Chula Vista Settles Cell Phone Tax Lawsuit for $8 Million

The tax, introduced in 1970, charges a small fee on users of telephones, electricity and other utilities within the South Bay city. As cell phones came into popular use, Chula Vista started allowing phone companies to tax cell phone calls too, and for years it collected and spent that tax money.

The tax on cell phone calls was always on rather shaky ground. It was loosely based on Internal Revenue Service rules governing what can and can’t be taxed. But in the mid-2000s, the IRS lost a number of court cases over whether it could tax cell phone calls and, in 2006, a cell phone carrier wrote to the city of Chula Vista saying it didn’t think it still needed to collect the taxes.

But Chula Vista didn’t stop taking the tax money. The city argues that the tax is legal, though in recent years it’s been carefully stashing away the proceeds from the cell phone taxes in case it loses in court one day.

By Will Carless, Voice of San Diego

The city of Chula Vista just settled a class action lawsuit brought by cell phone users who said they were illegally taxed by the city for years.

Under the settlement, which was approved by a San Diego court, the city must pay $8 million in rebates and refunds to cell phone users who were taxed, plus legal fees.

The city of Chula Vista maintains that the tax is legal.

“We disagree that certain aspects of the tax are unlawful, but, because the issues are complex and continued litigation would be expensive, the city believes it is in the best interest of its citizens to settle the case,” said Anne Steinberger, a spokeswoman for the city.

Residents of Chula Vista have been mailed notifications this week that will tell them how to claim a cash refund from the settlement, said Jeremy K. Robinson, one of the lawyers who sued the city.

Recipients will have to fill out a claim form to prove they’re eligible for a repayment. If so, they have the choice of a $35 flat rebate; a $50 payment for every year they paid the tax, up to $150, (if they can prove they paid it) or an estimated full refund from the period April 2010 to April 2013.

Claims must be made in the next 90 days. More information about making a claim can be found here.

We’ve been following this issue ever since we wrote a series of stories on Chula Vista back in early 2011. Last year we checked up on the tax after a group of cell phone users brought a suit. Here’s a snippet from that post describing the charges in dispute:

Steinberger said the city has enough money stashed away to pay the full $8 million if necessary.

Robinson said the amount the city has to pay will depend on the number of claimants.

“Right now, our goal is to get as many people as possible to make claims,” he said.

On top of whatever it has to pay out in claims, the city will also have to pay the attorney’s fees for the case. The full payout won’t be known until after the 90-day claim period has expired.