OMG. Sac wants 2 tax texts!
The city of Sacramento will ask voters to agree to pay local taxes on new technology such as text messaging and phone service offered over the Internet in exchange for lowering taxes for land-line phones and other utilities.
On Tuesday, the City Council unanimously voted to put a measure on the Nov. 4 ballot that would decrease the utility users tax from 7.5 percent to 7 percent. It would require a simple majority to pass.
Two main factors are driving the action: First, the city's ability to collect taxes on cell phones and other communications methods is facing legal challenges. Second, taxes on old technology, such as regular telephones, are generating less revenue.
"We believe the voters, not the courts, should decide the fate of this revenue stream," said Russ Fehr, city treasurer. "There is $12 million a year at stake."
The city is calling the proposed ordinance the "Utility User Tax Reduction and Fairness Measure for Communications Services."
Fehr said it will treat all communications users equally and not put the largest share of the burden on land-line telephone users.
The Howard Jarvis Taxpayers Association, however, has a different description of the city's proposal: "baloney."
"They're packaging it as a tax reduction and it's not. It's an increase," said Timothy Bittle, director of legal affairs for the taxpayers group. "They're not only trying to hoodwink voters to ratify a tax on cell phones, but they're adding insult to injury by extending it to all current and future technologies."
The city's utility users tax on electrical, natural gas, telephone and cable TV services generates more than $55 million a year for the general fund. The city has seen a gradual erosion of revenue from telecommunications use, according to a city report.
In 1998, the city got $16 million in taxes from "wired" sources such as land-line phones and only $1.5 million from cell phones, which hadn't become dominant. In 2007, that trend reversed, with $12 million in revenue from wireless sources such as cell phones and $9 million from land lines.
Most surprising to city officials, Fehr said, was that the drop in land-line phone (wired) taxes occurred even as 75,000 more people moved into the city by 2007.
"We saw that people were shifting to the exclusive use of cell phones or other alternative ways of communicating," Fehr said.
Sacramento's legal controversy started in 2006, after the U.S. government declared its federal excise tax didn't apply to wireless services. Sacramento's utility user ordinance said anything exempt from the federal excise tax was exempt in the city.
In October 2006, the city took out the federal excise tax link and said it intended to collect taxes for wireless communications, Fehr said. The city said it is on firm legal footing, but the Howard Jarvis group disagreed.
"We took the position in our litigation that the city's ordinance didn't apply to cell phones and to make it applicable required a vote of the voters," Bittle said. "We must have touched a nerve."
A vote in November would serve to reaffirm the city's wireless tax, Fehr said. It would also allow Sacramento to broaden its taxing reach and simplify billing.
Some cell phone users with bundled services, including text messaging, might be charged now. But people who purchase prepaid calling cards are not, Fehr said. Fehr said the city has to make the changes to protect this revenue source. If not, it will "diminish the city's ability to maintain existing levels for many of its most important services, including police, fire protection and youth programs," he said in a city report.
Aaron Donato, executive director for the Sacramento Police Officers Association, said that while the group hasn't taken a position on the measure, its executive officers like the idea because the city faces several years of budget shortfalls.
"This is one way that the city ensures a revenue stream (to the department)," Donato said.
Call The Bee's Terri Hardy, (916) 321-1073.
