The Santa Ana City Council Tuesday night approved a November ballot measure that calls for adding prepaid cellphones to the utility users tax rolls and reducing the overall rate by 0.5 percent.
If voters approve the measure, the tax will be levied on all prepaid cellphone customers, which represent 40 percent of the city’s population, according to a city staff report. Voice Over IP users, a phone technology that uses the Internet instead of traditional lines, would also be taxed.
City leaders are pitching the measure as an overall tax reduction. The rate would drop from the current 6 percent to 5.5 percent, which according to the staff report is the statewide average. The measure would also remove the $11,000 maximum tax cap.
Officials also fear that if the utility users tax isn’t updated to include language about new technology, companies will exploit the ambiguity in the law to refuse levying the tax, particularly on phones. Some companies are already inconsistently implementing the tax, according to a resolution passing the measure.
“Without immediate voter approval for the City’s telephone communications [utility users tax,] the City will increase its exposure to claims for refunds on the City telephone communications [utility users tax] that could adversely affects its budget,” the resolution states.
The resolution goes on to say that 37 percent or $9 million of the city’s $24 million in annual revenue from the tax would be at risk if voters don’t pass the measure. The revenue goes toward funding core services like police, firefighting, libraries and parks.
Santa Ana has a balanced budget and a healthy reserve fund, buts its financial picture remains fragile after recovering from a budget crisis in fiscal year 2011-12 that had city leaders considering municipal bankruptcy.
The council approved the measure with little comment. City Manager David Cavazos explained that it was simply modernizing the tax to be consistent with other laws and new technology.
The utility users tax is already levied on cellphones but doesn’t include prepaid cellphones, considered an affordable alternative for people who can’t afford a multiyear cellphone contract or a monthly bill or pass a credit check.
Statewide, 25 percent of the population uses prepaid cellphones, according to the staff report. In Santa Ana, which has a large working-class immigrant population, the ratio is significantly higher.
This might seem like a new tax to those residents. Cavazos said that the measure is about “equity,” making sure that all utility customers are taxed and not unfairly exempting some.
And while prepaid cellphone users will be levied, Cavazos said that they are most likely also using water, gas and electricity and will see a tax decrease for those bills.
“Everybody is getting the tax lowered,” Cavazos said.