The city of Santa Barbara stands to lose a third of its annual utility tax revenue after a recent Internal Revenue Service ruling.
The potential loss of approximately $4 million a year would force the City of Santa Barbara to cut funds from a host of essential government services, including the police and fire departments, according to a press release from the city finance department.
The problem stems from an IRS decision to strike a federal tax on all long-distance calls for wired, cellular and voice-over-Internet phone calls – the sum of which makes up a significant chunk of Santa Barbara’s yearly user utility tax revenue, the press release said. Santa Barbara only collects utility user taxes on telephone charges where a federal tax – like that from the IRS – is levied.
The issue was unforeseeable for those charged with drafting the city’s utility tax laws, since the ordinance was created prior to the induction of cellular phones.
Furthermore, the press release said city officials are worried the issue could get worse as technology marches forward.
“The projected revenue loss could expand as older telecommunication methods continue to be replaced by new technologies,” the press release said.
According to the city administration, half of the revenue collected from user utility taxes provides funding for the General Fund, which supports the police and fire departments, libraries, parks and general recreation. The other half is spent on street maintenance, such as pothole repairs and slurry sealing.
Currently, almost 100 other California cities are facing the same problem as Santa Barbara, the press release said.
On Thursday, a city council work session will meet at 1:30 p.m. at the David Gebhard Public Meeting Room at 630 Garden St. to discuss potential options.