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 that heavily use a VOIP service. The city reports that a mid-size business specializing in providing teleconferencing services through 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. Federal law prevents service providers from taxing internet data, even though it is largely indistinguishable from VOIP data. It will be up to users and service providers to make sure that internet data is not taxed when internet service is bundled with VOIP, the city says. For users of their bundled Internet-VOIP packages, Comcast charges the phone tax on a set portion of their bill every month.
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.