HomeMy WebLinkAboutTIME WARNER COMMUNICATIONS - settlement agreement re tax collection on cable services 9/21/98 (for franchise agreement see category (600.45) - 1998-09-21 q M/EDaA v Trost)
V�ll�llA- Fi`71a�c�
qITY OF HUNTINGTON BEAD, 9�
Ras�s - FrpnA-&�
MEETING DATE: September 21, 1998 DEPARTMENT ID NUMBER: CA 98-16
Council/Agency Meeting Held: 7j (000./0
De ed/Continued to:
Approved ❑ Conditionally Approved ❑Denied �E.°&7y i Clerk's Signature
Counc Meeti Dag; S!Fteft 21, 1998 Department ID Number: CA 98-16
ROFA4
CITY OF HUNTINGTON BEACH _
REQUEST FOR COUNCIL ACTION
SUBMITTED TO: HONORABLE MAYOR AND CITY COUNCIL MEMBERS
SUBMITTED BY: Y SILVER, City Administrator61"
PREPARED BY: 1, HUTTON, City Attorney
G� HARI FREIDENRIC ,--City Treasurer
UDAN VILLELLA, Finance Director
SUBJECT: Utility Users Tax—Audit of Time Warner Communications and Settlement
Agreement regarding tax collection on cable services
IIStatement of Issue,Funding Source,Recommended Action,Alternative Action(s),Analysis,Environmental Status,Attachment(s) I I
Statement of Issue: An audit of Time Warner Communications' collection of the Utilities User
Tax disclosed an underpayment. The settlement agreement resolves the audit both retrospectively and
prospectively.
Funding Source: N/A
Recommended Action: That the City Council authorize the Mayor to sign the Settlement
Agreement with Time Warner Communications regarding the collection of utility user taxes on cable
television services.
Alternative Action(s): Do not approve recommended action and advise staff on how to proceed.
Analysis: The City imposes a Utility Users Tax of five percent (5%) of the customer's bill. This
tax is collected by each of the utilities in the City: Southern California Edison, Southern California
Gas, GTE, and Time Warner Communications. In 1991 the City entered into a contract with Mr. Don
Maynor (an attorney specializing in utility user taxes) and Municipal Resources Consultants to
perform audits of utility user tax collections. In 1998 they performed an audit of Time Warner
Communications. A copy of the audit report is attached as Exhibit 2. It disclosed an undercollection / )
of utility user taxes in an estimated amount of$82,500 for 1996. The principal area of undercollection \ l
were bulk services (cable charges to apartment buildings and condominiums billed to the apartment.
98-16.DOC -2- 09/15/98 10:35 AM
`*QUEST FOR COUNCIL ACTION
MEETING DATE: September 21, 1998 DEPARTMENT ID NUMBER: CA 98-16
owner or association, not the individual residents), pay-per-view events (e.g., prizefights), late charges
and installation charges. Within the three years statute of limitations period, similar amounts can be
estimated for 1997 ($95,000) and the first half of 1998 ($50,000).
This audit report was forwarded to Time Warner. After two meetings with Time Warner on the issues,
a settlement agreement was reached. Time Warner has agreed to pay the City $170,000 in satisfaction
of its obligation to have collected utility user taxes prior to August 1998. Time Warner has also
agreed on what services are subject to utility user taxes on cable services in the future. Further, Time
Warner has agreed not to attempt to collect the $170,000 in back taxes by imposing it on their
customers. We believe that this provides a more than satisfactory settlement package.
It should be noted that the contract between the City and Don Maynor provides that compensation to
Maynor is one-third of any settlement amount plus one-third of the increased tax collections for the
next three years. It is estimated that this amount will be $160,000 through September 2001.
Environmental Status: N/A
Attachmenff s)•
City Clerk's
I'a-e Nuniber No. Description
......_.... .............>:_ 1. Settlement Agreement with Time Warner
...................................................
...................................................
...................................................
2. Audit Report
RCA Author: Scott Field,Deputy City Attorney
98-16.DOC 3- 09/15/98 11:02 AM
ATTACHMENT # 1
FECITY OF HUNTINGTON BEACH
INTER-DEPARTMENT COMMUNICATION
HUNTINGTON BEACH
LATE COMMUNICATION
TO: Honorable Shirley Dettloff, Mayor and
Members of the City Council
FROM: Gail Hutton, City Attorney
DATE: September 18, 1998
SUBJECT: Utility Users Tax—Audit of Time Warner Communications and
Settlement Agreement regarding tax collection on cable services
Agenda Item E-13
Attached please find a copy of the final version of the Settlement Agreement concerning the collection of
the Utility Users Tax on cable services(Attachment 1 to Item E-13 on the Agenda). It has been fully
executed by Time Warner.
In addition,we would like to clarify one misstatement in the Request for Council Action. The RCA
stated that estimated contingency fee to Mr. Maynor was$160,000. However,the contract with Mr.
Maynor actually provides for 35%of increased collections over the next four(4)years. Although this
might suggest a slightly higher compensation, it should first be noted that Mr. Maynor provides a number
of services to the City concerning tax collection which are never compensated,except through these types
of audits. In fact,the City is compensating Mr. Maynor not merely for this audit,but for many other
services he provides. Second,Mr.Maynor is in the process of making a proposal to renegotiate his
contract to be on a fixed-fee basis. We anticipate bringing a new contract to the Council within the next
few months that will materially reduce this contingency fee.
Finally,also attached please find a letter of September 16, 1998,from Time Warner,proposing a bill
message to customers indicating that there will be a change in the method in determining the Utility Users
Tax because previously, items such as bulk services,pay-for-view, installation charges and late fees were
not taxed. Consequently, some customers will see a slight increase. .in their bills.
GAIL HUTTON
City Attorney
Attachments: 1) Settlement Agreement
2) Letter of September 16, 1998
c: Ray Silver, City Administrator
Michael Dolder,Acting Assistant City Administrator
SF/s:SF-98Memos:M&CC0918
SETTLEMENT AGREEMENT
This Agreement is made and entered into this kkday of September, 1998, by and
between the City of Huntington Beach(hereinafter referred to as "CITY"), and KBL
Cablesystems of the Southwest, Inc., (hereinafter referred to as "KBL").
1.0 Recitals.
This Agreement is made expressly with reference to the following agreed facts,
among others:
1.1 KBL is a cable television(CATV)provider with its principal place of
business in Garden Grove, California, but with facilities located throughout California.
1.2 CITY is a municipal corporation, and, as a charter city, is vested by law
with the authority to enter into a franchise agreement for the use of its public right of way, and is
also vested by law with the authority to enact a local ordinance to impose an excise tax on the
users of certain utility services, including by not limited to CATV and associated video
programming services.
1.3 CITY is a member of the Joint Powers Authority known as Public Cable
Television Authority ("PCTA"). PCTA has issued KBL a franchise to operate a cable television
system in the CITY.
1.4 Pursuant to Section 3.36.110 of the CITY's utility users tax ordinance
(ATTACHMENT"A"), CITY requires that KBL collect a five (5%)percent excise tax on
charges that are paid for CATV services used in the CITY. The CITY recently completed an
audit of utility users tax revenues collected and paid over to the CITY by KBL for the period of
calendar year 1996.
1.5 Based on its audit findings of its CATV utility user tax revenues from
KBL, CITY contends that KBL was required to collect an excise tax certain charges for CATV
related services that KBL failed to collect.
1
SFA SF-98AgreeMmeWan
09/17/98-#5
NOW, THEREFORE, KBL and CITY, in consideration of the promises contained herein
and subject to the terms and conditions set forth below, agree as follows:
2.0 Compromise and Release.
This Settlement Agreement is entered into in compromise of disputed claims and
rights. Specifically, CITY and KBL desire to compromise, settle and discharge all disputes,
claims, demands, actions or causes of action whatsoever of every kind and nature that pertain to,
or arise out of the imposition, collection and payment of utility users taxes for CATV services by
KBL to the CITY for all claims up through and including September 30, 1998. CITY and KBL,
and each of them,therefore hereby forever discharges and mutually releases the other party,
including the other party's agents, employees, officers, and assigns of and from any and all
claims, demands, rights, liability, suits, debts, liens, actions and causes of action, of every kind
and nature whatsoever, at law or in equity, known and unknown, suspected and unsuspected,
disclosed and undisclosed which the releasing party ever had, now has or hereafter may have by
reason or any act, omission, matter, cause or thing, arising out of: i) the imposition, collection
and payment of utility users taxes for CATV services by KBL to the CITY for the period of
January 1, 1994 through August 31, 1998; and, ii) the CITY's application of its utility users
tax to the services of KBL as described in ATTACHMENT "B", including, but not limited to
any claims involving CITY's alleged failure to comply with legal requirements pursuant to
Article XIII D of the California Constitution in connection with the adoption, amendment or
application of its utility users tax ordinance (Chapter 3.36 of the City of Huntington Beach
Municipal Code). It is understood and agreed that this is a compromise of disputed claims and
shall not be construed as an admission of any liability of either releasing party to the other.
3.0 Past Utility Users Tax Payments.
In settlement of all past utility users tax payment claims of CITY for all claims up
through and including September 30, 1998, KBL agrees to pay CITY the sum of One Hundred
Seventy Thousand Dollars ($170,000.00),receipt of which is hereby acknowledged. It is
2
S F/s:SF-98Agree:Ti me W am
09/17/98-#5
understood and agreed that this is a compromise of disputed claims and shall not be construed as
an admission of any liability.
3.1 Prospective Utility Users Tax Payments. KBL agrees that, commencing
October 1, 1998, KBL shall impose, collect and remit to the CITY a utility users tax,pursuant to
Section 3.36.110 of the CITY's utility users tax ordinance, on charges for those CATV services
set forth in the attached"administrative interpretation", ATTACHMENT`B". It is understood
and agreed that this "administrative interpretation" is an interpretation of the CITY's existing
utility users tax ordinance, and is not a new tax or an expansion in scope of an existing tax, but
rather reflects the CITY's interpretation of its existing ordinance to existing CATV services
based on the recent audit findings of the CITY.
4.0 Attorney's Fees and Costs. ..
KBL and CITY shall each bear their own attorneys' fees and costs.
5.0 Explained by Counsel and No Coercion.
KBL and CITY each acknowledge, covenant, and warrant that the contents of this
Agreement have been explained to each of them by their counsel, that they are each free from
any duress or coercion, economic or otherwise in connection with this matter, and that this
Agreement is executed voluntarily and with full knowledge of its significance.
6.0 Only Agreement.
This Agreement constitutes the only existing and binding agreement among the
parties regarding the subject matter of this Agreement, and the parties acknowledge that there are
no warranties, promises or representations of any kind, express or implied, upon which the
parties have relied in entering into this Agreement, or as to the future relationships of.the parties,
except as expressly set forth herein.
7.0 Governing Law.
This Agreement shall be interpreted, governed by, and construed under the laws
of the State of California.
3
SF/s:SF-98Agree:TimeWam
09/17/98-#5
8.0 Construction of A rent.
This Agreement is the product of negotiation and preparation by and among
parties represented by counsel. Both sides and their counsel have reviewed and have had the
opportunity to revise this Agreement. The parties waive the provisions of Section 1654 of the
Civil Code of California and any other rule of construction to the effect that ambiguities are to be
resolved against the drafting party, and the parties warrant and agree that the language of this
Agreement shall neither be construed for nor against any party hereto.
9.0 Modification.
No modification or change to this Agreement shall be binding or effective unless
executed in writing by both sides. No oral statement shall in any manner modify or affect the
terms and conditions set forth herein.
10.0 Nonwaiver.
The waiver by either party of any breach of any term, covenant or condition
contained in this Agreement, or any default in the performance of any obligation under this
Agreement, shall not be deemed to be a waiver of any other breach or default of the same or any
other term, covenant, condition or obligation. Nor shall any waiver of any incident of breach or
default constitute a continuing waiver of the same.
11.0 Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the same instrument.
12.0 Authorization.
Each person executing this Agreement warrants to the other party that he or she is
fully authorized to enter into this Agreement in the capacity indicated by his or her signature.
[Signatures on following page]
4
SF/s:SF-98Agree:Time W am
09/17/98-#5
KBL CABLESYSTEMS OF THE CITY OF HUNTINGTON BEACH, a
SOUTHWEST, INC., California municipal corporation
a Minnesota corp ratio
By ayor-
Name Robert V. Noel ATTEST:
(Type or print) _
Its(circle one): (I)Chairman of the Board(ii)President
J -
Any 'ce Presi e tit Clerk
D APPROVED AS TO FORM:
By Xd'dvatille—AlakA"�' —
Name Barbara Andries City Attorney
(Type or print) i/ -tp
Its(circle one : (I)Secretary(ii)Any Assistant Secretary;(iii)
ief Financial Offic (iv)Any Assistant Treasurer
REVIEWED AND APPROVED: IN I PROVED:
City Administrator ep ty Admi ' trat /
Director o Administra ve Se ices
5
SF/s:SF-98AgreeJime Wam
09/17/98-#5
ATTACHMENT A
Huntington Beach Municipal Coo 0 3.36.010-3.36.010(d)
Chapter 3.36
UTILITIES TAX
(1598-10170,2211-8177,2452-10/80,2470-2/81,2886-12/86,2933-8/88,3095-4/91,3096-4/91,
3118-7191,3162-9/92,3390-5/98)
Sections:
3.36.010 Definitions
3.36.020 Telephone tax--Imposed
3.36.030 Telephone tax--Charges
3.36.040 Telephone tax--Intrastate use
3.36.050 Electricity tax
3.36.060 Use of electrical energy
3.36.070 Gas tax--Imposed
3.36.080 Gas tax--Exclusions
3.36.090 Water tax--Imposed
3.36.100 Water tax--Exclusions
3.36.110 Cable Television Users Tax
3.36.120 Exemptions
3.36.130 Collection of tax
3.36.140 Collection--When made
3.36.150 Collection--Commencement
3.36.160 Reporting and Remitting
3.36.170 Delinquent when
3.36.180 Penalty--Interest.and Penalties
3.36.190 Penalty--Imposed by administrator
3.36.200 Penalty--Combining nature
3.36.210 Actions to collect
3.36.220 Failure to pay--Administrative remedy
3.36.230 Assessment--Administrative remedy
3.36.240 Appeals
3.36.245 Audit by City
3.36.250 Records
3.36.260 Refunds
3.36.265 Additional Powers and Duties of Tax Administrator
3.36.270 City exempt
3.36.280 Senior citizens--Exemption
3.36.290 Application required
3.36.300 Notification to service supplier
3.36.310 Service supplier--Duty of
3.36.320 Exemption automatic
3.36.330 Tax billing exemptions--Effective when
3.36.340 Violation--Penalty
3.36.010 Definitions. Except where the context otherwise requires,the definitions given in this
Section govern the construction of this chapter:
(a) "City" means the City of Huntington Beach.
(b) "Month" means a calendar month.
(c) "Person" means any domestic or foreign corporation, firm, association, syndicate,joint stock
company,partnership of any kind,joint venture, club, Massachusetts business or common
law trust, society, individual or municipal corporation.
(d) "Service supplier" means any entity which receives taxes paid and remits same as imposed by
this chapter.
5/98
3.36.010(e)-3.36.060 • Huneon Beach Municipal Code
(e) "Service user" means a person required to pay a tax imposed by this chapter.
(f) "Tax Administrator" means the Finance Director of the City.
(g) "Telephone corporation, electrical corporation, gas corporation, and water corporation" shall
have the same meanings as defined in Sections 234, 218,222, and 241 respectively, of the
Public Utilities Code of the State of California, as said Sections existed on January 1, 1970.
"Electrical corporation" and"water corporation" shall be construed to include any
organization,municipality or agency engaged in the selling or supplying of electrical power
or water to a service user; however, as specified by Public Utilities Code Section 218,does
not"include a corporation or person employing cogeneration technology or producing power
from other than a conventional power source for the generation of electricity. (1598-10/70,
2933-8/88)
3.36.020 Telephone tax--Imposed. There is imposed a tax upon every person in the City, other
than a telephone corporation, using international, interstate, and intrastate telephone
communication services in the City. The tax imposed by this Section shall be at the rate of five
(5%)percent of all charges made for such services. (1598-10/70,3096-4/91)
3.36.030 Telephone tax--Charges. As used in this Section,the term "charges" shall not include
charges for services paid for by inserting coins in coin-operated telephones except that where
such coin-operated telephone service is furnished for a guaranteed amount, the amounts paid
under such guarantee plus any fixed monthly or other periodic charge shall be included in the
base for,computing the amount of tax due; nor shall the term "telephone-communication
services" include maritime-mobile services as defined in Section 2.1 of Title 47 of the Code of
Federal Reszulations, or as that section may be amended from time to time. (1598-10/70,3162-9/92)
3.36.040 Telephone tax--Intrastate use. Notwithstanding the provisions of Section 3.36.020,
the tax imposed under this chapter shall not be imposed upon any person for using intrastate
telephone communication services to the extent that the amounts paid for such services are
exempt from or not subject to the tax imposed by Section 4251 of Title 26 of the United States
Code, as such Section existed on January 1, 1970, without regard to Section 3.36.020.
(1598-10/7.0)
3.36.050 Electricity tax. There is imposed a tax upon every person in the City using electrical
energy in the City. The tax imposed by this Section shall be at the rate of five (5%)percent of
the charges made for such energy and shall be paid by the person paying for such energy.
"Charges" as used in this Section shall include charges made for:
(a) Metered energy; and
(b) Minimum charges for service, including customer charges, service charges, demand charges,
standby charges and annual and monthly charges.
In the case of a service user employing cogeneration technology the tax imposed by this Section
shall be based upon the legal rate per kilowatt cogenerated, as charged by the applicable public
Utility. (1598-10/70,2933-8/88)
3.36.060 Use of electrical energy. As used in this Section, the term "using electrical energy"
shall not be construed to mean the storage of such energy by a person in a battery owned or
possessed by him for use in an automobile or other machinery or device apart from the premises
upon which the energy was received; provided,however,that the term shall include the receiving
of such energy for the purpose of using it in the charging of batteries. The term shall not include
electricity used in water pumping by water corporations; nor shall the term include the mere
receiving of such energy by an electrical corporation or governmental agency at a point within
the City for resale. (1598-10/70)
9/92
Huntington Beach Municipal Cot • 3.36.070-3.36.150
3.36.070 Gas tax--Imposed. There is imposed a tax.upon every person in the City using gas in
the City which is delivered through mains or pipes. The tax imposed by this Section shall be at
the rate of five (5%)percent of the charges made for such gas. (1598-1o/7o)
3.36.080 Gas tax--Exclusions. There shall be excluded from the base on which the tax imposed
in this Section is computed:
(a) Charges made for gas which is to be resold and delivered through mains or pipes;
(b) Charges made for gas to be used in the generation of electrical energy by an electrical
corporation;
(c) Charges made by a gas public utility for gas used and consumed in the conduct of the
business of gas public utilities; and
(d) Charges for gas used in water pumping by water corporation. (1598-10/70)
3.36.090 Water tax--Imposed. There is imposed a tax upon every person in the City using
water in the City which is delivered through mains or pipes. The tax imposed by this Section
shall be at the rate of five (5%)percent of the charges made for such water and shall be paid by
the person paying for such water. (1598-10/70)
3.36.100 Water tax--Exclusions. There shall be excluded from the base on which the tax
imposed in this Section is computed charges made for water which is to be resold and-delivered
through mains or pipes; and charges made by a municipal water department, public utility or a
county or municipal water district for water used and consumed by such department, utility or
district in the conduct of the business of such-department, utility or district. (1598-10/70)
3.36.110 Cable Television Users Tax. (3118-7/91)
(a) There is hereby imposed a tax upon every person in the City using cable television service.
The tax imposed by this Section shall be at the rate of five percent(5%) of the charges made
for such service and shall be paid by the person paying for such services. (3118-7/91)
(b) The tax imposed in this Section shall be collected from the service user by the person
furnishing the cable television service. (3118-7/91)
3.36.120 Exemptions. Nothing in this chapter shall be construed as imposing a tax upon any
person if imposition of such tax upon that person would be in violation of the Constitution of the
United States or the Constitution of the State of California. (1598-10/70)
3.36.130 Collection of tax. The amount of tax imposed by this chapter shall be collected from
the service user by the service supplier. (1598-10/70,2933-8/88)
3.36.140 Collection--When made. The tax shall be collected insofar as practicable at the same
time as and along with the collection of charges made in accordance with the regular billing
practice of the service supplier. (1598-10/70)
3.36.150 Collection--Commencement. The duty to collect tax from a service user shall
commence with the beginning of the first regular billing period applicable to that person which
shall begin as of January 1, 1971, or at the beginning of the first regular billing period thereafter
which would not include service prior to January 1, 1971. Where a person 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. (1598-10/70)
7/91
3.36.160-3.36.180(f • Hutton Beach Municipal Code ,
3.36.160 Reporting and Remitting. (3390-5/98)
(a) Each service supplier shall make a return to the Tax Administrator, on forms provided by
him, stating the amount of taxes billed by the service supplier during the preceding month.
At the time the return is filed, the full amount of the tax collected shall be remitted to the
Treasurer. The Tax Administrator is authorized to require such further information as he
deems necessary to properly determine if the tax herein imposed is being levied and collected
in accordance with this chapter. Tax returns must be postmarked with prepaid postage and
properly addressed, or delivered to the Treasurer on or before the 20th day of each month.
Returns and tax remittances are due immediately upon cessation of business for any reason.
Should the due date occur on a weekend or legal holiday,the return must be received on the
first regular working day following a Saturday/Sunday, or legal holiday. (1598-10/70,2211-8/77,
3390-5/98)
(b) Service suppliers and the Tax Administrator may enter into an agreement to remit taxes by
way of electronic funds transfer or similar means. (3390-5198)
(c) The Tax Administrator, or the Tax Administrator's designated representative, may request
from a person providing transportation services of gas or electricity to service users within
the City a list of the names and addresses of its transportation customers within the City
pursuant to Section 6354(e)of Chapter 2.5 of Division 3 of the California Public Utilities -
Commission. (3390-5/98)
(d) If any person subject to record keeping under this Section unreasonably denies the Tax
Administrator, or the Tax Administrator's designated representative, access to such records,
then the Tax Administrator may impose a penalty of$500 on such person for each day
following the initial date that the person refuses to provide such access. (3390-5/98)
3.36.170 Delinquent when. Taxes collected from a service user which are not filed with the
Tax Administrator on or before the due dates provided in this chapter are delinquent. (1598-10/70,
2211-8/77)
3.36.180 Interest and Penalties. (3390-5/98)
(a) Taxes collected from a service user which are not received by the Treasurer on or before the
due,dates provided in this chapter are delinquent. (3390-5/98)
(b) Any service supplier who fails to remit any tax imposed by this chapter within the time
required shall pay a penalty of ten percent(10%) of the amount of the tax. Said penalty shall
be paid in addition to the amount of the tax. (3390-5/98)
(c) Any service supplier who fails to remit any delinquent remittance on or before a period of .
thirty (30) days following the date on which the remittance first became delinquent shall pay
a second delinquency penalty of ten percent(10%) of the amount of tax in addition to the
amount of the tax and the penalty first imposed. (3390-5/98)
(d) If the Treasurer determines that the non-payment of any remittance due under this chapter is
due to fraud, a penalty of twenty-five percent(25%) of the amount of the tax shall be added
thereto in addition to the penalties stated in subsections (b)and (c) of this Section. (3390-5/98)
(e) In addition to the penalties imposed, any service supplier who fails to remit any tax imposed
by this chapter shall pay interest to the City at the rate of one and one-half percent(1-1/2%)
per month or fraction thereof on the amount of the tax, exclusive of penalties, from the date
on which the remittance first becomes delinquent until paid. (3390-5/98)
(f) Every penalty imposed and such interest as accrues under the provisions of this Section shall
become a part of the tax herein required to be paid. (3390-5/98)
5/98
Huntington Beach Municipal Coo_ • 3.36.190--3.36.240(c)(1)
3.36.190 Penalty--Imposed by administrator. The Tax Administrator shall impose the
penalties and interest upon persons required to pay and remit taxes under the provisions of this
chapter. (1598-10/70,2211-8/77,3390-5/98)
3.36.200_ Penalty--Combining nature. Every penalty imposed under the provisions-of this
chapter shall become a part of the tax required to be paid. (1598-10/70,2211-8/77)
3.36.210 Actions to collect. 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 paid to the'Treasurer shall be.deemed a debt
owed to the City.by-the.person required to.collect and-pay.-Any person owing money to the City
under the provisions of this chapter shall be.liable to an action brought in the-name of the City
for the recovery of such amount. (1598-10170,2211-8/77, 3390-5/98)
3.36.220 Failure to pay--Administrative-remedy. Whenever the Tax Administrator
determines that a service user has deliberately withheld the amount of the tax owed by him from
the amounts remitted to a service supplier, or that a service user has failed to pay the-amount of
the tax for a period of two or more billing periods, or whenever the Tax Administrator deems it
in the best interest of the City, he may relieve the service supplier of the obligation to collect
taxes due under this chapter from certain named service users for specified billing periods. The
Tax Administrator shall notify the service user that he has assumed responsibility to collect the
taxes due-for.the.stated.periods and demand payment of such.taxes. The notice shall be.served
on the service user by handing it to him.personally or by deposit.of.the notice in the United
States mail, postage.prepaid thereon, addressed to the service.user at the address to which billing
was made by the service supplier; or should the service user have changed his address,-to his last
known address. If a service user fails to remit the tax to the Treasurer within fifteen days from
the date of the service of the notice upon him, which shall'.be the.date of mailing if service is not
accomplished in person; a penalty of twenty-five(25%)percent of the.amount of the.tax set forth
in the notice shall be imposed but not less than five dollars. The penalty shalLbecome part of the
tax herein required to be paid. (1598-10/70,3390-5/98)
3.36.230 Assessment--Administrative remedy. The Tax Administrator may make an
assessment for taxes not paid or remitted by a service supplier or service user. .The.Tax
Administrator shall mail a notice of the assessment which shall refer briefly to the amount of the
taxes and penalties imposed. The Tax Administrator shall mail a copy of such notice to the
supplier or the service user, allowing fourteen(14) days to appeal the assessment. (1598-10/70,
3390-5/98)
3.36.240 Appeals. (3390-5/98)
(a) City Administrator Appeal. If the service user or service supplier is aggrieved by any
decision of the Tax Administrator, or with the failure to grant a refund or exemption as
provided for under this chapter,he may appeal to the City Administrator, or his or her duly
authorized designee, by filing a notice of appeal with the City Clerk within fourteen(14)days
of the decision which aggrieved the service user or service supplier. The City Clerk shall
thereupon fix a time and place for a hearing of such appeal. The City Clerk shall give notice
to such person of the time and place of hearing as herein provided. (3390-5/98)
(b) City Administrator Decision. The decision of the City Administrator, or his or her duly
authorized designee, shall be final unless appealed to the City Council. (3390-5/98)
(c) Appeal to the City Council. An appeal from a decision by the City Administrator may be
filed no later than ten calendar days after the date of the decision. (3390-5/98)
(1) Form of Notice on Appeal. The notice of appeal shall contain the name and address of
the person appealing the action,the decision appealed from and the grounds for the
5/98
3.36.240(c)(1)-3.36.260(b) • Hu*on Beach Municipal Code
appeal. A defect in the form of the notice does not affect the validity or right to an
appeal. (3390-5/98)
(2) Action on Appeal. The City Clerk shall set the matter for hearing before the City
Council and shall give notice of the hearing on the appeal. (3390-5/98)
x. (3). De Novo Hearing. The City Council shall hear the appeal as a new matter. The-original
applicant has the burden of proof. The City Council may act upon the appeal, either
granting it, conditionally granting it or denying it, irrespective of the precise grounds or
scope of the appeal. In addition to considering the testimony and evidence presented at
the hearing on the appeal,the City Council shall consider all pertinent information from
the file as a result of the previous hearings from which the appeal is taken. (3390-5/98)
(4) Decision on Appeal. The City Council may reverse or affirm in whole or in part, or
;.. may modify the decision, or determination that is being appealed. (3390-5/98)
(5) -Fee for Appeal. The notice of appeal shall be accompanied by the fee fixed by
' resolution of the City Council. (3390-5/98)
(6) Anneal by City Council Member.
A. A City Council member may appeal a decision of the City Administrator. The
appeal shall be processed in the same manner as an appeal by any other person but
need not be accompanied by the fee prescribed for an appeal. (3390-5/98)
B. The City Council member appealing the decision is not disqualified by that action
from participating in the appeal hearing and the deliberations nor from voting as a
member of the City Council. (3390-5/98)
3.36.245 Audit by City. The City shall have the right to inspect all books, accounts and records
of the service supplier which the City deems necessary to properly determine if the tax herein
imposed is being levied and collected in accordance with this Chapter. The service supplier shall
make available all books, accounts and records at a location within Los Angeles or Orange
County and during normal business hours. (3390-5/98)
3.36.250 Records. It shall be the duty of every person required to collect and remit to the City
any tax imposed by this chapter to keep and preserve, for a period of three years, all records as
may be necessary to determine the amount of such tax as he may have been liable for the
collection of and remittance to the Treasurer,which records the Treasurer shall have the right to
inspect at all reasonable times. (1598-10/70,3390-5(98)
3.36.260 Refunds.
(a) Whenever the amount of any tax has been overpaid or paid more than once or has been
erroneously or illegally collected or received by the Tax Administrator under this Chapter, it
may be refunded as provided in this Section. (1598-10/70,3390-5/98)
(b) A person required to collect and remit taxes as imposed by this Chapter may claim a refund
or take as credit against taxes collected and remitted the amount overpaid,paid more than
once or erroneously or illegally collected or received when it is established in a manner
prescribed by the Tax Administrator that the service user from whom the tax has been
collected did not owe the tax; provided, however,that neither a refund nor a credit shall be
allowed to the service supplier unless the amount of the tax so collected has either been
refunded to the service user by, or credited to charges subsequently payable to, the person
required to collect and remit such tax to the City. (1598-10/70.3390-5/98)
5/98
Huntington Beach Municipal Coo *.260(c)-3.36.265(d)
(c) A service user who.has not otherwise received a refund or a credit against future taxes from
the service supplier pursuant to subsection(b)of this Section may claim a refund directly
from the Tax Administrator for any amount overpaid,paid more than once, or erroneously or
illegally collected or received when it is established that the service user from whom the tax
has been collected did not owe the tax. The Tax Administrator shall notify the service
supplier of his/her determination and the amount of any refund due to the service user which
amount,if any, shall be promptly refunded or credited to the service user by the service
supplier.in accordance with subsection.(b) above. .(3390-5/98)
(d) Notwithstanding other provisions-of this.-Section whenever a service-supplier,-pursuant to an
order of the California Public Utilities Commission.or.a-court of competent jurisdiction,
makes,a refund to service users of.charges for past utility services,the taxes paid pursuant to
this Chapter on the-amount of such.refunded!charges-.shall:also be refunded to.such,service
users, and the service supplier.shall be entitled to claim a credit for such refunded taxes
against the amount of tax which.is due upon.the next monthly returns. (3390-5/98)
(e) A.service supplier may refund any sums due to the service user in accordance with this
Section or by the service supplier's customary practice. (3390-5/98)
(f) No credit or refund shall be allowed or paid by.the City under the provisions of this Section
unless the claimant has submitted a written claim to the Tax Administrator within one year of
the overpayment or erroneous or illegal collection of said-tax. Such.claim must clearly
establish-claimant's right to the refund by-written records showing entitlement thereto. The
submission of a:written claim,.which.is acted upon by.the Tax Administrator,shall be a
prerequisite to a.suit thereon. The Tax Administrator shall act upon the refund claim within
the time period set forth in Government Code Section 912.4. If.the Tax Administrator fails
or refuses to act on a refund claim within:the time prescribed by Government Code Section
912.4,the claim shall.be.deemed,to.have been rejected-by-the Tax Administrator on the last
day of the period within which.the Tax.Administrator was-required to act upon the claim as
provided in.Government Code Section.912.4. It-is the.intent of the Tax.Administrator-that
the one year written claim requirement of this subsection.be given retroactive effect;
provided, however, that any claims which arose prior to the commencement of the one year
claims period of this subsection, and which are not otherwise barred.by a then applicable
statute of limitations or claims procedure, must be filed with the Tax Administrator as
provided in this subsection within ninety(90) days following the effective date of this
ordinance. The above refund procedure has been adopted by the City pursuant to
Government Code Section 935. (3390-5/98)
3.36.265 Additional Powers and Duties of Tax Administrator. (3390-5/98)
(a) The Tax Administrator shall have the power and duty, and is hereby directed to enforce each
and all of the provisions of this Chapter. (3390-5/98)
(b) The Tax Administrator shall have the power to adopt rules and regulations not inconsistent
with provisions of this Chapter for the purpose of carrying out and enforcing the payment,
collection and remittance of the taxes herein imposed. A copy of such rules and regulations
shall be on file in the Tax Administrator's Office. (3390-5/98)
(c) The Tax Administrator may make administrative agreements to vary the strict requirements
of this Chapter so that collection of any tax imposed herein may be made in conformance
with the billing procedures of particular service supplier so long as said agreements result in
collection of the tax in conformance with the general purpose and scope of this Chapter. A
copy of each such agreement shall be on file in the Tax Administrator's Office. (3390-5/98)
(d) The Tax Administrator shall determine the eligibility of any person who asserts a right to
exemption from or a refund of, the tax imposed by this Chapter. (3390-5/98)
5/98
3.36.270-3.36.340 Huntington A Municipal Code
3.36.270 City exempt. The taxes imposed by this chapter shall not apply to the City.
(1598-10/70)
3.36.280 Senior citizens--Exemption. The tax imposed by this chapter shall not apply to any
individual service user sixty-two years of age or older who uses telephone, electric, water or gas
services, in or upon any premises occupied by such individual,provided the combined adjusted
gross income as used for federal income tax reporting purposes of all members of the household
in which such service user resides does not exceed the "HUD Income Guidelines-Very Low
Income Category" currently on file at the City's Office of the Housing Rehabilitation
Administrator, for the calendar year prior to the fiscal year(July 1 through June 30) for which the
exemption provided by this chapter is applied. (2452-10/80,2886-12/86,3095-4/91)
3.36.290 Application required. Any service user, meeting the requirements for exempt status,
may file a verified application with the Director of Finance on a form furnished by him. The
Director of Finance, or his designee, shall review all applications and certify those service users
as exempt who meet the requirements for the exemption provided by this chapter. (2452-10/80)
3.36.300 Notification to service supplier. The Director of Finance, or his designee, shall
compile a list of all exempt service users,together with the addresses, account numbers, if any,
of such users, and such other information as may be necessary for service suppliers to remove
exempt service users from their tax billings. (2452-10/80)
3.36.310 Service supplier--Duty of. No service supplier shall be required to bill any exempt
service user for any tax imposed by this chapter after receipt of notice from the Director of
Finance that such service user has met the requirements for exempt status established by the
provisions of this chapter. (2452-10/80,2470-2/81)
3.36.320 Exemption automatic. The exemption provided for in this chapter shall continue and
be renewed automatically from year to year except as hereinafter provided. No exempt service
user shall fail to notify the Director of Finance within ten (10) days of a change of address, or of
any other fact or circumstance which might disqualify him or otherwise affect his exempt status.
All exempt service users shall file with the Director of Finance new verified applications in order
to receive exempt service at a new address or location. (2452-10/80)
3.36.330 Tax billing exemptions--Effective when. All service suppliers shall remove exempt
service users from their tax billings for the first regular full billings dated on or before
October 15, 1980, and thereafter within sixty (60) days after notice from the Director of Finance
to do so. (2452-10/80)
3.36.340 Violation--Penalty. It is unlawful and a misdemeanor for any person knowingly to
receive the exemption provided by this chapter when such person has not met the requirements
on which such exemption is based, or when such person can no longer meet the requirements on
which such exemption is based, and upon conviction thereof shall be subject to a fine of five
hundred dollars ($500) or imprisonment in the county jail for a period not to exceed six(6)
months, or by both such fine and imprisonment. Each such person shall be guilty of a separate
offense for each and every day or portion thereof during which a violation is committed or
continued. (2452-10/80)
4/91
ATTACHMENT B
ATTACHMENT B (Page 1)
Administrative Interpretation of Chanter 3.36, as it relates to CATV
This"administrative interpretation" reflects the CITY's interpretation as to its intent with regard
to the imposition, collection and payment of the CITY's utility users taxes on charges for CATV
services under the existing utility users tax ordinance. It is the CITY's intent that the utility users
tax shall be imposed and collected on customer charges for the revenue types as noted below and
shall apply to all types of customers; whether residential, commercial, hotel/motel, bulk, etc.
This list of revenue types is not intended to be a comprehensive list. If the Cable Operator has
any questions with regard to the application of the CITY's utility users tax,the CITY will
provide the necessary guidance. It should also be noted that if non-taxable and taxable
revenue types are commingled, the whole amount is taxable.
UUT Revenue Types:
Y Installations, including Additional.Outlet Installations
Y Activation Fees
Y Reconnection
Y Change of Service
Y Service Charges
Y Service Protection Plan
Y Special Charges (No Promotional Mail, etc.)
Y Name Change
Y Reactivation/Restart Fees
Y Equipment Rental (Converter, Remote, VCR, or any other charges for rented/leased
Equipment)
Y Electronic Program Guide
Y Program Guide (Printed)
Y Return Check Fee
Y Collection Charge
Y Late Fees/Charges
Y Bad Debt Recoveries (Full amount recovered from subscriber, not net of fees for
collection)
Y Trade or Bartered Services
Y Basic Cable Services
Y Satellite Services
Y Music/Audio Services
Y Video Games and all Associated Charges
Y Digital Services (Video, Audio, Games, etc.)
Y Pay Services
Y Pay Per View Services (Movies, Special Events, etc.)
Y Additional Outlets—Monthly Charge
Y Franchise Fees (if billed and collected from Subscribers)
Y Subscriber Refunds
SF/s:SF-98Agree:Time Wam
09/17/98-#4
ATTACHMENT B (Page Q
Administrative Interpretation of Chapter 36, relating to CATV
UUT Revenue Types:
Y Deposits Applied to Subscribers' Accounts
N Donations Collected On Behalf of Charities
N FCC Fees
N Advertising—Local
N Advertising—National
N Advertising—Trade
N Production Revenues
N Leased Channel Access
N Local Access/ Origination
N Home Shopping Services
N Internet Services (AB1614), except for voice telephony usage
N Unapplied Cash—This item is not taxable based on the assumption that the payments that
are posted to this account only represent payments that are received from subscribers prior to
their account being billed (prepayments, which would include the City's utility users tax) and
that these payments will be applied to their specific revenue and tax account classifications in the
following accounting period(s).
SF/s:S F-98Agree:Time W am
09/17/98-#4
303 W. Pahl avenue •
Tel. 71.1.289.6711
Fax. 714.533.0514
�(.» T I I A WA R N Lr--'R
COMMUNICATIONS
1:3
September 16, 1998
Mr. Scott Field
Assistant City Attorney
City of Huntington Beach
2000 Main Street
Huntington Beach, California 92648
Dear Scott:
To confirm our September 15, 1999 conversation, I will contact Randy Dryden of
Municipal Resource Consultants to clarify the revenue streams that will be taxable under
the User Utility Tax Settlement Agreement. It is my hope to finalize all open items by
the end of the day today so that you may prepare the Settlement Agreement for signature.
On page 1 and page 5 of the settlement agreement, please,change our company name to,
KBL Cablesysterris of the Southwest,.Inc., a wholly-owned subsidiary of Time Warner,
Inc.d/b/a Time Warner Conununications. I have a call into our Corporate Attorney to
verify the ownership.and we may need to alter this item, We will do our best to have
clarification to you no later than Thursday morning.
As we agreed, the bill message associated with the tax setting changes will read:
The local Utility Users Tax is now bei)ag collected on bulk services, pay-per-view,
installation charges, late fees and certain other minor charges. Effective
immediately, the Utility Users Tax will be applied to these items, which may result
in a slight increase in your monthly bill if you receive any of these services.
Please feel free to contact me at (714) 289-6719, if you have any questions.
Sincerely,
Kaisty Hennessey
Vice President of Government &Public Affairs
Time Warner Communications
Cc: Robert V. Moal, Vice President& General Manager, TWC
A DMation of Time Warner Entertainment. L.P.
• •
. Vl
SETTLEMENT AGREEMENT
This Agreement is made and entered into this day of September, 1998, by and
between the City of Huntington Beach (hereinafter referred to as "CITY"), and Time Warner,
Inc. (hereinafter referred to as "TWI").
1\0 Recitals.
This Agreement is.made expressly with reference to the following agreed facts,
among others:
1.1` TWI is a cable television(CATV) provider with its principal place of
business in Garden Gr ve, California, but with facilities located throughout California.
1.2 CI\TY is a municipal corporation, and, as a charter city, is vested by law
with the authority to enter into a franchise agreement for the use of its public right of way, and is
also vested by law with the a thority to enact a local ordinance to impose an excise tax on the
users of certain utility services,including by not limited to CATV and associated video
programming services.
1.3 CITY is a in b r of the Joint Powers Authority known as Public Cable
Television Authority ("PCTA"). PCTA h issued TWI a franchise to operate a cable television
system in the CITY.
1.4 Pursuant to Sect?on 3.36.110 o f the CITY's utility users tax ordinance
(ATTACHMENT "A"), CITY requires that TWI collect a five (5%)percent excise tax on
charges that are paid for CATV services used in the CITY. The CITY recently completed an
audit of utility users tax revenues collected and paid over to\the CITY by TWI for the period of
calendar year 1996.
1.5 Based on its audit findings of its CATV utility user tax revenues from
TWI, CITY contends that TWI was required to collect an excise tax certain charges for CATV
related services that TWI failed to collect.
1
SF/s:SF-98Agree:TimeW am
09/16/98-#3
• • OLP
NOW, THEREFORE, TWI and CITY, in consideration of the promises contained herein
and subject to the terms and conditions set forth below, agree as follows:
2.0\\ Compromise and Release.
This Settlement Agreement is entered into in compromise of disputed claims and
rights. Specifically, CITY and TWI desire to compromise, settle and discharge all disputes,
claims, demands, actions or causes of action whatsoever of every kind and nature that pertain to,
or arise out of the imposition, collection and payment of utility users taxes for CATV services by
TWI to the CITY for all cla\s up through and including September 30, 1998. CITY and TWI,
and each of them, therefore hereby forever discharges and mutually releases the other party,
including the other parry's agents, employees, officers, and assigns of and from any and all
claims, demands, rights, liability, suits\debts, liens, actions and causes of action, of every kind
and nature whatsoever, at law or in equity, known and unknown, suspected and unsuspected,
disclosed and undisclosed which the releasing party ever had, now has or hereafter may have by
reason or any act, omission, matter, cause or thing,arising out of: i) the imposition, collection
and payment of utility users taxes for CATV service by TWI to the CITY for the period of
January 1, 1994 through August 31, 1998; and, ii) the C T's application of its utility users
tax to the services of TWI as described in ATTACHMENT "B", including, but not limited to
any claims involving CITY's alleged failure to comply with lega requirements pursuant to
Article XIII D of the California Constitution in connection with the adoption, amendment or
application of its utility users tax ordinance (Chapter 3.36.of the City of Huntington Beach
Municipal Code). It is understood and agreed that this is a compromise of disputed claims and
shall not be construed as an admission of any liability of either releasing pa ty\to the other.
3.0 Past Utility Users Tax Payments.
In settlement of all past utility users tax payment claims of CITY for all claims up
through and including September 30, 1998, TWI agrees to pay CITY the sum of One Hundred
Seventy Thousand Dollars ($170,000.00),receipt of which is hereby acknowledged. It is \
2
SF/s:SF-98Agree:TimeW am
09/16/98-43 ,».,
understood and agreed that this is a compromise of disputed claims and shall not be construed as
an\ fission of any liability.
3.1 Prospective Utility Users Tax Payments. TWI agrees that, commencing
October 1, 998, TWI shall impose,collect and remit to the CITY a utility users tax, pursuant to
Section 3.36: 10 of the CITY's utility users tax�ordinance, on charges for.those CATV services
set forth in the\attached"administrative interpretation", ATTACHMENT "B". It is understood
and agreed that this "administrative interpretation" is an interpretation of the CITY'.s existing
utility users tax ordinance, and is not a new tax or an expansion in scope of an existing tax, but
rather reflects the CITY\interpretation of its existing ordinance to existing CATV services
based on the recent audit find ngs of the CITY.
4.0 Attorne 's Fees and Costs.
TWI and CITY shal a h bear their own attorneys' fees and costs.
5.0 Explained by Counsel and No Coercion.
TWI and CITY each ackno .edge, covenant, and warrant that the contents of this
Agreement have been explained to each of them by their counsel, that they are each free from
any duress or coercion, economic or otherwise\connection with this matter, and that this
Agreement is executed voluntarily and with full kno\11edge.of its significance.
6.0 Only Agreement.
This Agreement constitutes the only existin and binding agreement among the
parties regarding the subject matter of this Agreement, and th arties acknowledge that there are
no warranties, promises or representations of any kind, express or implied, upon which the
parties have relied in entering into this Agreement, or as to the futur relationships of the parties,
except as expressly set forth herein.
7.0 Governing Law.
This Agreement shall be interpreted, governed by, and construed under the laws
of the State of California.
3
SF/s:SF-98Agree:TimeWarn \'
8.0 Construction of Agreement.
This Agreement is the product of negotiation and preparation by and among
parties represented by counsel. Both sides and their counsel have reviewed and have had the
opportunity to revise this Agreement. The.parties-waive-the.provisions of Section 1654 of the
Civil Code\f California and any other rule of construction to the-effect that ambiguities-are to be
resolved agai>s\the drafting party,.and the parties warrant and agree that the language of this
Agreement shall n ither be construed for nor against any party hereto.
9.0 Mod\ation.
No modi\ation or change to this Agreement shall be binding or effective unless
executed in writing by both sides. No oral statement shall in any manner modify or affect the
terms and conditions set forth h\ein.
10.0 Nonwaiver. \
The waiver by either party of any breach of any term, covenant or condition
contained in this Agreement, or any default in the performance of any obligation-under this
Agreement, shall not be deemed to be a waiverof any other breach or default of the same or any
other term, covenant, condition or obligation. Nonshall any waiver of any incident of breach or
default constitute a continuing waiver of the same.
11.0 Counterparts.
This Agreement may be executed in one or no ore counterparts, each of which shall
boriginal, w ' hall constitut one and the same instrument.
e deemed an but all of which together s
12.0 Authorization.
Each person executing this Agreement warrants to th�other party that he or she is
fully authorized to enter into this Agreement in the capacity indicated h his or her signature.
[Signatures on following page]
4
SF/s:SF-98Agree:TimeWam \
09/16/98-#3 "•.
• • LP
TIME WARNER, INC., CITY OF HUNTINGTON
a \ corporation BEACH, a
California municipal
corporation
By
Name \
\(Type or print) _ Mayor
Its(circle one): (1)Chairman of the-Board(ii)President
\Any Vice President ATTEST:
AND
By City Clerk
Name APPROVED AS TO FORM:
(Type or print)
Its(circle one): (1) Secretary(ii)Any.Assistant Secretary;(iii)Chief
Financial Officer(iv)Any Assistant Tre urer City Attorney
REVIEWED AND APPROVED: INITIATED AND APPROVED:
City Administrator Deputy City Administrator/
Director of Administrative Services
5
SF/s:SF-98Agree:Time W am
09/16/98-#3 - il'..
OLD
ATTACHMENT B (Page 1) .
Administrative Inter retation of Chapter 3.36 as it relates to CATV
.This "administrative interpretation" reflects the CITY's:interpretation as to its.intent'with regard
to the imposition;collection and payment of-the CITY's utility:users.taxes on.charges..for_CATV
services under the:existing utility:users tax ordinance.. It.is the.CITY's intent-that the-utility users
tax shall be•imposed acollectedon customer:charges.for the revenue types•as noted below and
:.shall apply.to.all types of customers; whether:residential,-.commercial, bulk,or otherwise. This
list of revenue types is not\intended to-be a comprehensive list. If the Cable Operator has any
questions with.regard to the\application of the CITY's.utility users tax, the CITY.will provide the
necessary guidance.It should\also be noted that if non-taxable-and taxable revenue types are
commingled, the whole amount is taxable.
UUT Revenue Types:
Y Installation (Residential, Commercial, etc.)
Y Activation Fees
N Additional Outlet Installation(Taxable if commingled with installation revenues)
Y Reconnection \
Y Change of Service \
Y Service Charges \\
Y Service Protection Plan
Y Special Charges (No promotional mail, etc.)\
Y Name Change
Y Reactivation/Restart Fees
Y Equipment Rental (Converter, Remote, VCR, etc.)
Y Electronic Program Guide
Y Program Guide (Printed)
Y Return Check Fee
Y Collection Charge
Y Late Fees / Charges
Y Bad Debt Recoveries (Full amount recovered, not net of cola tion fees)
Y Trade or Bartered Services \
Y Hotel, Motel, Commercial or Bulk Service
Y Basic Cable Services
Y Satellite Services
Y Music/Audio Services
Y Video Games etc.
Y Digital Services (Programming, Music, etc.)
Y Pay Services
Y Pay Per View Services (Movies, Special Events, etc.)
Y Additional Outlets—Monthly Charge
Y Franchise Fees (if billed and collected from Subscribers)
6
SF/s:S F-98Agree:Time W am
09/16/98-#3 '"••
0Lfi
ATTACHMENT B (Page 2)
Y Subscriber Refunds
Y Deposits Applied to Subscribers' Accounts
Administrative Interpretation-of Chapter 36,relating to CATV
UUT Revenue Types:
N Donations Collected (On Behalf of Charities)
N FCC Fees �.
N Advertising—Local
N Advertising—National
N Advertising—Trade
N Production Revenues \
N Leased.Channel Access
N Local Access/.Origination
N Home Shopping Services
N Internet Services
? Unapplied Cash
0
.\y
l
A
l
7
SF/s:SF-98Agree:TimeW am
09/16/98-#3^ '"'•
ATTACHMENT #2
- _ Jim. CITY- OF -HUNTINGTON - BEACH
C9 -- - 2000 MAIN STREET - CALIFORNIA 92648
April 3.02 1998 .
Time Warner Communicati6ns
959 South Coast Drive, Ste 300
Costa Mesa,CA 92626
Attn: Ms.Cheryl Kraus,Controller
Re: Audit Findings Per Review of the
City's Utility User's Tax on Cable TV
Dear Ms.Kraus
Municipal Resource Consultants(MRC)have recently completed a review of Utility Users' Tax
payments made by Time Warner to the City. Please find attached a copy of that report,which
identified substantial underpayments of these taxes over the past several years.
In order for Time Warner to avoid the penalty assessment under Chapter 3.36.190 of the City's
Municipal Code,I would strongly suggest that you pay the$338,834 of additional UtilityUsers'
Tax due the City,plus the delinquent penalty of $50,825 required under Chapter 3.36.180. The
City needs to receive this payment by May 15, 1998 to avoid assessment of additional penalties.
Please remit these funds to the attention of Arnie Ross, Sr.Accountant in the Finance department.
After you've had an opportunity to review the analysis,we would ask that you provide us with a
written response on how Time Warner plans to address the issues identified in the report.If you
desire to meet with us to discuss these issues,please contact me to schedule a meeting. If you
have any questions regarding MRC's review,please contact Randy Dryden at(714)258 0919.
I want to thank you in advance for your timely cooperation with this matter.
Sin y
DAN T.VI LELLA
Director of Finance
Attachment
cc: Mary Morales,Executive Director
Public Cable Television Authority---- -----
��bu 0
AICIPALRESOURCE CONSULT•NTS Southern California
R 1381 Warner Avenue Suite F
v� C y A partnership of John T. Austin, Inc. &Allen W. Charkow, Inc.
•Sy�a Tustin,CA 92680
(714)258-3000
FAX(714)258-7503
Westlake Village Madera San Ramon Sacramento
(818)991-5220 (209)432-6039 (510)838-1115 (916)971-4732
March 6, 1998
Mr.Arnold Ross
- Finance Department
City of Huntington Beach
2000 Main Street
Huntington Beach,CA 92648
Re: 1996 Utilitv Users'Tax Review-Time Warner Communications
Dear Mr.Ross:
We have concluded our utility users'tax review of Time Warner Communications for the calendar year of
1996. As you are aware,it is the City's responsibility to review and approve the findings of this report,or
make appropriate adjustments. Furthermore,it is the City's exclusive responsibility to determine what
course of action should be taken relating to these findings.
Our review identified a number of potential errors that would result in$82,228 of additional utility users'
taxes due the City of Huntington Beach for calendar year 1996 (our review period). A number of the
discrepancies noted were a result of a procedure or an accounting practice. As such,if the procedure or
practice was consistently used,these discrepancies would apply to other.years. The method we used to
estimate the amount of these discrepancies for other years is explained below. Based on our method,
additional utility users'taxes totaling$339,834 is due the-City calendar years 1994 through 1997.
Under Chapter 3.36,Section 3.36.180 and 3.36.190 of the Huntington Beach Municipal Code,the City
also has the right to apply penalties to the amount of the utility users'tax that is imposed and not paid in a
timely fashion. We estimate that$50,825 of penalties could be imposed for delinquency of the taxes not
collected,and an additional$50,825 of penalties could be imposed for negligence,if so determined.
The potential errors found during our review are summarized below:
(Over)/Under
Reported UUT Due/
Revenue Tvne: Reported Per Review Revenues (Over Paid)
Total Revenues $20,037,100 $21,681;655 $ 1,644,555 $ 82,228
Potential Errors for 1996:
1 Installation Receipts $ 71,553 $ 383,541 $ 311,988 $.. 15,599
2 Bulk Services $ 0 $ 407,094 $ 407,094 $ 20,355
3 Franchise Fees $ 0 $ 1,049,243 $ 1,049,243 $. 52,462
3 Rate Adjustment-(5,25%) $ (951,944) $ (47,597)
4 Late Charges $ 0 $ 235,641 $ 235,640 $ 11,782
5 PPV-Viewers Choice $ 0 $. 571,854 $ 571,854 $ 28,593
6 Miscellaneous $ 0 $ (7,990) $ (7,990) $ (399)
7 Subscriber Refunds* $ 0 $ (73,127) $ (73,127) $ (3,656)
8 Bad Debt Recoveries* $ 0 $ 76,195 $ 76,195 $ 3,810
9 Deposits Applied $ 0 $ 4,439 $ 4,439 $ 222
10 Unapplied Cash** $ 0 $ 126,077 $ 126,077 $ 6,304
11 Late Fee Judgment# $ 0 $ (73,901) $ (73,901) $ (3,695) -
12 System Merge Adjmt.l#$ 0 $ (26,984) $ (26,984) $ (1,349)
Total for 1996 (Review Period) $ 1,648,584 $ 82,429
13 Exempt Subscriber Adjustment $ (4,029) $ (201)
Adjusted Total for 1996 $ 1,644,555 S 82,228
City of Huntington BO. • March 2, 1998
- Time Warner Communications- 1996 Utility Users'Tax Review Page 2
Allocation Method to Determine Potential Errors in Other Calendar Years:
- We used calendar year 1996 as our basis to estimate the amount of the errors foi the other
calendar years. To determine the allocation percentage of each error,we divided the utility users'tax due
/(overpaid)for that error by the total utility users'tax paid for calendar year 1996. Then,the allocation-
percentage -
percentage for each error is multiplied by the total utility users'tax paid by Time Warner for the other
calendar years to determine the amount of the potential error for that year.
UUT Due/ Allocation _....
Revenue Type: (Over Paid) Percentage
Total UUT Paid in 1996 $ 1,001,855
Potential Errors for 1996:
1 Installation Receipts $ 15,599 1.56%
2 Bulk Services $ 20,355 2.04%
3 Franchise Fees $ 52,462 5.24%
3 Rate Adjustment $ (47,597) (4.75%)
4 Late Charges $ 11,782 1.18%
5 PPV-Viewers Choice $ 28,593 2.85%
6 Miscellaneous " $ (399) (0.04%)
7 Subscriber Refunds* $ (3,656) (0.36.0/o)
8 Bad Debt Recoveries* $ 3,810 0.38% - -
9 Deposits Applied $ 222 0.02%
10 Unapplied Cash** $ 6,304 0.63%
11 Late Fee Judgment# $ (3,695) (0.370/6)
12 System Merge Adjust.# $ (1,3491 0.13%
Total for.1996 (Review Period) S 82,429 8.23%
13 Exempt Subscriber Adjustment $ (201) 0.02%
Adjusted Total for 1996 S 82,228 8.21%
Application of Potential Errors to Other Calendar Years
Allocation
Revenue Tyne: Percentage 1994 1995 1997
Total UUT Paid by Time Warner $ 910,081 $ 947,125 $ 1,088,556
Potential Errors for 1996:
1 Installation Receipts 1.56 $ 14,170 $ 14,747 $ 16,949
2 Bulk Services 2.03 $ 18,490 $ 19,243 $ 22,116
3 Franchise Fees 5.24 $ 47,656 $ 49,596 $ 57,002
3 Rate Adjustment (4.75) $ (43,237) $ (44,997) $ (51,716)
4 Late Charges 1.18 $ 10,703 $ 11,138 $ 12,802
5 PPV-Viewers Choice 2.85 $ 25,973 $ 27,031 $ 31,067
6 Miscellaneous (0.04) . $ (363) $ (378) $ (434)
7 Subscriber Refunds* (0.36) $ (3,321) $ (3,457) $ (3,973)
8 Bad Debt Recoveries* 0.38 $ 3,461 $ 3,602 $ 4,139
9 Deposits Applied 0.02 $ 202 $ 210 $ 241
10 Unapplied Cash** 0.63 5,726 $ 5,959 $ 6,849
Total Potential Discrepancies S 79,460 S 82,695 S 95,043. .
13 Exempt Adjustment (0.02) S (183) $ (190) $ (219)
Adjusted Total Discrepancies S 79,278 S 82,504 $ 94.825
Summary of Amounts Due
Total UUT Due for 1994 through 1997 S 338,834
Estimated Delinquent Penalties Due 50,825
Estimated Negligent Penalties Due 50,825
Total Due City S 440,484
City of Huntington 1 � • March 2, 1998
Time Warner Communications- 1996 Utility Users'Tax Review . Page 3
* Per Time Warner,the receipts in these categories may include taxes and fees. Time Warner does not
have a report that provides a breakdown of the taxes and fees that are included -
** Per Time Warner,"Unapplied Cash"are payments received from subscribers prior to their account .
being billed for the current month's charges(prepayments). Time Warner indicated that their subscriber
accounting system(CSG)would allocate these payments to fees and taxes due first,then it would apply
the remaining portion of the payments to cable charges that are due. Because these amounts are
supposedly allocated later,.Time Warner indicated that it would not be right to include these amounts in
the UUT calculation. (See specified note for more details.)
#These potential errors do not relate to an on-going practice or accounting procedure,and as such,they
are not allocated to other calendar years.
Notes:
Time Warner provided us a detailed breakdown of the receipts that they received for the City by
bill code and a report that describes the tax method used for each bill code. The tax application for the
utility users'tax was recalculated per Time Warner's reports and the difference in the recalculated amount
was immaterial. The potential errors discussed in this report relate to the bill codes where the tax method
indicated that the utility users'tax did not apply.
1.Installation Receipts
All installation receipts,except for the items noted in column(a),were excluded from the
application of the utility users'tax. The amount reported as"Installation Receipts"is made up of amounts
under a number of different billing codes..-A summary breakdown of these codes is noted below:
(a)UUT
Description Total Applied
Installations $ 174,890 $ 33,876
Collections 37,677 37,677
Reconnections/Reactivation 92,890
Transfer Fee 27,485
Service&Name Changes 41,920
Equipment 6,014 -
Misc.-Guide Charge,Donations. etc. 2,665
Total Installation Receipts $383,541 71,553 (a)
Less:Receipts-UUT was Applied (71,553)
Installation-No UUT Application $311,988
(a)-Time Warner applied utility users'tax to all three collection bill codes("Returned Checks",
"Collection Trips",and"Late Fee Credits")and to a few installation bill codes. There does not appear to
be any specific reason why some.installation.bill codes were included in the UUT application,while other
installation bill codes were excluded from the UUT application.
2. Bulk Basic and Bulk Pay Services
Time Warner did not apply the utility users'taxes on bulk basic services and bulk pay services.
The bill codes for these services are titled,"Bulk Value,""Bulk HBO,""Sub Value,""Sub HBO,"and
`Bulk A/O"(Additional Outlet).
3.Franchise Fees and Rate Adjustment
Per Time Warner,their subscriber accounting system cannot apply the utility users'tax to the
franchise fees that they collect from their subscribers. Because of this limitation,Time Warner increased
the utility users'tax rate that it applies to subscriber charges from the 5%that is required in the City's
March 2, 1998 City of Huntington] •
Time Warner Communications-1996 Utility Users'Tax Review Page 4
ordinance to 5.25%. Since Time Warner excluded certain receipts from the utility users'tax application,
this adjustment would be less than the amount needed to make the proper correction. The"Franchise
_ Fees"noted below are the utility users'taxes due on the franchise fees collected from subscribers. The
"Rate Adjustment"is the additional.25%in utility users'taxes that was collected from subscribers.
1994 1995 1996 1997
Franchise Fees $ 47,656 $ 49,596 $ 52,462 $ 57,002
Rate Adjustment $ (43,237) $ (44,997). $ (47,597) :$ (51.716)--' _
Additional UUT Due $ 4,419 $ 4,599 $ 4,865 S
4.Late Charges
Late Charges are receipts received from the subscribers for delinquent fees billed to the
subscriber's account for not paying the cable bill by the due date. Time Warner does not apply utility
users'tax to these receipts. Time Warner does apply the utility users'tax to the"Return Check Charges,"
"Collection Trip Charges,"and"Late Fee Credits".
5. Pay Per View
The Pay Per View receipts are the receipts received from the subscribers who paid an additional
1 -.-- charge.to.view-special programming;wevents,provided by the cable operator..Time`Warner does not - -
apply the utility users'tax to these receipts.
6._Miscellaneous(Service Credits)
This balance represent service credits issued.to subscribers,but the tax method for these bill
codes excluded the application of utility.users'taxes.
7.Subscriber Refunds
When a subscriber terminates their cable service,their account is prorated for the portion of the
billing period that the subscriber received service. Any amounts paid,including refundable deposits,
which exceed the amounts due is refunded to the subscriber. Time Warner does not deduct the refunds
made to subscribers when calculating the utility users'tax due the City.
8.Bad Debt Recoveries
Bad Debt Recoveries are the receipts received from subscribers who pay their bill_after their
account has been written-off. Since these accounts are written off,the payments received from these
subscribers are not processed through the regular subscer accounting system(and included on Report rib
CPSM-300). Time Warner excludes these receipts when calculating the utility users'tax for the City.
9. Deposits Applied
Generally when a subscriber terminates service,and has previously paid a refundable security
deposit,the security deposit is applied to the subscriber's account. Then the subscriber is either billed for
any amounts still due or issued a refund for the credit balance(see 7.above). Time Warner excludes the
subscriber deposits that are applied to the subscriber's bill when calculating the utility users'tax for the
City.
10.Unapplied Cash **
Per Time Warner,this balance represents payments made by subscribers prior to their account
being billed in the next billing cycle(a prepayment). This would mainly occur when an Service
Technician collect installation charges and/or payments for the first month of service at the time the
subscriber is being installed Time Warner indicated that since the charges relating to these payments
City of Huntington Bit March 2, 1998
Time Warner Communications- 1996 Utility Users'Tax Review Page 5 .=.:
were not billed to account,the payments could not be applied. They also indicated that these payments
would include the utility users'taxes paid by the subscriber,and that the utility users'tax portion of these
amounts would be applied to the UUT bill code when the account is finally billed._Because these amounts = _
are supposedly allocated later,Time Warner believes that would not be right to include these amounts in
the UUT calculation.
At this time,it still appears that this account balance should be included. First,the report used to
support the utility users':tax.payment;.-which:includes:this.amount-agrees with:thebreakdowwof the.__..-_-
payments received(Cash,credit card,payment adjustments,and reversals;.etc.):on the"Financial
Summary Report"(CPSM-318). Unless.the.application of these payments are made by netting their.effect '
through the'payment':column,-thenthelotal.of cash received on CP.SM-318 would not agree. Second,if
this account is being adjusted and the payments are being applied later;on in other.categories(through the
"payment column)in the following month,then the net amount of this account should be zero over a
period of time.The-net increase in the account's-receipts was.$126,077. Finally;the,effect of the utility
users'taxes that could be included in this amount would be less than$315.
11.Late Fee Judgment#
Time Warner agreed to a settlement with regards to a consumer protection action brought by the
Orange County District Attorney on behalf of the Orange County Paragon Cable subscribers who paid late
1 fees between October 1, 1991;and December 20, 1995. The District Attorney believed.that the late fees
charged to the subscribers was excessive.'.Time Warner agreed to issue subscribers a credit of.$5.-05 for
each late fee paid during this period. TimeVarner issued credits totaling $73,901 relating to this
settlement under a bill code that did not apply the utility users'tax.
12. Svstem Merge Adiustment#
Per:Time.Warner,they performed a system merge during the.end of calendar year.1995 and the
beginning of calendar year 1996. During the merge process a number of account corrections.needed to be
made. Time Warner captured these corrections under a separate bill code. The net effect of these
corrections resulted in a credit balance of$26,984. Time Warner did not apply the utility users'tax to the
corrected receipts reported in this bill code.
13. Exempt Subscriber Adiustment
For the calendar year of 1996,the City averaged 48,695 subscribers. Time Warner provided us
with a list of 119 accounts that they exempted from the City's utility users'tax. Assuming that the
accounts are accurately exempted,then only.24%of the subscribers in the City are exempted,which
appears to be reasonable. We did not forward a copy of the Time Warner's exemption list to the City
because the list did not include the subscriber's name to perform a match with City records,and the. -
number of exempt accounts is immaterial.
14. Penalties
Section 3.36.180 of the Huntington Beach Municipal Code describes the application of a 15%
penalty for the delinquency in payment of any amount collected or any deficiency determination. Section
3.36.190 allows the tax administrator to impose another 15%penalty if he determines that either fraud or -
negligence occurred in reporting and paying these taxes. Based on our estimates,approximately$50,825
of penalties would be due relating to delinquency and another$50,825 of penalties would be due if the tax
administrator determines that Time Warner was negligent in reporting and paying the utility users'taxes
due.
City of Huntington .n March 2, 1998
Time Warner Communications- 1996 Utility Users'Tax Review
15. Results of Geocode Tests
Time Warner provided electronic lists of their subscnber data base for the City of Huntington
-_. .. ._Beach and the surrounding areas..-We reviewed this information to determine the accuracy of-Time
Warner's reporting of subscnbers located in the City. Our tests identified 41 accounts that had addresses
that were located outside the City,but were being reported in the City. Based on the information
provided,the error rate is not material.
- - Please call.me if you have any quesdons or:need additional information regarding.our review. As always,
.we appreciate this opportunity to.serve.you•and-the City of Huntington Beach
S
Randy S
incere .Dry yn
Declaration:
I declare under penalty of perjury that my compensation is not based upon the findings or the outcome of
this review.
3 he7
Randy S. Ply
den Date
cc: James N.Thompson,MRC-Westlake Village
Donald Maynor,MRC Attorney
Hurvp- B