city as a result of the person's noncompliance with this chapter, including, but not limited to, reasonable attorneys' fees. Any tax required to be collected by a service supplier or owed by a service user is an unsecured priority excise tax obligation under 11 U.S.C. Section 507(a)(8)(C).

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

A. Service suppliers who seek to collect charges for service in bankruptcy proceedings shall also include in any such claim the amount of taxes due city for those services, unless the director determines that such duty is in conflict with any federal or state law, rule, or regulation or that such action would be administratively impractical.

B. All service suppliers not required to collect taxes in connection with pursuit of claims for service charges in bankruptcy proceedings pursuant to Subsection A above shall notify the director in writing within forty-five (45) days after receipt of notice that a service user has initiated bankruptcy proceedings.

C. All service suppliers who do not seek to collect charges for service in bankruptcy proceedings shall notify the director in writing within forty-five (45) days after receipt of notice that a service user has initiated bankruptcy proceedings.

D. All service suppliers who receive notice of a service user's refusal to pay shall notify the director in writing within forty-five (45) days after receipt of such notice.

E. All persons who have notified the director of a refusal or bankruptcy proceeding under subsections B, C, and D above shall be relieved of the duty to collect and remit any tax owed by the service user.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

A. Tax deficiency determinations. The director shall make a deficiency determination if he or she determines that any service user or service supplier required to pay or collect taxes pursuant to the provisions of this chapter has failed to pay, collect, and/or remit the proper amount of tax by improperly or failing to apply the tax to one or more taxable services or charges. Nothing herein shall require that the director institute proceedings under this Section 4.70.570 if, in the opinion of the director, the cost of collection or enforcement likely outweighs the tax benefit to the city.

B. Notice of deficiency. The director shall mail a notice of such deficiency determination to the person allegedly owing the tax, which notice shall refer briefly to the amount of the taxes owed, plus interest on the amount of the tax from the date on which the tax should have been received by the city. Within fifteen (15) days of the date of mailing of such notice, the person allegedly owing the tax may request in writing to the director for a hearing on the matter.

C. Hearing on deficiency. If the person allegedly owing the tax fails to request a hearing within the prescribed time period, the amount of the deficiency determination shall become a final assessment, and shall immediately be due and owing to the city. If such person requests a hearing, the director shall cause the matter to be set for hearing. Notice of the time and place of the hearing shall be mailed by the director to such person at least five (5) days prior to the hearing, and, if the director desires said person to produce specific records at such hearing, such notice may designate the records requested to be produced.

D. Determination after hearing. At the time fixed for the hearing, the director shall hear all relevant testimony and evidence, including that of any other interested parties, why the assessed amount should not be fixed. At the discretion of the director, the hearing may be continued from time to time for the purpose of allowing the presentation of additional evidence. Within a reasonable time following the conclusion of the hearing, the director shall issue a final assessment (or non-assessment), thereafter, by confirming, modifying or rejecting the original deficiency determination, and shall mail a copy of such final assessment to the person owing the tax. The decision of the director may be appealed pursuant to section 4.70.710 of this chapter. Filing an application with the director and appeal to the city manager pursuant to Section 4.70.710 of this chapter is a prerequisite to a suit thereon.

E. Payment due. Payment of the final assessment shall be due and payable to the city on or before the fifteenth (15th) day following the date of mailing of the notice of final assessment by the director, unless an appeal is taken as provided in Subsection D above.

F. Notice of delinquency. All notices under this section may be sent by regular mail, postage prepaid.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

A. Administrative remedies for the obligation to collect tax. Whenever the director determines that a service user has deliberately withheld the amount of the tax owed by the service user from the amounts remitted to a person required to collect the tax, or whenever the director deems it in the best interest of the city, he or she may relieve such person of the obligation to collect the taxes due under this chapter from certain named service users for specific billing periods. To the extent the service user has failed to pay the amount of tax owed for a period of two (2) or more billing periods, the service supplier shall be relieved of the obligation to collect taxes due. The service supplier shall provide the city with the names and addresses of such Service users and the amounts of taxes owed under the provisions of this chapter. Nothing herein shall require that the director institute proceedings under this section if, in the opinion of the director, the cost of collection or enforcement likely outweighs the tax benefit to the city.

B. Delinquency penalty. In addition to the tax owed, the service user shall pay a first penalty of ten (10) percent of the amount of the delinquent remittance in addition to the delinquent remittance, and a second penalty of ten (10) percent of the amount of the delinquent remittance in addition to the delinquent remittance and the first penalty, if the delinquent remittance in addition to the first penalty is not paid on or before thirty (30) days following its due date, and shall pay interest on the delinquent remittance and all penalties assessed thereon at the rate set forth in Chapter 1.17 of Title 1, until paid.

C. Notice to non-paying service user. The director shall notify the non-paying service user that the director has assumed the responsibility to collect the taxes due for the stated periods and demand payment of such taxes, including penalties and interest. The notice shall be served on the service user by personal delivery or by deposit of the notice in the United States mail, postage prepaid, addressed to the service user at the address to which billing was made by the person required to collect the tax; or, should the service user have a change of address, to his or her last known address.

D. Additional penalties.

1. If the service user fails to pay the delinquent tax to the director on or before the fifteenth (15th) day from the date of mailing of the director's notice, the service user shall pay a first penalty of ten (10) percent of the amount of the delinquent tax or ten dollars ($10.00), whichever amount is greater, in addition to the delinquent tax.

2. If the service user fails to pay the delinquent tax to the director on or before the forty-fifth (45th) day from the date of mailing of the director's notice, the service user shall pay a second penalty of ten (10) percent of the amount of the delinquent tax or ten dollars ($10.00), whichever amount is greater, in addition to the delinquent tax and the first penalty.

3. Any service user who fails to pay the delinquent tax on or before the time specified in the director's notice shall pay interest, at the rate set forth in Chapter 1.17 of Title 1, on the delinquent tax and on any penalty or penalties, until paid.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

A. Administrative regulations regarding payment. The director may adopt administrative rules and regulations consistent with provisions of this chapter for the purpose of interpreting, clarifying, carrying out and enforcing the payment, collection and remittance of the taxes herein imposed. The administrative rules and regulations shall not impose a new tax, revise an existing tax methodology as stated in this section, or increase an existing tax, except as allowed by California Government Code Section 53750(h)(2). The director shall hold a public hearing and allow public comment on any proposed rule or regulation prior to adoption thereof. The director shall provide not less than ten (10) days' notice of such public hearing. A copy of such administrative rules and regulations shall be on file in the director's office. To the extent that the director determines that the tax imposed under this chapter shall not be collected in full for any period of time from any particular service supplier or service user, that determination shall be considered an exercise of the director's discretion to settle disputes and shall not constitute a change in taxing methodology for purposes of Government Code Section 53750 or otherwise. The director is not authorized to amend the city's methodology for purposes of Government Code Section 53750 and the city does not waive or abrogate its ability to impose the telecommunications users tax in full as a result of promulgating administrative rulings or entering into agreements with service suppliers or service users. Failure or refusal to comply with any rules and regulations promulgated by the director shall be deemed a violation of this chapter.

B. Administrative agreements regarding billing procedures. Upon a proper showing of good cause, the director may enter into administrative agreements, with appropriate conditions, to vary from the strict requirements of this chapter and thereby: (1) conform to the billing procedures of a particular service supplier so long as said agreements result in the collection of the tax in conformance with the general purpose and scope of this chapter; or (2) to avoid a hardship where the administrative costs of collection and remittance greatly outweigh the tax benefit to the city. A copy of each such agreement shall be on file in the director's office.

C. Compliance audits. The director may conduct an audit, to ensure proper compliance with the requirements of this chapter, of any person required to collect and/or remit a tax pursuant to this chapter. The director shall notify said person of the initiation of an audit in writing. Upon completion of the audit, the director may make a deficiency determination pursuant to Section 4.70.570D of this chapter for all taxes (and applicable penalties and interest) owed and not paid, as evidenced by information provided by such person to the director. If said person is unable or unwilling to provide sufficient records to enable the director to verify compliance with this chapter, the director is authorized to make a reasonable estimate of the deficiency. Said reasonable estimate shall be entitled to a rebuttable presumption of correctness.

D. Extension of time. Upon receipt of a written request of a service supplier or service user, and for good cause, the director may extend the time for filing any statement required pursuant to this chapter for a period of not to exceed forty-five (45) days, provided that the time for filing the required statement has not already passed when the request is received. No penalty for delinquent payment shall accrue by reason of such extension. Interest shall accrue during said extension at the rate set forth in Chapter 1.17 of Title 1, until paid.

E. Waiver of penalties and interest. The director shall waive the first penalty of ten (10) percent imposed upon a service supplier if:

1. The service supplier applies to the director for such a waiver no later than thirty (30) days from the date the remittance was due to the city; and

2. The service supplier has made timely payments for (a) the five (5) years immediately prior to the date the remittance was due to the city; or (b) the two (2) years immediately prior to the date the remittance was due to the city if it has supplied, transported, or delivered the service fewer than five (5) years; and

3. The service supplier provides evidence satisfactory to the director that:

a. Payment of the delinquent remittance was postmarked or received by the city no more than three (3) days after its due date; or

b. The service supplier mistakenly made payment to a party other than the city on or prior to the date that payment was due to the city, and paid the delinquent remittance and accrued interest owed the city prior to applying to the director for a waiver; or

c. Failure to pay timely was due to circumstances beyond the control of the service supplier and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect, and the service supplier paid the delinquent remittance and accrued interest owed the city prior to applying to the director for a waiver.

F. The waiver provisions specified in Subsection E shall not apply to interest accrued on the delinquent payments.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)

A. Every service supplier required to collect and remit to the director any tax imposed by this chapter shall keep and preserve for a period of three (3) years from the due date of remittance, all records as may be necessary to determine the amount of any tax such service supplier may have collected or been required to remit.

B. All such records shall be made available for inspection, audit or copying by the city's authorized representatives at any time during regular business hours upon written request by such representatives.

C. Non-disclosure agreements. The director is authorized to execute a non-disclosure agreement approved as to form by the city attorney to protect the confidentiality of service user information pursuant to California Revenue and Tax Code Sections 7284.6 and 7284.7.

D. Use of billing agents. If a service supplier uses a billing agent or billing aggregator to bill, collect, and/or remit the tax, the service supplier shall: i) provide to the director the name, address and telephone number of each billing agent and billing aggregator currently authorized by the service supplier to bill, collect, and/or remit the tax to the city; and, ii) upon request of the director, deliver, or effect the delivery of, any information or records in the possession of such billing agent or billing aggregator that, in the opinion of the director, is necessary to verify the proper application, calculation, collection and/or remittance of such tax to the city.

(Measure K (Ord. 2008.2), adopted by electorate 12-9-08)