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JWF 7/5/06 ORDINANCE AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA ANA AMENDING SECTIONS 35- 153(n) AND 35-155 OF THE SANTA ANA MUNICPAL CODE MAKING CERTAIN TECHNICAL MODIFICATIONS TO THE UTILITY USERS TAX ON TELEPHONE SERVICES DUE TO CHANGES IN INTERPRETATION OF FEDERAL LAW. THE CITY COUNCIL OF THE CITY OF SANTA ANA DOES ORDAIN AS FOLLOWS: Section 1. The City Council of the City of Santa Ana hereby finds, determines and declares as follows: A. Since 1975 the City of Santa Ana has collected a Users Utility Tax ("UUT") on telephone communication services. Since 1991, the tax rate has been 6%. B. When first adopted, the UUT was enacted with reference to Federal Excise Tax, 26 United States Code §§ 4251, 4252 and 4253, ("FET") upon local and long distance telephone communication services, as the FET was interpreted by the IRS the Internal Revenue Service's ("IRS"). C. The reference to the FET in the UUT was intended to be used as a benchmark for purposes of identifying the types of telephone communication services subject to the tax, and those taxpayers exempt from the tax. The FET was not a basis or authority for the City's imposition of the UUT. D. On May 25, 2006, the IRS issued its Revenue Notice 2006-50 which announced that the IRS was no longer interpreting the FET as applying to wireless communications which were billed based on time only, and not both time and distance. This revenue ruling reversed the historical interpretation and practice of the IRS as it relates to wireless telephone services and further reversed prior IRS Revenue Ruling 79-404 which held that telephone services which are billed based only on time are subject to the FET, and upon which the City relied in collecting the UUT. As a result of Revenue Notice 2006-50, effective August 31, 2006, the FET will Ordinance No. NS-XXX Page 1 of 6 50B-3