Council tackles declining phone tax revenue
By Michele Linck, Journal staff writer | Posted: Tuesday, September 26, 2006
SOUTH SIOUX CITY -- City Council members struggled Monday to come up with an ordinance to replace the declining telephone tax revenue it uses to support E-911 services, the Law Enforcement Center and the city's general fund.
The tax revenue comes from two funds paid into by landline telephone users. Both have gone into steep declines as more and more people abandon their landlines in favor of cellular phones.
The city collects a $1 a month on landline telephones for the E-911/LEC fund, and a 4 percent "telephone franchise" tax on each landline phone, which goes into the city's general fund.
In fiscal 2001-02 the E-911 tax generated $114,086. In fiscal 05-06, the revenue dropped to $78,393. Along the same lines, the city's phone franchise tax went from $104,992 in 2002-03, to just $44,506 in the 2005-06 fiscal year.
By contrast, cell phone users pay only a 50-cent-a-month E-911 tax, and it goes to a statewide pool, not to the city.
The discussion Monday started out on whether the new tax should be a flat rate or a percentage of the bill.
Council members quickly agreed that they needed to have a better idea of how much revenue they would need to replace -- in other words, how much further the abandonment of landline phones will go -- before they could decide that. And, they said, they'd need to know how many residents use cell phones exclusively and so are not paying a tax to support the Law Enforcement Center and city general fund.
City Attorney Wayne Boyd said some Nebraska cities, such as Wayne, have started taxing cell phones under their existing telephone tax ordinances. "I don't agree with that," he said. He said he thinks the city needs a new ordinance specifically targeting cellular phones. He said an ordinance could be written so the tax could be increased or decreased, depending on the revenue generated.
Councilwoman Sandra Ehrich said she was asked by someone with both cellular and landline phones if they would be taxed twice.
"I said yes," Ehrich said. She suggested looking at sales tax revenue to make up for the dollars lost to cell phone use. Or, she said, a new ordinance could target only those people without a landline. City Administrator Lance Hedquist said he thought that would be difficult to define, given that some children could have cell phones while their parents kept a landline, or an elderly relative living in the residence keeps a landline.
Other questions came up: would the city pay the tax on its cell phones? Boyd said there government phones are exempted unless they are used by a department that generates revenue, such as utilities.
And what would be the status of prepaid by the minute cellular service such as TracFones and On-Star service?
In the end, Ehrich moved to postpone any action and send the question to committee to look into it further. It passed 8-0.
Hedquist said he would contact the Nebraska Public Service Commission to ask it for names of all the cell phone companies licensed in the state, then notify them that the city plans to collect the tax. The PSC should be able to determine the number of cell phones billed within South Sioux City, he said.
Councilman Merrill Hale said he didn't want the burden to fall on property owners as it has last year. Hedquist said the city had to hike its property taxes a bit to pay its half of the City/County LEC costs that the telephone taxes used to cover.
The tax revenue comes from two funds paid into by landline telephone users. Both have gone into steep declines as more and more people abandon their landlines in favor of cellular phones.
The city collects a $1 a month on landline telephones for the E-911/LEC fund, and a 4 percent "telephone franchise" tax on each landline phone, which goes into the city's general fund.
In fiscal 2001-02 the E-911 tax generated $114,086. In fiscal 05-06, the revenue dropped to $78,393. Along the same lines, the city's phone franchise tax went from $104,992 in 2002-03, to just $44,506 in the 2005-06 fiscal year.
By contrast, cell phone users pay only a 50-cent-a-month E-911 tax, and it goes to a statewide pool, not to the city.
The discussion Monday started out on whether the new tax should be a flat rate or a percentage of the bill.
Council members quickly agreed that they needed to have a better idea of how much revenue they would need to replace -- in other words, how much further the abandonment of landline phones will go -- before they could decide that. And, they said, they'd need to know how many residents use cell phones exclusively and so are not paying a tax to support the Law Enforcement Center and city general fund.
City Attorney Wayne Boyd said some Nebraska cities, such as Wayne, have started taxing cell phones under their existing telephone tax ordinances. "I don't agree with that," he said. He said he thinks the city needs a new ordinance specifically targeting cellular phones. He said an ordinance could be written so the tax could be increased or decreased, depending on the revenue generated.
Councilwoman Sandra Ehrich said she was asked by someone with both cellular and landline phones if they would be taxed twice.
"I said yes," Ehrich said. She suggested looking at sales tax revenue to make up for the dollars lost to cell phone use. Or, she said, a new ordinance could target only those people without a landline. City Administrator Lance Hedquist said he thought that would be difficult to define, given that some children could have cell phones while their parents kept a landline, or an elderly relative living in the residence keeps a landline.
Other questions came up: would the city pay the tax on its cell phones? Boyd said there government phones are exempted unless they are used by a department that generates revenue, such as utilities.
And what would be the status of prepaid by the minute cellular service such as TracFones and On-Star service?
In the end, Ehrich moved to postpone any action and send the question to committee to look into it further. It passed 8-0.
Hedquist said he would contact the Nebraska Public Service Commission to ask it for names of all the cell phone companies licensed in the state, then notify them that the city plans to collect the tax. The PSC should be able to determine the number of cell phones billed within South Sioux City, he said.
Councilman Merrill Hale said he didn't want the burden to fall on property owners as it has last year. Hedquist said the city had to hike its property taxes a bit to pay its half of the City/County LEC costs that the telephone taxes used to cover.
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