Government of California, Public domain, via Wikimedia Commons
A California Appeals Court recently ruled that utility companies, including telecommunications companies, must be taxed at a countywide rate, which leaves several service providers with higher bills. Such a tax will pass on higher costs to consumers, and cause market distortions in the region.
Riverside county, east of Los Angeles, imposes a Municipal Utility User Tax of 6.5 percent on utility companies that operate in the county. This tax was not traditionally applied to telecommunications companies until an amendment to the California Constitution allowed utilities to be taxed separate from property. As a result, both the operations of the utility and physical property like cell towers are being taxed, leading to double taxation for providers.
Pacific Bell Telephone and a collection of other providers sued several counties over this classification, have operated with the understanding that their classification as property would entitle them to the lower rate of 1.25 percent. The Fourth Appellate District, sided with the counties, stating that the different rates for “utility and common property and does not render the County’s challenged tax rates unconstitutional.”
This move by California’s court system will have immense impacts for providers in the region. The state has already garnered a reputation for being incredibly harsh on providers but has taken no steps to course correct. The consequences of this will not only be felt by businesses but also by consumers, who will now foot the bill for this tax. Lawmakers in California have the power to override these burdensome tax requirements.
Taxing utilities only makes basic telecommunication services more expensive and universal service harder to achieve. If for no other reason than to stop taxing basic utilities that they claim to believe everyone should enjoy, California lawmakers should exercise their power to repeal these costly taxes on consumers.