The Morning Report
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A local attorney has filed a claim with the city of Chula Vista over its continued collection of a controversial tax on cell phone calls, a preliminary step toward a legal challenge.
The small fee, which is levied on users of telephones, electricity and other utilities, was introduced back in 1970 and accounts for around $9.1 million in revenue for the city annually, as I wrote in February.
The city stopped spending the money it receives from the tax back in November and has been stashing it away in case it was ordered to pay it back. But the lawyer, who has demanded the city stop charging the tax and refund the money it has collected, says he could seek several years’ worth of the tax. That could be a massive blow to the city’s coffers at a time when it’s still reeling from years of financial turmoil.
Because the law introducing the tax was passed well before the invention of cell phones, there’s been some controversy over whether the city can legally tax cell phone calls made in the city. The city says it thinks it can, so it does. Annually, Chula Vista collects around $5.6 million in taxes on cell phone users.
The city tried to modernize what’s formally known as the utility user tax last November with a ballot proposition, Proposition H. The measure would have cemented the city’s right to collect fees on cell phone calls, but since it didn’t pass, there’s still some confusion as to whether the city’s legally entitled to collect that money.
Chula Vista has therefore decided to play it safe. The city’s accountants told me they’re collecting the taxes, but are stashing that money away in case they’re sued one day. That’s a tactic I analyzed in this story. I pointed out that no one had actually sued the city, or even threatened to sue, yet the city’s refusal to spend the money meant it had to cut viciously into its services.
That just changed.
Thomas Penfield, an attorney with the firm Casey Gerry Schenk Francavilla Blatt & Penfield, just sent me a letter informing me that his firm has filed a claim with Chula Vista “for a determination from the city that the utility user’s tax, currently collected on mobile phone use, is unlawful and for a refund of the taxes unlawfully collected from Chula Vista residents.”
Penfield told me his firm has been going back and forth with the city’s lawyers for some time now. He said he represents a group of Chula Vista residents who have been charged the cell phone tax and who think it’s illegal.
Chula Vista officials have always argued that the maximum they would have to pay back, even if the tax is deemed illegal, is one years’ worth of taxes, or around $5.6 million.
“That’s still our understanding,” City Manager Jim Sandoval just told me.
Penfield doesn’t agree. His firm sued the city of San Diego a few years back over the city’s sewer rate charges. San Diego ended up settling by paying back four years’ worth of overcharges, Penfield said.
Penfield said the question of how far back his claim can go is one that will have to be decided by litigation. But he said he’s going to seek back taxes, not just a year’s worth.
That could spell real trouble for Chula Vista.
The city’s already made severe cuts to its services based on the assumption that it couldn’t rely on the cell phone revenue and had to stash it away. Any further money it ends up having to pay out would eat into those services even further.
“We’re only here to provide public services, and if we don’t have revenue, we can’t provide those services,” Sandoval said.
Penfield said he’s waiting to see how the city responds to his official claim for the return of the taxes.
If the city is ultimately told to pay back the taxes to residents, the refund might take the place of a small credit, rather than a fee, on Chula Vista cell phone users’ bills.