The Star-News


Prop. H bad for business

Sat, Oct 09 2010 12:00 PM Posted By: Ed Herrera And Jill Galvez

It's time for some straight talk on Proposition H. Placed on the ballot by City Hall, Proposition H proposes extending, increasing, and introducing taxes on vital telecommunications such as cell phones, landlines, and certain services over the internet-and it will cost businesses and residents significantly more than five percent per phone, per internet connection, per month.

The proposed ordinance has the potential to hurt our opportunities for economic development. When large companies such as Sony and Intuit conduct site selection, they base their decisions on a number of factors. Telecommunication costs are one of those factors.

Because other adjacent cities do not charge the taxes proposed by Proposition H, it places the city of Chula Vista at a competitive, economic disadvantage.

A simple juxtaposition comparing billing addresses in and out of Chula Vista, reveals that services cost three to five times more than any other part of the county not because the city lacks capacity, infrastructure, fiber, or cabling, but solely because of the city's Utility Users' Tax ordinance on telecommunications--that is only accounting for standard, non-internet based, traditional business phone services.

Prop. H is not just bad for business, its bad for everyone. Large telecommunications service providers prefer not to offer competitive prices in Chula Vista because of the high-cost associated with having to adjust their billing systems to track and remit taxes exclusively for the city. Again, because it is the only city in the county that continues to pursue utility users' taxes on phone services.

Thus, the high cost of doing business in Chula Vista detracts potential promotional offers and savings of hundreds to thousands of dollars a year for residential and business consumers.

Should Chula Vista voters elect to pass new telecommunications taxes by conglomerating them into a 1970s ordinance, the city will be "red-flagged" and will be excluded from discounts, promotions, and other offers. What this means is that Chula Vista will have even more expensive rates than any other city in San Diego County, in the same manner that landlines are more expensive for businesses.

It is important that voters not be fooled by political spin, read the fine print, and understand that the proposed ordinance affects almost everyone and proposes new taxes. In defining "telecommunications services," city staff has argued that only some of Telecommunications Users' will be affected by the proposal. There appears to be an absence of a thorough understanding of technology and the potential net impact that the new language proposes under the new, broad definition of telecommunication services.

The language proposes the application of taxation on existing and future internet-based telecommunications technology. Telecommunications, specifically outside of traditional cable landline and internet access, will be required to pay new Telecommunication Users' Taxes.

For the average Chula Vista resident or business owner, Proposition H proposes to "... now tax interstate and international telecommunication services ..." for the first time. The scope of the new tax reaches even further. Paid streaming and downloadable video services from Netflix, Blockbuster Online, and Hulu would be taxable under the proposed language. All of which qualify as services that do not fall under state cable and video programming franchise fees.

It does not stop there. The loosely constructed language proposes that prepaid cellular phones and other prepaid telecommunications services would be subject to new local taxes. This includes single-use prepaid phone cards, reloadable prepaid phone cards, providing access to telecommunications services not limited to local, state, out-of-state, and international purposes.

What if the user is a business owner who subscribes to a service that provides teleconferencing or video conferencing, directory assistance, voice mail or virtual secretary service by a provider outside of AT&T or Cox Communications? The business owner will be required to pay new Telecommunications Users' taxes.

Voice Over Internet Protocol or VoIP, a service which allows users to communicate through internet, specifically to make calls over the internet from the users' computer to a traditional telephone device, provides significant savings to business and residential users-approximately 20 to 50 percent compared to traditional cellular, cable, land line, and other private communication services. VoIP also offers features usually found only on high-end phone systems such as call routing and voicemail-to-email integration, making typically expensive services a viable option for small businesses. Even many average iPhone, iPad, iPod, Blackberry, and other internet-ready device users are turning to VoIP calling services to avoid expensive wireless calls. The proposed language intends to introduce new taxes on such services.

The Federal Communications Commission (FCC) and California Public Utilities Commission (the federal and state telecommunications regulatory agencies) have both recognized that the imposition of industry specific taxes on telecommunications services puts companies out of business and discourages competition. Before U.S. Congress enacted the 1986 deregulation act that split the AT&T monopoly into the "Baby Bells," states were allowed to recoup industry-specific taxes through the ratemaking process. State public utility commissions permitted these taxes to be "passed through" to the consumer in the form of higher telephone rates.

However, as a result of the 1984 telecommunications regulation overhaul, there emerged a new, fiercely competitive market. Thus, states could no longer assume that telecommunications service providers would be able to simply pass the cost of taxes off to their customers. The antiquated rationale for special taxes, which are industry-specific, has proven to be no longer valid in the competitive environment of today. Most cities understand this-which is why Chula Vista would remain the only city in the county to charge these taxes if Proposition H were to be approved.

So, let's get out of the political spin dead zone. Supporting existing businesses and attracting new industry to Chula Vista will get our economy going again not more, permanent taxation.

Herrera is CEO of the San Diego South Chamber of Commerce. Galvez is vice president of Fast Blue Communications.


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