Cash-Strapped Cities Begin Taxing Cellular Phone Users : Revenues: In a search for extra sources of income, many municipalities seek innovative ways to bridge their budget gaps.

South Bay cities are tapping cellular phones--not for information, but for cash.

Torrance, Inglewood, Redondo Beach and Hawthorne have joined a growing number of cities statewide that have imposed utility user taxes on cellular phones.

The trend comes as cities struggle to make ends meet in the face of shrinking revenues. The state’s recently approved budget plan, which shifts $2.6 billion in property tax revenues from local government to schools, has only turned up the heat.

“Cities are desperate for revenue sources,” said Dwight Stenbakken, legislative director for the League of California Cities. “Expanding the tax base to cover cellular phones is (one way) cities are looking for revenues to support services.”

Cellular phones have been in existence since the mid-1980s, but only in the last couple of years have cities with utility user levies began taxing the phones. In most instances, these cities have had to close a loophole in municipal codes that allowed cellular phones to go untaxed.

“It’s a fairly new technology,” said Erich Everbach, general counsel for Los Angeles Cellular Telephone Co., one of the leading cellular companies in Southern California. “I think a lot of it was overlooked.”

Not anymore. To date, up to 20 cities have asked LA Cellular to collect utility taxes for them while about four such requests are pending. “This is a trend that I would see continuing,” Everbach said.

The tax is usually levied on charges for basic service and on features such as call waiting or call forwarding. The phone calls generally are not taxed because of the difficulty in linking the activity with the jurisdictions seeking to impose the tax.

“Someone could take their phone to Phoenix and call New York--what right does the city of Redondo Beach have to tax that call?” Everbach asked. “To avoid litigation . . . we have recommended that the cities not seek to collect utility user taxes on the amount of usage or air time.”

The cellular phone tax has been particularly lucrative for Torrance, which imposes a 6.5% utility user tax on gas, electricity, cable and regular phone service. Adding cellular phones netted the city nearly $75,000 during the first half of this year.

“It’s not insignificant,” said Torrance City Manager LeRoy J. Jackson. “Any revenue source (helps us) provide services within the community.”

It’s a similar story in Redondo Beach, which imposes a 4.75% utility user tax on gas, electricity, water, cable and telephone services. The city currently collects about $7,000 a month in cellular phone tax revenues and expects to make even more as city officials continue to identify new cellular phone companies with local subscribers.

“In these days, when a city like Redondo has lost 25% of its revenues, that amount of money, which seems relatively small, is, in fact, a significant amount,” said City Manager William E. Kirchhoff. “You can translate that into a body and a half in terms of an employee.”

Inglewood, which last year imposed a 10% tax on cellular phone use, has not collected any revenue. But city officials expect the levy will eventually bring in about $75,000 a year.

“It is a revenue-raising measure and we didn’t see a reason for (cellular phone service) to be any different from other telephone services and utilities,” said Inglewood Assistant City Manager NormanCravens.

The Hawthorne City Council revised its municipal code earlier this month to allow it to collect its 3.5% utility user tax on cellular calls. And Gardena is taking steps to do the same.

Once a city has decided to tax cellular phone service, several months can pass before any revenues are generated. Part of the reason for the delay is the enormous amount of work required to identify cellular phone subscribers who are subject to a city’s utility tax.

LA Cellular, for instance, uses a software program that runs its entire subscriber list against a city list identifying every street name and address. Matches are flagged in the computer and the utility user rate of that city is then programmed in. At the end of the month, the company determines how much tax revenue it collected for a city and then forwards a check.

And every time a city grants a new building permit or annexes a new neighborhood, the list must be revised.

“This is not a simple operation,” Everbach said. “As you can imagine, doing it off street names and addresses has some pitfalls, but the software has been very helpful.”