Pixel Tracker

Tuesday, November 20 , 2018, 4:07 am | Fog/Mist 47º

Sports: A Noozhawk Partnership with Santa Barbara Athletic Round Table, The Lab, and American Riviera Bank
Santa Barbara Athletic Round TableThe LabAmerican Riviera Bank

Santa Barbara Telephone Tax: Hang Up or Hang On?

City may ask voters to decide fate of longtime tax. At stake is $4 million slice of annual budget.

Attention local voters: In the November election, the fate of the local telephone tax could be in your hands.

City staff warned the Santa Barbara City Council on Thursday that if it doesn’t put a measure on the ballot updating the local telecom-tax ordinance, Santa Barbara runs the risk of getting sued by cell-phone companies.

At stake is $4 million annually in police, fire, park, youth and street services. That’s 2 percent of the general-fund budget, and 14 percent of the streets budget.

Ultimately, the end game from Santa Barbara’s standpoint would be not about raising or lowering taxes, but breaking even, city officials say.

This means the city probably must seek permission from local voters to continue collecting most of the telephone taxes that it has for years. Also, the city may seek to broaden the definition of which services are taxable, largely to ensure that people using new technologies to communicate are not skirting the local tax, city officials said.

The issue surfaced in May 2006, when the IRS dropped the federal excise tax on long-distance calling for land lines and cell phones. Put another way, people no longer pay federal taxes on their long-distance calls.

In the 1970s, many cities, including Santa Barbara, cited the old federal law in the language of their own telephone-tax ordinances.

But now that the federal tax law is defunct, the old city ordinances are out of date, leaving municipalities like Santa Barbara vulnerable to litigation.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 threat is more than merely hypothetical. Already, five lawsuits are under way. Two are in the city of Los Angeles, and the others in Long Beach, Los Angeles County and Sacramento. Cell-phone providers filed most of the suits, but the Sacramento plaintiff is the Howard Jarvis Taxpayers’ Association.

If the council decides to float a ballot measure, it most likely would seek permission to continue the city’s tax — currently at 6 percent — on cell-phone and long-distance bills.

Also, with an eye toward ensuring equitable taxation, the city may seek to expand the definition of what is taxable to include Internet-based phone services. These include Vonage, which offers flat, cheap rates to users.

But the city also may seek to expand the tax in another way that has little to do with cutting-edge technology. For whatever reason, Santa Barbara’s long-distance tax only applies to in-state calls. So while calls made to, say, San Diego are taxed, calls made to Phoenix — or England — are not. On Thursday, city officials said the out-of-state calls could be added to the list of taxable calls.

Finally, to sweeten the deal, the city of Santa Barbara may ask voters to lower the current 6 percent rate. (In Los Angeles, a measure approved by voters earlier this month reduced the rate to 9 percent from 10 percent.)

On Thursday, city officials repeatedly warned the council about a widespread misconception in some other communities that the cities were seeking to tax the Internet.

“We are not going to tax e-mail, or Internet access, or any of those things,” city Finance Director Bob Peirson said.

Thus far, of the 20 or so cities that have floated an updated ordinance on phone taxes, just one — Covina — has failed to pass the ballot measure, officials said. Cities that succeeded include Ventura, Compton, Los Angeles and Menlo Park.

In Santa Barbara, should such a ballot measure fail, it would not necessarily mean the city would start losing $4 million a year. This is because the old ordinance would probably remain in place, and the city, in effect, would simply have to hope it wouldn’t get sued.

On Thursday, several City Council members seemed to favor the idea of putting an initiative on the November ballot over a later date, because voter turnout is typically high for presidential elections.

Das Williams
If twice as many people are going to vote in the 2008 election than the 2009 election, we should give a voice to those people, who will be paying the tax,” Councilman Das Williams said.

Councilman Grant House said the tax-equity issue is important to him.

If the Internet-based phone services are not taxed, he said, “those who don’t have the new technology are going to be the only ones left paying the tax.”

Interestingly, applying the tax to voice-over-Internet services would not apply to the free versions, such as Google Talk and Skype, Peirson said. This is because free services can’t be taxed.

“Six percent of zero is zero,” he said.

Support Noozhawk Today

You are an important ally in our mission to deliver clear, objective, high-quality professional news reporting for Santa Barbara, Goleta and the rest of Santa Barbara County. Join the Hawks Club today to help keep Noozhawk soaring.

We offer four membership levels: $5 a month, $10 a month, $25 a month or $1 a week. Payments can be made using a credit card, Apple Pay or Google Pay, or click here for information on recurring credit-card payments and a mailing address for checks.

Thank you for your vital support.

Become a Noozhawk Supporter

First name
Last name
Select your monthly membership
Or choose an annual membership

Payment Information

Membership Subscription

You are enrolling in . Thank you for joining the Hawks Club.

Payment Method

Pay by Credit Card:

Mastercard, Visa, American Express, Discover
One click only, please!

Pay with Apple Pay or Google Pay:

Noozhawk partners with Stripe to provide secure invoicing and payments processing.
You may cancel your membership at any time by sending an email to .(JavaScript must be enabled to view this email address).

  • Ask
  • Vote
  • Investigate
  • Answer

Noozhawk Asks: What’s Your Question?

Welcome to Noozhawk Asks, a new feature in which you ask the questions, you help decide what Noozhawk investigates, and you work with us to find the answers.

Here’s how it works: You share your questions with us in the nearby box. In some cases, we may work with you to find the answers. In others, we may ask you to vote on your top choices to help us narrow the scope. And we’ll be regularly asking you for your feedback on a specific issue or topic.

We also expect to work together with the reader who asked the winning questions to find the answer together. Noozhawk’s objective is to come at questions from a place of curiosity and openness, and we believe a transparent collaboration is the key to achieve it.

The results of our investigation will be published here in this Noozhawk Asks section. Once or twice a month, we plan to do a review of what was asked and answered.

Thanks for asking!

Click Here to Get Started >

Reader Comments

Noozhawk is no longer accepting reader comments on our articles. Click here for the announcement. Readers are instead invited to submit letters to the editor by emailing them to [email protected]. Please provide your full name and community, as well as contact information for verification purposes only.

Daily Noozhawk

Subscribe to Noozhawk's A.M. Report, our free e-Bulletin sent out every day at 4:15 a.m. with Noozhawk's top stories, hand-picked by the editors.

Sign Up Now >