Residents could be asked to weigh-in on utility taxes
CITY HALL Along with deciding who should be the next leader of the free world this November, Santa Monica residents could also be asked to determine if one of the largest sources of city revenue should continue to stream in.
City officials are considering placing a measure on the fall ballot asking residents whether the city’s existing Utility Users Tax (UUT) on telecommunication services should be modernized, which if approved, would save roughly $8-$12 million annually.
Residents currently pay a 10 percent tax rate applied to their electricity, natural gas, cable, water/wastewater and telecommunications bills like Verizon, which constitutes roughly 13 percent of the city’s general fund revenue, paying for essential services such as public safety and recreation.
But revenue brought in through the UUT on telecommunications could be in jeopardy.
Santa Monica City Hall is among the many government entities across the state that mirrored the language in its UUT ordinance after the federal excise tax, a request by utility companies to make the administrative proceedings simpler. Some complications with the languages in the UUTs arose when the Internal Revenue Service ruled in May 2006 that it would stop applying the federal excise tax on almost all telephone communication services, except for the local exchanges, leaving roughly 25 percent of telecommunications services as taxable by the feds, according to an earlier city staff report.
The IRS’ decision came after several challenges to the definition of “toll telephone services,” which is the long distance application in the federal excise tax, went into effect. The ruling by the IRS essentially deemed wired and wireless long distance untaxable.
The problem for cities like Santa Monica is whether such telecommunication services could be taxable locally, since the language in their UUT ordinances were modeled after federal guidelines.
The proposed ballot measure in Santa Monica would modernize the UUT ordinance, updating the language for telecommunications which has seen drastic changes in the past few decades with cell phones.
“It would ensure all residents are treated equally regardless of the type of telecommunications that they use,” Kate Vernez, the assistant to the city manager for governmental relations, said on Wednesday.
A survey was recently conducted to determine if the public would support a UUT change that would still keep the current tax rate at 10 percent. The results seemed to point to a successful measure this fall.
Fairbank, Maslin, Maullin and Associates, a public opinion firm, conducted the survey in December 2007, finding that 59 percent of the respondents would endorse the measure, while 21 percent would oppose. Approximately 20 percent said they are undecided.
The survey found that more residents would be in favor with additional information about the repercussions of losing the UUT on telecommunications, according to city officials.
More than 76 percent of respondents said they did not want to see cuts to services such as paramedics and educational programs.
A measure for the UUT changes, which is required under Proposition 218, would have to be placed on the ballot by the City Council.
Many municipalities across the state are currently facing a similar predicament with their UUTs, according to Michael Coleman, the fiscal consultant to the League of California Cities. These cities are updating their ordinances in several ways, but basically eliminating the reference to the federal excise tax.
Congress is currently looking at repealing the federal tax altogether.
The issue with the federal excise tax was that it was based on an archaic formula of how telephone systems were charged — based on time and distance.
“Things obviously changed quite a bit,” Coleman said. “The basis of time and distance doesn’t make sense anymore.”
Originally published in the Santa Monica Daily Press print edition on April 18, 2008. Read the original PDF.