Culver City Council Cuts Tax on Telephone Use : After Several Adjustments, 10% Rate for Out-of-State and Local Calls Approved

A Culver City tax on long-distance telephone calls will be reduced less than expected, but residents and businesses will get a slight, unanticipated tax break on local calls, the City Council decided this week.

A single 10% tax will be applied to local and out-of-state calls effective April 1, rather than a split rate of 7% for long-distance calls and 11% for local calls, as had been decided by the City Council in September.

Telephone tax rates became an issue in June when the City Council, faced with a $400,000 budget deficit, hastily decided to impose an 11% tax on out-of-state and international calls. The council also raised the existing tax on local and intrastate calls from 9.5% to 11%.

Changed Rates

The rates took effect on Oct. 1. But by that time, the council had already agreed to lower the tax on long-distance calls to 7% as soon as possible, in response to Culver City Chamber of Commerce complaints that the rate was too high for businesses. The city’s four largest businesses had threatened to move their telecommunications systems out of the city to avoid the tax.

The council also had agreed in September to establish a $15,000-per-year maximum on any one taxpayer and to exclude calls made outside the state on credit cards. The 11% rate on local calls was left intact.

But imposing different tax rates on local and long-distance calls was an administrative nightmare for the telephone companies.

Bob Norquist, assistant to the city’s chief administrator, said in a report to the City Council that smaller telephone companies, such as US Sprint Communications Co. and MCI Telecommunications Corp., could easily adapt their billing systems to accommodate the city’s needs.

However, Pacific Bell, GTE, A T & T and Western Union said it would be difficult and expensive to implement a split-tax rate and to exclude taxpayers who had reached the maximum on long-distance calls.

Costly Change

Norquist said Pacific Bell, the city’s primary local telephone company and the one that bills out-of-state calls for A T & T, indicated that it would cost about $450,000 and take six to 12 months to design a computer program that would do what the city wanted. GTE said it would cost $42,000 and take six months for it to design a similar program. Norquist said the city would have to pay the cost.

“It was clear that any practical and timely solution was going to require some other approach to the telephone tax dilemma,” he said in the report.

Norquist met with officials from the chamber and from three of the city’s four largest companies: Hamilton/Avnet Electronics Corp., a computer components firm; MGM/UA Communications Co. and Lorimar-Telepictures Corp., both motion picture and television producers, and Westwood One, a national radio network.

The group agreed on the 10% tax rate for both local and long-distance calls, the exclusion of credit-card calls made outside the state, a maximum of $15,000 for any one taxpayer on long-distance calls and establishment of an exemption procedure for taxpayers reaching the maximum.

The 10% rate is in effect only from April to June 30, 1989, which is the end of the current fiscal year. The rate may be changed in the future to meet the city’s financial needs, Norquist said.

Only five or six companies are expected to reach the $15,000 maximum, according to Steve Rose, the chamber’s executive vice president.

Norquist said clients of MCI and Sprint will be allowed to pay the maximum tax in advance and be exempt from monthly billing. He said businesses using other telephone services that aren’t able to track when a taxpayer reaches the maximum will have to maintain their own tax records and then file for a rebate with the city treasurer.

Chamber officials sought a provision that would limit the monthly tax paid on long-distance calls by any taxpayer to the amount paid on local calls. For example, if a taxpayer paid $100 a month in taxes for local calls, the taxpayer would pay no more than $100 a month in taxes for long-distance calls, regardless of the number of out-of-state calls made that month.

The council rejected that proposal, saying it would involve more complicated record keeping and might produce less revenue.