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City puts broader phone tax on ballot
Council wants to include VOIP revenue, protect income

by Daniel DeBolt

The City Council voted Tuesday to have voters decide whether the city should extend its phone tax to internet phone services as well as interstate and international phone calls.

In a report, the city manager's office warns that Mountain View's phone tax revenue is "at risk" unless the tax is "modernized" to include increasingly popular broadband internet phone services known as Voice Over Internet Protocol (VOIP). Mountain View's 40-year-old "telephone users tax," as it's called, currently brings in $1.9 million a year, and has declined by $50,000 over the last year.

Also part of the proposed ballot measure is "broadening" the 3 percent tax to include interstate and international calls. The city currently taxes calls to and from Mountain View within California only. The change may have an almost undetectable effect on the average resident, who may be taxed 2 cents for a typical 15-minute international phone call, the city reports.

The Council voted 6-1 at a special July 27 meeting to put the phone tax measure on the November ballot with member John Inks opposed. Inks said the ballot measure was difficult to understand and that the question voters will be asked "doesn't disclose very much."

For similar reasons, Councilman Tom Means said, "I'm going to support putting this on the ballot, but I don't know if I'd vote for it."

It wasn't complicated to other council members.

"Essentially what we're saying is if you make a voice call, there is a tax to it," said council member Laura Macias.

In an April 27 council study session it was reported that several hundred thousand dollars in new annual revenue for the city could come from the proposed phone tax modernization. City Manager Kevin Duggan contends that it is not a tax increase, but a "broadening of the tax base."

A city-hired consultant has said that 68 percent of local voters supported the ballot measure in a recent survey. At Tuesday's meeting, resident Don Ball questioned the clarity of the survey. He said he participated in the survey but misunderstood "modernization" to mean a new phone system for the city. He added that he knew of no businesses that are aware that this is "coming down the pike."

The biggest impact of the updated phone tax may be on businesses. The city reports that a mid-size business using VOIP could see an estimated increase in their phone taxes from $100 a month to $600.

Cell phone users would see "no impact" due to the way they are taxed by service providers, the city said.

Because broadband phone service is sometimes bundled in internet service plans, taxing VOIP phone services may be a challenge, according to a city staff report.

"From a taxation standpoint digital voice data is indistinguishable from other digital data being transmitted over communications lines," writes Kevin Woodhouse, assistant to the city manager. That means that if VOIP service is bundled with Internet service, "the tax will apply to all data being transmitted." But that can be helped if your VOIP and Internet service provider accounts for VOIP data and Internet data separately. Only some service providers, such as Comcast, have promised to do so.

On Tuesday Woodhouse stressed that the tax "excludes Internet access, e-mail services and digital downloads."

The city's current phone tax dates back to 1970. It provides revenue for the city's $87 million general fund, which funds basic city services such as the library, fire protection and police services. About 150 cities in California have such a phone tax, and more than a third have modernized the tax, Woodhouse said.

Mountain View's proposed modernization uses "by and large the same language used in a majority of similar ordinances across the state," Woodhouse said.

Placing phone tax modernization on the November 2010 ballot will cost the city $62,000, which has already been set aside in the 2010-2011 city budget.

E-mail Daniel DeBolt at ddebolt@mv-voice.com

Posted by Alex Matulich, a resident of the Willowgate neighborhood, on Aug 3, 2010 at 3:19 pm

I find it ironic that the City Council wants to broaden a tax because the current phone tax revenue has declined by $50,000, when in PRACTICALLY THE SAME BREATH, they UNANIMOUSLY agree that city managers are overpaid! See related story at Web Link

I'll bet the amount overpaid far exceeds the $50,000 decline. Perhaps the City Council should concentrate on getting the city's expenditures prioritized to live within its means, rather than propose yet another tax to serve as a band-aid for a problem that should be fixed.

Posted by BillSiliconValley, a resident of the Monta Loma neighborhood, on Aug 5, 2010 at 7:14 am

Does this tax say "Don't base your VoIP telecom company in Mountain View, we will tax it ! "

Has anyone at the city of Mountain View talked to Google about this ?

Google runs a service called Google Voice. They also have a number of other phone projects. It's real easy for Google to locate the servers for these services somewhere else, where there is no risk of taxation.

Google is Mountain View's biggest cash cow / revenue source. Why make them look elsewhere, especially when other cities would do anything to get a growing business.

Do we see Cupertino putting a special tax on music downloads from the iTunes store ?

Posted by "Just Think About It", a resident of the Blossom Valley neighborhood, on Aug 28, 2010 at 10:37 am

I agree with Alex Matulich. Instead of putting its house in order and take permanent action to control salary and benefit costs at city hall they want to raise taxes. I don't understand why they don't get it. The city is going to go bankrupt, companies are already moving out of the area creating a decline in the tax base and the city wants to burden its citizens who are unemployed with more taxes. The City Council has already unanimously agreed that the city managers are overpaid. Why not start by cutting salaries? The answer lies in the "golden rule". Those with the gold make the rules. Why do you think someone would spend thousands of dollars to win a council seat when it only pays about $5000 salary yearly?

................"Just Think About It"................