CHULA VISTA — A San Diego Superior Court judge has overruled Chula Vista’s challenge to a class-action lawsuit that claims the city has been illegally levying taxes against residents who have cell phone service.
If successful, the claim could result in reimbursements to anyone who lives in Chula Vista, uses their cell phone and pays local fees on the bills.
The lawsuit, set for trial next January, stems from a 5 percent assessment collected on telephone bills and Chula Vista’s outdated 1970 Utility Users’ Tax. The city law allows a fee to be imposed for services administered by local utility companies. The utility companies then act as tax collectors passing along some $9 million in annual fees to the city’s general fund.
“The court simply declined at this time to dismiss the case based upon the city’s argument that the express language of the city’s local UUT ordinance precludes class action claims,” City Attorney Glen Googins said. “We disagree with that ruling and are currently in the process of appealing that decision.”
Lawyers from two law firms bringing forward the suit, Casey Gerry and Capretz & Associates, say Chula Vista’s municipal code explicitly prohibits taxes on mobile phones.
The code states: “The term ‘charges’ shall not include charges for services paid for by users of mobile telephone and marine telephone service.”
Residents have been paying the surcharge on their mobile phone bills since the advent of the devices. Googins said Chula Vista has a statute that limits damages claims for unlawfully collected UUT fees to one year. The lawsuit was initially filed April 4, 2010.
Citizens sent a resounding message to City Hall in November 2010 with the failure of Proposition H — a ballot measure seeking to update the language of the code and extend the tax to newer forms of communication, including Skype, prepaid cell phones, teleconferencing apps for tablets and smartphones, and international prepaid phone cards, the attorneys said.
But, the city continued collecting the fees on mobile phone services anyway, stashing them away in a separate fund in case they were sued over the matter. “This is about a flagrant violation of the law and disrespect for the will of the people,” said co-counsel James Capretz of Orange County-based Capretz & Associates.
The city asked a judge to dismiss the case based on a local statue that prevents class-action lawsuits on tax refunds, but Judge Richard E.L. Strauss, citing a recent California Supreme Court decision, ruled that state law trumps the city ordinance and allowed the lawsuit to move forward.
“That procedural claim was probably their best shot,” said Tom Penfield, co-lead counsel on the case. “Hopefully they’ll sit down and take a look at this situation, and at least stop continuing to take the money.”
About $9.1 million is collected every year in total utility taxes in Chula Vista. Of that, about $5.6 million comes from telephone services, and $3.8 million a year is from cell phone services, according to Chula Vista finance officers.
Comparable taxes are levied in about 150 cities and counties across the state on gas, electricity and telephone bills.
Last month, Strauss set the case to go to trial in January.