Santa Barbara voters on Tuesday night overwhelmingly approved Measure G, meaning the city will continue collecting a decades-old telephone tax for the use of cell phones and land lines — and start collecting them for the use of Internet-based phone services.
The initiative required simple majority approval, but nonetheless would have won even had it required a two-thirds majority, with 70.6 percent of voters saying yes.
City officials say that while the initiative will not generate more money for the city, it will avoid the loss of about $4 million annually from the general fund. Put another way, they say it would allow the city to break even.
The amount of the tax will drop from 6 percent to 5.75 percent, but officials say the city in theory could break even by starting to tax Internet-based phone services, such as Vonage, which offers flat, cheap rates to users. The passage means the city also can start to tax the use of Internet-based television, which isn’t yet offered in Santa Barbara.
City officials say the initiative will not tax the Internet or Internet downloads. Such a tax is prohibited by federal law, but in case that restriction ever is lifted, the city added a special clause to ensure the tax would not include the Internet.
The issue went before voters because of a recent change in federal law. In May 2006, the IRS dropped the federal excise tax on long-distance calling for land lines and cell phones.
In the 1970s, many cities, including Santa Barbara, cited the old federal law in the language of their own telephone-tax ordinances.
Now that the federal tax law is defunct, the old city ordinances are out of date, leaving municipalities such as Santa Barbara vulnerable to litigation. In the worst-case scenario, a judge could have ruled that Santa Barbara must forfeit the vast majority of its phone-tax proceeds, which amounts to nearly $4 million annually.
The money represents about 2 percent of the general-fund budget and 14 percent of the streets budget. City officials say failure to pass it most likely would have meant reductions in police, fire, park, youth and street services.
Noozhawk staff writer Rob Kuznia can be reached at rkuznia@noozhawk.com.
