Municipalities Can’t Tax Internet Providers, Except When They Can

Mention the word “landline” to modern consumers, and you’ll likely get the same quizzical look as if you’d said “rotary phone.” As consumers shift almost uniformly to mobile phones and larger organizations rely on cable connections instead of DSL for their office “landlines,” the local income associated with telecom franchise fees has nosedived. Adding to the complexity of the revenue issue is the Internet Tax Freedom Act (ITFA) of 1998, which prohibits taxing internet usage – so, even though telecommunications companies are utilizing locally-owned phone lines to provide broadband internet access to residents, localities can no longer tax the services being provided like they used to.

However, creative minds have been working to find ways that accommodate the various federal statutes while still increasing revenue for local governments. In recent months, cities have started to pass legislation allowing localities to tax internet providers directly for using city right–of-ways (ROWs). It’s a highly technical loophole, but with broadband being at the forefront of the next major tax revolution, its one that your municipality may want to consider – and soon.

Read the full story by Avenu’s Jonathan Gerth at Efficient Gov.

Jonathan Gerth, Esq., is vice president of compliance auditing for Avenu Insights & Analytics. Contact him at Jonathan.Gerth@avenuinsights.com.

Avenu Attends AMROA’s Summer Conference

Avenu’s friends in the South may have spotted the Avenu booth at the 50th annual Alabama Municipal Revenue Officers Association (AMROA) Summer Conference at The Westin, Birmingham this week. A dedicated partner to revenue administrators around the country, Avenu is thrilled to be a Silver Sponsor of the event and support the professionals who help ensure their municipalities are fiscally secure.

Avenu Business Development Executive Yolanda Watkins Bailey was on site throughout the event, answering questions, introducing Avenu’s tools and services, and listening to agencies needs and concerns when it comes to their financial matters.

“I love getting to meet Alabama’s municipal finance officers face to face and learning what helps them succeed. Avenu has such great resources available and I very much enjoy when we can show that to a local audience.”

If you missed Yolanda this week, feel free to reach out to her with any questions about Avenu or its services at ywatkins@avenuinsights.com.

Avenu to attend MASC Annual Meeting

Adam Rubin

South Carolina’s city managers will be on the lookout for Avenu Insights & Analytics at the Municipal Association of South Carolina Annual Meeting. Taking place July 18-22 at the Marriott Hotel, Hilton Head Island, the MASC is a place for local government leaders to network, learn, and share their own insights on how to best manage the state’s municipalities. An avid supporter of local agencies, Avenu remains committed to helping South Carolina’s cities maximize their revenue and run more efficiently, and will be on site throughout the week. Look for Avenu Business Development Executive Adam Rubin at sessions – he will be ready to answer your questions regarding:

  • Sales and use tax
  • Franchise fees
  • Property tax
  • Hotel and short-term rental taxes

For any questions or to get in touch with Adam at the conference, reach out to him at adam.rubin@avenuinsights.com.

Avenu Supports TCMA

In keeping with its history of supporting agencies and municipalities in Texas, Avenu will be sponsoring the Texas City Management Association Conference from June 21-24 in Galveston.

Client Executive Brenda Anderson

As a silver sponsor of the event, Avenu continues to demonstrate the value it places on local governments and its mission to provide accessible revenue solutions for agencies of all sizes. With this year’s conference theme of “Surviving the Riptide,” Client Executive Brenda Anderson will be on site to provide revenue management insight to attendees and answer any questions about getting your municipality through challenging times.

“Riptides can be intimidating and scary, but if you stay calm they are manageable – just like any budget problems you might face in local government. I’m looking forward to connecting with the cities and counties of Texas to show them that with the right tools, they can survive – or even prevent – these budgetary “riptides” with ease,” Brenda says.

Brenda will be on site all weekend, ready to address your city or county’s compliance solution needs and is eager to help ensure your agency is financially sound. Contact her at brenda.anderson@avenuinsights.com if you’d like to meet at the conference.

Avenu sponsors ACCMA Summer Conference

Avenu (formerly known as Revenue Discovery Services/RDS in Alabama) continues its leadership role in the state as a sponsor the Alabama City County Management Association Summer Conference, June 6-8 in Orange Beach.

As silver sponsors of the ACCMA event, Avenu will be co-hosting the Summer Social on Thursday evening. In addition, team members will be on hand at the Avenu booth to discuss your city’s or county’s particular revenue enhancement or administration challenges.

Perry Brasfield, Avenu Client Executive

Yolanda Watkins,  Business Development Executive

Avenu’s Yolanda Watkins Bailey, Perry Brasfield, Audrey Freemen and Randy Godeke will be present to answer any and all questions pertaining to:

  • Sales and use tax
  • Franchise fees
  • Property tax
  • Hotel and short-term rental taxes

“Avenu is committed to helping agencies in Alabama get the most out of their revenue. I look forward to meeting with local government leaders this week to work toward making a positive impact on our great state,” Watkins says.

Kentucky County Looks to Avenu for Revenue Enhancement

Rowan County, Kentucky considers how to improve the collections of its occupational tax.

Read the full story for details on the risk-free approach advocated by Avenu’s Richard Boone.




Sugary Beverage Tax a Boon for Cities

Across America, the obesity epidemic has fueled the debate whether to tax soda and other sweetened beverages, a move many policy makers think will shrink consumer waistlines. While these discussions are taking place at the state and federal levels, the real decisions are taking place at the local level, and many cities see a monetary benefit to taxing sweet drinks.

In 2014, the City of Berkeley became the first city in the nation to tax soda. Measure D, which passed with 76% of voter approval, imposed a $0.01 tax on each fluid ounce of most sugar sweetened beverages. Since then, the tax has proved to be effective in both reducing consumption of sugary beverages and raising additional revenue for the City.

In a March 2017 report to the Berkeley City Council, City staff reported that, since its start in March 2015, the Sugar Sweetened Beverage Tax had raised more than $3 million for their general fund. Last April, a longitudinal study put out by the Oakland-based Public Health Institute and University of North Carolina found that the tax had reduced sugary beverage consumption by nearly 10%.

For many local policy makers, both of Berkeley’s outcomes have been received with great optimism of what can be done in their own communities. Last year, voters in the City of Oakland approved their own Sugary Beverage Tax following the similar guidelines to Berkeley, a $0.01 tax on each fluid ounce. It will take effect on July 1st.

“Right now, cities and counties are under an immense amount of pressure to hire needed staff and pay for critical projects,” said Doug Jensen, senior vice president of MuniServices. “Finding that additional money is always the hard part, but when you have a tax increase that the public supports, I would say it’s prudent to explore that opportunity.”

While the fiscal benefit was evident in Berkeley, the process was not without challenges as the City needed to find an inexpensive way to process monthly tax payments and ensure compliance. To do this, they hired MuniServices, one of the nation’s leading municipal tax auditors, to implement collection procedures and process monthly payments of the tax.

“The soda tax can be a great benefit for a city or county when done right,” said Jensen. “Municipalities have to weigh out the administrative and enforcement costs of a new tax that isn’t connected to existing revenue streams. Those costs can heavily eat away at the final dollar amount that’s usable.”

H.O.T. Times in the City

A Guide to Maximize Your City’s Occupancy Tax

Ted Kamel, Senior Hotel Tax Examiner and Client Services Manager

Cities across Texas have experienced a new era in lodging tax growth that has directly affected promoting visitation to their communities. Occupancy taxes spent wisely can be a boost with increased heads in beds for a variety of events like festivals, concerts, sporting events, and other venues that bring guests into cities for short term stays.

Many cities in Texas have seen new prime lodging franchises open. Some communities have seen an increase in lodging facilities for workers needing short term living quarters over a couple weeks to several months. Others are experiencing the recent rise in short term overnight rentals of single family residences, condos, and other units not originally built for lodging purposes.

By following a few important guidelines, your city can analyze and take advantage of these trends to increase hotel tax revenues, and strengthen its ability to manage alternative lodging options.

1. Enhance H.O.T. Ordinance and Local Returns

The local ordinance should require the lodging provider to register before collecting the tax. Once registered, the business becomes the fiduciary trust in collecting and remitting the tax properly to the city either quarterly or monthly whichever is required per ordinance. Monthly tax remittance historically increases city revenues due to closer scrutiny. Cities should clearly state their right to review and exam periodic records allowed under State statute.

City hotel tax returns should collect more than just taxable rent. Data provided on the local return will provide some critical information that will assist cities beyond just collecting the tax. Strengthened returns will ask for the gross room rent, regular exempt rent allowed under statute, long term exempt rent for those staying over 30 consecutive nights, and finally taxable room revenue. Each tax return should ask for the number of rooms rentable at the property. Further, knowing the number of “room nights rented” assists cities and CVB to analyze trends in lodging occupancy rates, especially after special events.

2. Perform Exams on a Regular Basis

Coupled with strong hotel tax returns, a regular exam program builds a long-term compliance ethic within a city’s lodging community. The best approach is to exam a percent of properties each year. Examiners should carefully study anomalies in data collected especially exempt rent claimed to a city on returns.

Properties should be examined at least once every four years. Changes in ownership along with possible franchise changes warrant periodic review. Owners should be given regular reviews in their responsibilities with a strong education program. Successor liability issues should be addressed with changes in ownership as well.

Creating volumes of spreadsheets that compare tax returns with property management records will create a large exam report, but will not go far in detecting hidden significant errors in reporting and remittance of the local tax. Examiners should be carefully chosen based on their background in understanding how to analyze long-term exempt rent and other data reviewed forensically.

3. Short-Term Rentals Create New Challenges

Short-term residential, whether single family homes, condos or other units, are growing in popularity in cities across Texas. Some view these short-term rentals as a benefit by expanding the type of lodging options available to guests both seasonable and otherwise. However, many of these rentals are not in commercial zones and may impact neighborhoods. Further, cities are burdened by ensuring these properties are registered and remitting all hotel taxes per the local ordinance.

Cities should be proactive in approaching this growing trend by reforming certain provisions in its lodging and zoning ordinances. Certainly, a requirement for registering the property must be stated and advertised providing penalties for non-compliance. Some municipalities might require a special use permit similar to daycare centers, and other home based businesses. Single family homeowners in the area would be allowed a voice in the granting of a permit through the regular planning and zoning hearing process. If the special use permit is granted, it is usually up for a review every couple of years allowing the city to measure the effects on neighborhoods.

As with other permits granted, the city will have requirements on parking, noise abatement, the maximum number of overnight guests allowed on the property, and other issues related to short term rentals. Inspections regarding fire safety and health related issues might be imposed as they are for traditional lodging properties. Smoke detectors, escape routes, fire suppression equipment, exterior signage, swimming pool regulations, and other issues should be addressed during the permitting process. Cities should provide for citations for violations including verified complaints of neighboring residences.

If there is a higher concentration of short-term rentals within a certain area of a city, decision makers might create a short-term rental overlay zone with the same requirements imposed with special use permits.

Third party management companies often act as the agent renting short-term properties. While the local ordinances regulating these properties are shouldered by the owner, the collection and remittance of the tax usually lies with these companies. Cities should require a tax return be filed either monthly or quarterly regardless of the rental income derived during that period. Some major rental companies simply want to send the city one check each month or quarter for all units rented. Cities should either require a separate return per property, or one tax return with a list file of each and every unit rented. Cities must know the rental income and business activity of each property. Finally, cities must never give up their right to exam any short-term rentals, including those managed by third party companies.

Cities can maximize their hotel occupancy tax collections and establish a strong compliance ethic by following these simple guidelines. These increased HOT revenues will help improve not only your community’s cultural and special event programs, but also drive future dollars with a growing and thriving hospitality industry.

Ted Kamel is a Client Services Manager and Senior HOT Examiner with MuniServices, LLC. in Texas. Prior to joining MuniServices, Mr. Kamel served four terms in the Texas House of Representatives, and two terms as a Tyler City Councilman. MuniServices serves cities in Texas and nationally with tax compliance management, revenue optimization, consulting services, and budget transparency.

Use Tax and Its Impact on City Development

Is your city considering approving a major construction project in the next year? Do you want to get the full tax benefit out of it? If you answered yes to both of these questions, you may want to consider creating a Business Cooperation Program to ensure your city gets its fair share of use taxes from the project.

Created as a way to solve complexities on out-of-state purchases, use taxes are simply a tax on property purchased from out-of- state vendors, but used, stored or consumed in the state. Use taxes are typically reported and distributed by the California Board of Equalization (BOE) through countywide pools, which then distribute a portion of that to the city where the property is being used, stored or consumed. Unfortunately, on major construction projects, a city could lose out on up to 90% of its entitled use tax by having it go through the countywide pool.

“Many times, a city will miss out on the opportunity to gain tens of thousands of dollars in tax revenue on major developments in their jurisdiction because applicable use taxes have been distributed to every jurisdiction in their county rather than the location of the project,” said Janis Varney, vice president of sales and use tax at MuniServices. “Every year, we see millions spent on fixtures, materials and equipment purchased out-of-state for city development projects. And, every year, we see where a city didn’t reap the benefit of the increased portion of use taxes from those purchases.”

There is another option though. Cities can create a Business Cooperation Program (BCP) to enter into agreements with project developers and contractors to re-route the use tax from the countywide pool. Companies and contractors in a BCP agreement – that make out-of-state equipment, material and fixture purchases – would remit their use tax to the BOE through a: Direct Pay Permit or registered sub-permit for the jobsite. The vendor or contractor would specify the city as the first function use of the equipment, materials and fixtures, then report the use tax directly to the identified city.

“We are very cognizant of the impacts use taxes have on our city, and wanted to ensure we were maximizing our revenue opportunities,” said Wade McKinney, city manager for the City of Indian Wells. “Creating a Business Cooperation Program made sense for us, and it continues to help fuel local development.”

In Indian Wells, the City is using the BCP model on the expansion of the Indian Wells Tennis Garden, home of the BNP Paribas Open, the fifth most attended tennis tournament in the world. Through the $90 million project, Tennis Ventures, the company that owns the Tennis Gardens, is building a third stadium to increase the Open’s maximum attendance rates from 450,000 to 600,000. Through it, contractors are expected to spend millions on seating, lighting and signage, much of which is purchased out-of-state then furnished and installed on site.

“The BCP model make a lot of sense for cities to create and have on hand when needed,” said Varney. “Depending on the size of the project, a city could realistically generate up to $100,000 or more in additional tax revenue for its general fund. But more than that, a BCP gives them the ability to incentivize developers for doing business in their city.”

Over the past 19 years, the BCP model has been a great benefit maximization tool for many cities. What many don’t know is they have MuniServices to thank for it. In 1996, MuniServices worked with its partners, and then-Senator Ralph Dills, to draft SB 110, the legislation that formed the BCP model by allowing companies to obtain direct pay permits for use tax remittance. Through many hard fought wins, Governor Pete Wilson signed SB 110 in 1997.

Auditors to Comb $90 Million in Santa Monica Tax Receipts

The City of Santa Monica is expected Tuesday to hire outside auditors to comb through receipts for an estimated $90 million in taxes collected from hotels, businesses licenses and through public and private parking fees.

MuniServices, LLC, a California-based firm, is set to be awarded a five-year contract not to exceed $400,000 to audit and provide compliance services on the amounts the City collects from the Business License, Parking Facility and Transient Occupancy taxes.

The contract is recommended for approval by City staff as part of the consent agenda for the City Council’s meeting.

Such audits are ordered often by the City. Doing so has helped it recover an additional $1 million in the last three years from the three taxes, according to City staff.

All three taxes bring in significant revenue for the City and its more than $1 billion biennial budget.

Business licenses for about 23,000 business in Santa Monica annually generate approximately $31 million a year, the report said.

The City also levies a 10-percent tax on private and public parking fees from about 200 such business operators, generating more than $11 million annually, officials said.

Topping those two categories of income for the City is the Transient Occupancy Tax. The 14-percent hotel tax is levied on about 40 hotels and other providers of lodging, as well as “a number of home share businesses” in Santa Monica, according to staff.

All told, the hotel tax boosts City revenue by about $48 million a year, the report said.

MuniServices has been working with the City since 2013 and its current contract expires June 30. The company also holds a City contract for audit and related work on the Utility Users tax.

City officials notified 251 bidders for the contract set to be voted on Tuesday. Of those, 31 vendors downloaded the paper work and four firms – MuniServices, Hdl Software, LLC, Sotomayor and Associates and Davis Farr LLP – submitted proposals.

“MuniServices had competitive pricing and was also the most qualified firm, thereby providing the best value for the service,” the staff report said.

“Staff anticipates that revenue recoveries from the audits will offset a significant portion, if not all, of the costs.”