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Voters May Be Tapped to Decide Fate of Santa Barbara Phone Tax

The rate would decrease, but the tax also would expand to include Internet-based phone services.

It appears that Santa Barbara voters will decide in November whether the city should 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 Santa Barbara City Council on Tuesday voted 7-0 to put the telecommunications portion of the so-called Utility User’s Tax on the November ballot but, for technical reasons, must vote again July 1 to make the plan official.

City officials say that while the initiative would not generate more money for the city, it would avoid the loss of about $4 million annually from the general fund. Put another way, they say it would allow them to break even.

The amount of the tax would 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. If passed, the city also would start to tax the use of Internet-based television, which isn’t yet offered in Santa Barbara.

City officials say the initiative would 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 needs to go 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Now that the federal tax law is defunct, the old city ordinances are out of date, leaving municipalities such as Santa Barbara vulnerable to litigation.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 rule 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 mean reductions in police, fire, park, youth and street services.

Passage would require a simple majority vote.

Noozhawk staff writer Rob Kuznia can be reached at [email protected]


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