Modesto to tax prepaid cellphone services

It will cost Modesto cellphone users more next year to buy prepaid minutes and data because the city will start charging a 5.5 percent utility user tax on the purchases.

The city estimates the tax will bring in $544,000 to $725,000 annually to the city’s roughly $115 million general fund, which primarily pays for public safety and other basics.

Modesto and other cities with utility user taxes can take in the tax because of Assembly Bill 1717, which was signed into law last year and takes effect Jan. 1. It requires retailers to charge the tax when they sell prepaid cellphone services. The Board of Equalization will collect the tax and remit it to local governments, just as it does now with sales taxes.

The City Council on Tuesday voted 7-0 to have Modesto contract with the Board of Equalization regarding the utility users tax. The state agency will keep 5 percent of the tax to cover its costs.

Modesto has been collecting its utility user tax in other circumstances. Utility providers – such as phone and cable companies, and gas and electric companies – include the tax on the monthly bills they send customers. Modesto expects to collect about $20 million in utility user taxes in its current budget year, with that money going to the general fund.

The local government consulting firm MuniServices said in an AB 1717 fact sheet that cities and counties were losing out on an important revenue source as more and more cellphone users shift to prepaid wireless services.

“California UUT (utility user tax) cities and counties cannot afford to lose these vital tax revenues that pay for essential governmental services such as public safety, fire protections, libraries, street maintenance, and senior and youth programs,” according to the fact sheet.

But one audience member who spoke at the council meeting said Modesto was placing another tax burden on its residents and harming the local economy.

In other action, the council:

▪  Approved spending as much as $34,500 for consulting firm CTC to help the city look into establishing a quiet zone along the Union Pacific railroad tracks downtown. These zones include upgrading the safety features at railroad crossings to eliminate the need for a train to sound its horn as it approaches, except in emergencies. The cost of the upgrades is steep, and the city needs to find the funding. Acting Deputy City Manager Brent Sinclair said the city hopes to find partners to help pay for the work, including linking the project to the proposal to bring a train station downtown. He said that might allow the city to get state and federal funding for the quiet zone.

▪  Authorized City Manager Jim Holgersson to vote “yes” on behalf of the city and its former redevelopment agency in an election to establish a community benefit district for downtown. These districts collect annual assessments from property owners to pay for improvements, such as additional security and marketing. The assessments vary and are based on such such factors as lot size and building square footage. This proposed district would have annual assessments of $700,000.

State law requires that the votes be based on the amount of the assessments so property owners who would pay more get more of a vote. The council will decide Sept. 1 whether to form the district if a majority of the weighted votes are in support. At nearly 6.6 percent, Modesto has the biggest vote and would pay the biggest assessment, $45,779. Stanislaus County, which has voted in support, is No. 2, with a vote of nearly 5.3 percent and an assessment of $36,745. The city’s former redevelopment agency is No. 7, with a vote of 2.7 percent and assessment of $18,853.

This story was originally published August 13, 2015 at 3:52 PM with the headline "Modesto to tax prepaid cellphone services."