More California cities taxing cell phones, Internet

turkey vulturesTaxes on wireless services -- cell phones, Internet access and text messaging -- are coming more in vogue, especially in California, where 22 cities have extended their public utilities taxes to such communications in recent years. The latest to give it a try is Pleasant Hill, a San Francisco Bay Area city that will ask voters in November to expand its "utility users tax."

Phone bills are long enough already, with all of the taxes added by various agencies which can drive cell phone users to a simpler phone plan -- a prepaid cell phone where taxes usually aren't added.

"If it doesn't move, somebody somewhere is going to try to tax it," said Eli Lehrer, who runs the finance project at the Heartland Institute, a national think tank that focuses on the states.

Taxes on cell phones and other utilities are burdensome enough, and also are a disincentive to businesses and people who want to move to such cities, Lehrer told WalletPop in a telephone interview.

"With mobile phones the tax seems laughably easy to avoid," he said.

Options include buying a prepaid cell phone, having the bill sent to your work, establishing a mailing address in the state with the lowest cell phone taxes, changing the origin of your cell phone number to that state (Nevada is the lowest), and lowering the cost of your cell phone calling plan. Changing your cell phone number to Idaho may not be ethical if you live in California, but it saved one caller $60 a year.

In tight fiscal times, governments such as Pleasant Hill always get creative in finding more money, Lehrer said. Blame the IRS, at least in part.

In 2006, the IRS admitted that the previous 3.5 years of taxes it had collected on long-distance service were illegal. Bundled services of flat-fee plans offered by wireless carriers that included both local and long distance service were exempt from federal taxation. When California cities realized their public utilities taxes no longer applied to the plans, they amended their statutes to increase their revenue.

Pleasant Hill says on its website that without the tax increase, city services such as police, pothole repair, library hours and graffiti cleanup may be cut. The city already has a landline local telephone service tax of 1%, and the new 1.5% tax includes more utilities: cell phone, cable TV, gas, electric, water and sewer services. Garbage collection and satellite TV wouldn't be included.

The tax would generate $1.2 million annually, or $9.52 a month for a family of four with a typical monthly utilities bill of $635, according to the city.

A city report states that nearly 150 cities in California already have such utility user taxes, ranging from 1% to 11%, with the most common rate at 5%. It estimates that 30 Bay Area cities have such ordinances, with Pleasant Hill's the lowest.

That ought to be good news for voters there -- they don't have a tax yet on cell phone and Internet service, but if they approve this measure, their tax will be the lowest in the area.

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