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Legislation allows cities to collect more utility taxes

NORWALK — Area cities that levy a utility tax on communications will be eligible for more money from that assessment as of Jan. 1.

That’s because Assembly Bill 1717, which takes effect then, allows cities to assess taxes on pre-paid wireless services not previously taxed.

But to obtain that revenue cities must contract with the state Board of Equalization, Norwalk Finance Director Jana Stuard said in a written report to her City Council Sept. 1.

Norwalk approved that contract on a 5-0 vote, the latest in a number of cities that have taken such action.

Downey, Huntington Park and Santa Fe Springs also took similar action in recent weeks.

Stuard explained that previously the communication tax, as is the tax on electricity and natural gas, was assessed users by the utility companies, which then send the funds to the respective cities.

That hasn’t happened with pre-paid wireless telephone service because of complicated issues as there is no contract for monthly invoices. Also, about 70 percent of the pre-paid phone charges are sold by retailers.

To remedy that situation, AB 1717 requires retailers and online sellers to assess pre-paid phone taxes along with their state sales taxes and send them to the Board of Equalization, which then would send the appropriate amount to the contracted cities, Stuard said.

She said Norwalk’s 5.5 percent tax, levied on communications, brings in about $1.6 million a year. Taxes from the pre-paid phone bills will bring the city about $130,000 from Jan. 1 to June 30 and another $380,000 for fiscal year 2016-17.

City Manager Mike Egan said the pre-paid issue is separate from complaints by some that taxes on cellular phones, collected by most area cities, were illegal. Attorneys for the cities have declared them legal and Norwalk residents overwhelmingly approved them in an election several years ago, Egan noted.

However, a lawsuit by two Norwalk residents demanding refunds for past cell phone taxes is in the courts.