THERE’S A WHOLE SLEW OF TAX increase propositions on the ballot this fall. You’ll have to be a zillionaire just to pay ‘em all.
Proposition SM expands the current 10 percent Santa Monica City Utility User’s Tax (UUT) we all pay on utilities such as gas, electric, water, phone and cable TV. It’s a flat out blank check. If SM wins with better than 50 percent voter approval, a number of new services previously untaxed will simply be added to the current UUT and subject to taxation. But, if it loses, there will be absolutely no existing revenue loss to the city and residents will get a break.
Kate Vernez, Assistant to the City Manager, said “It will cover private communication services like T1 business lines and paging, and add new definitions to clarify that VOIP (Internet phone service) and text messaging are included.” It will also “officially authorize” the current practice of collecting tax on cellular service which was never approved by voters.
The Telecommunications Act of 1996 currently prohibits utility taxes on satellite services to encourage their growth and competition among providers like telephone (Verizon’s FIOS), cable TV and satellite (DirecTV, HughesNet, Dish, OnStar and GPS services). But, in a few years if taxation of these last-named services is permitted, SM unconditionally provides the city the authority to automatically begin taxing them without public comment or reconsideration.
There’s also a federal hold on Internet taxes, but this regulation expires in 2014. In six short years, there will be a feeding frenzy of local, county, state and federal entities rushing in to tax the Internet. Prop. SM also gives the city carte-blanche to slap a whopping 10 percent tax on internet services to every resident and business which could also include music, sports, movies, entertainment and data downloads subscriptions and other services not covered by sales taxes.
Revenue from the UUT, property taxes, business licenses tax, permits, local sales tax, charges for city services and other sources go into one big pot: the General Fund. This year, it’s $252-million of an overall city budget of nearly $525-million.
Vernez said the total UUT (about $33-million or 13 percent of the city’s revenue) funds “a wide variety of essential services such as neighborhood beat patrols; para-medic, police and fire services; parks and recreational opportunities.”
However these, like most city services, are paid out of the General Fund which also pays for things like homeless giveaways, maintaining obsolete city facilities, public relations firms hired to tell us to avoid panhandlers, crony consultants, streetscapes, beach artwork and a plethora of expensive non-essential activities and vanity projects.
The city’s Web site states, “The telecommunications portion of the UUT provides approximately $12 million of support for programs and services that are important to Santa Monica residents and our community.” But, not one dime of that money will go away if Prop. SM doesn’t pass this November.
If SM loses, Vernez acknowledges, “The existing tax will still be collected.” So, no money will be lost, no police or firemen will be fired and the schools won’t lose their city subsidy despite the hysterical and false claims made by its supporters.
Even more insidious is the tax will apply to where services are rendered. The proposed ordinance states in Section N: “As determined by the Tax Administrator, ‘service address’ may include the location of the service user’s communication equipment from which the communication originates or terminates, regardless of where the communication is billed or paid."
This means you can be charged for services rendered in Santa Monica even if your equipment (cell phone, computer, GPS receiver), is registered and/or billed out of town. Service calls, box rentals, DVRs, late payments and rate increases will all be taxed at 10 percent. The entire UUT continues forever or until repealed.
On the plus side, “Existing protections that exempt low income seniors/disabled from paying the UUT will remain in place,” Vernez assured me.
Police and fire union leaders work for the city, so it’s good politics for them to endorse SM even though many public safety employees have privately said they’re not worried about cuts because they won’t happen.
But, what will happen if SM tanks? The city will probably go back to the drawing board and introduce a revised UUT proposal to the voters, again. It would only be fair if, the next time around, the city gives us a break and reduces the 10 percent tax rate as they add new services to tax — as other cities are doing.
It would even be fairer for the city to begin collecting the “developer impact fees" that it hasn’t collected since 1991 — and not one dime of these fees have been collected! Estimated lost revenue: at least $25 million!
Better to tax our citizens and businesses while giving developers a free ride. That’s really fair.
More to come on this.
Bill Bauer — that’s until his internet service is taxed.
Originally published in the Santa Monica Daily Press print edition on September 15, 2008. Read the original PDF.