Voters will decide whether to tax more telecommunication
services at a lower rate than current taxes
Gilroy – Traditional TV and telephone users pay taxes for those luxuries, but those who view YouTube videos on their iPhones, watch DirecTV and make long-distance calls through their Internet providers do not have to pay taxes for the same luxuries.
Voters will decide if this is unfair when they go to the polls Nov. 6 and decide if all telecommunications taxes should be rolled into one, clean, reduced tax rate that reflects modernity and is revenue neutral for the city.
Incumbent councilmen Roland Velasco – who pays taxes for his land-line phone like many residents have since 1971 – said so be it if his neighbor does not have to pay taxes when he uses an Internet-based technology like Vonage to call his uncle in Ohio.
Vonage provides telephone service through a broadband Internet connection, which means a customer might only pay taxes for, say, Charter Cable’s TV package but not on the federally exempt Internet connection or the phone calls they are making through that Internet connection.
But if this is what technology allows, then fine, Velasco said.
Those who disagree with him, though, say it is time to herd all these scattered forms of untaxed telecommunication and charge them all one clean, lower rate that will still bring in the same revenue for the city.
Residents could pay more taxes on more things at slightly lesser rates and eventually give the city just as much money as they do now, but the possibility would remain open-ended for the city to tax future telecommunication gadgets indiscriminately.
Many say the current tax is outdated, and Measure A, as it’s known, is the only ordinance on Gilroy’s ballot this year.
It is the result of cellular phones and private, high-speed Internet connections continuously usurping older, more traditional forms of communication and entertainment.
The older mediums are taxed more easily than newer technology simply because they are easier to monitor and have been around longer. It seems foreign to tax someone for their activity on the Internet – from sending e-mails to downloading music – but it parallels taxing a percentage of their phone and cable bills.
The Internet will remain tax-exempt on all levels, though, if Congress extends its federal tax moratorium before the current ban expires Nov. 1.
Since the Internet is getting older, City Attorney Linda Callon thinks it’s time for change.
“Over the years, the language of the existing ordinance has become outdated, resulting in some persons being taxed for telecommunication/video and cable services while others are not, depending on the technology being used,” Callon wrote in a review of the ordinance. Measure A would “ensure that all users of these services are treated fairly,” she added in her support.
Council candidate Tim Day said the issue is not necessarily some people paying taxes for the same services others are not taxed for (such as a taxed land-line phone user vs. someone who calls via their untaxed Internet).
“I don’t have a problem that some people are being taxed and some aren’t, but I think the courts will, and when they get involved they’ll call it a discriminatory tax, and then we’ll lose revenues on the land lines” if a court decides the city cannot tax only some of its utilities users.
Though Velasco did not comment on a potential court decision, he made it clear that choice trumps fairness.
“It’s an issue of fairness, but my position has been that it’s really an issue of choice,” said Velasco, referring to the ingenuity of technology and people’s choice to use it or not.
On the other hand, incumbent Russ Valiquette, candidate Bob Dillon and Mayor Al Pinheiro favor Measure A, and Pinheiro said he supported it because it is a natural move for the city to stay up to date.
Councilman Craig Gartman is challenging Mayor Al Pinheiro for the mayor’s seat, and Planning Commissioners Tim Day and Cat Tucker, former Councilman Bob Dillon, lawyer Perry Woodward and incumbents Roland Velasco and Russ Valiquette are running for the three available council seats.
“This is an example of when government lags behind at times,” Pinheiro said. “(Measure A) is a protection of the revenue the city has that we’re trying to bring to modern standards.”
But Pinheiro’s opponent said while he missed the deadline to write an argument against Measure A on the ballot, people should still know it will “start taxing services they have right now that are not taxed,” such as Internet connections, pre-paid phones and satellite radio and TV.
National market share studies have shown that satellite TV service has increased steadily for the past 10 years, but the tax-free ride in Gilroy could be over soon thanks to what Gartman calls a “blanket” tax.
“It’s a blanket utility tax, and if it passes people are essentially going to give pre-approval to any tax the city deems as ‘telecommunications,’ and it will not go to the voters because they (will) have already approved this blanket tax” if Measure A passes.
The city’s current phone and video users’ tax rate is 5 percent (the state average is 5.5), but this rate is for separate taxes on mobile phones, cable TV and land-line phones. Measure A would consolidate these taxes, then lasso untaxed Vonage-like technologies and create one communications utility tax at a rate of 4.5 percent.
The bundle tax would apply to all forms of telecommunications (everything from Charter Cable service on an old black-and-white TV set to cell phones with streaming video capability) and would then lower the rate by half a percent. Lowering the rate won’t cost the city any money, though, because the new taxable technologies will offset the decrease.
“The measure expands and clarifies the city’s collection procedures and the process for appealing tax calculations,” Callon wrote, adding that the tax would go into the city’s general fund, which has $4.7 million deficit.
While it seems like the city will lose money by cutting the tax rate half a percent, Callon argues that “by lowering the tax rate and treating all users of telecommunication/video and cable services equally, it is projected that Measure A will produce approximately the same amount of revenue.”
The city collected about $4.2 million in utilities taxes last year, $2.8 million of which came from energy and PG&E taxes.
The remaining $1.4 million came from the separate taxes on cable TV and mobile and land-line phones, and more than half of it all came from the cell phone tax.
As long as the city is not immediately taking in more money, Dillon said he favors the revenue-neutral Measure A even though the language of the measure is broad enough to allow for indefinite future taxation.
The ordinance defines telecommunications services as “the transmission, conveyance, or routing of voice, data, audio, video, or any other information or signals to a point, or between or among points, whatever the technology used.” It defines ancillary telecommunications and video services as “services that are associated with or incidental to the provision, use or enjoyment of telecommunications and video services.”
