Many cities in California are considering the expansion of their Utility User Tax (UUT) to streaming video services. Such an expansion may be inconsistent with the cities’ existing ordinances, be invalid under Proposition 218 and the Internet Tax Freedom Act, and raise constitutional nexus and fair apportionment issues.


Over 150 California cities impose a UUT on consumers of traditional utilities such as gas, electric, telephone, water or cable services.1 Until recently, most UUT ordinances date from a model ordinance developed by the League of California Cities in the 1980s which did not reflect technological advancements, such as cell phones, Voice over Internet Protocol (VoIP) and the internet.2

Originally, most UUT provisions exempted telephone charges that were not subject to the federal excise tax (FET). This was not controversial before the advent of cell phones. However, the FET exclusion became very significant when the Internal Revenue Service conceded after years of litigation that most cell phone calls were in fact not subject to the FET because cell phone charges were not based on both time and distance.3 Existing UUT ordinances on cable services were also becoming outdated because of the convergence of voice, data, video and other services offered through broadband by both traditional cable and telephone companies.4 As a result, many cities sought and secured voter approval through ballot measures to eliminate reference to the FET, and to “modernize” their UUT ordinances to capture charges for telecommunications and video services, “regardless of the technology used” to deliver those services, including cell phones, VoIP and broadband.5

Video Services

Roughly 40 cities have updated their UUT ordinances to subject “video services” to UUT and require video service suppliers to collect UUT from customers on charges for “video services.” The following definitions have been adopted by most of these cities through voter-approved measures:6

“Video services” means any and all services related to the providing or delivering of “video programming” (including origination programming and programming using Internet Protocol, e.g., IP-TV and IP-Video) using one or more channels by a “video service supplier”, regardless of the technology used to deliver or provide such services . . ..

“Video programming” means those programming services commonly provided to subscribers by a "video service supplier" including but not limited to basic services, premium services, audio services, video games, pay-per-view services, video on demand, origination programming, or any other similar services, regardless of the content of such video programming, or the technology used to deliver such services . . ..

“Video service supplier” means any person, company, or service which provides or sells one or more channels of video programming . . . [and] includes, but is not limited to, multichannel video programming distributors [as defined in 47 U.S.C.A. Section 522(13)]; open video systems (OVS) suppliers; and suppliers of cable television; master antenna television; satellite master antenna television; multichannel multipoint distribution services (MMDS); video services using internet protocol (e.g., IP-TV and IP-Video, which provide, among other things, broadcasting and video on demand), direct broadcast satellite to the extent federal law permits taxation of its video services, now or in the future; and other suppliers of video programming or communications (including two-way communications), whatever their technology.