Cell-phone company didn't charge customers city taxes for last
decade
by Bill D'Agostino
The City of Palo Alto filed
a huge lawsuit against Verizon Wireless Friday, claiming the national cell-phone
company failed to bill Palo Alto customers more than $2.4 million in fees during
the last 10 years -- tax dollars that should have gone to the city.
If the claim is true, Verizon Wireless at best created a multi-million
dollar administrative snafu or -- at worst -- gave its customers an illegal
discount and gained an improper competitive advantage.
"They really don't have an excuse for this," said Joe Saccio, the city's
deputy director of administrative services. "Our best guess is they
just made a boo-boo."
Palo Alto charges residents and businesses a 5 percent tax on all phone calls,
excluding out-of-state and long-distance calls. Phone companies typically collect
those fees as part of their monthly bills and then pass the money along to the
city.
It apparently took the city nine years to realize it was not getting the hundreds
of thousands of annual tax dollars from Verizon Wireless. The city finally discovered
the alleged deficit last summer during an internal audit by City Auditor Sharon
Erickson.
All of the 210 other companies with customers in Palo Alto have paid
the tax, Erickson said. "Because there are so many of them, it's easy to lose track
of them." Palo Alto believes Verizon Wireless has been charging
similar fees to its customers in other California cities, even those
with nearly
identical taxes.
"We're among the first who are trying to audit those remittances and make
sure those taxes are being imposed fairly," Erickson said. "When
we noticed it and when we notified Verizon, to be honest, I expected
to be receiving
payments immediately."
The city's lawsuit followed further attempts to reclaim the funds.
It's not certain the company didn't charge its customers the tax. The city's
belief the company did not levy the fee is based on a monthly bill Erickson acquired.
Another Verizon Wireless bill from a Palo Alto resident, obtained by a reporter,
also did not show the company charging the tax in August.
The city's lawsuit, filed in Santa Clara County Superior Court on
Oct. 1, alleges Verizon Wireless "concealed and suppressed their obligation" to collect
the tax "with the intent to deceive" its customers and the
city.
"We don't completely understand their position," City Attorney
Gary Baum said.
Palo Alto is asking Verizon Wireless for $2,428,500 in uncollected taxes, plus
penalties and attorney's fees. The city doesn't know exactly how much the company
and its customers didn't pay, and for how long the tax wasn't charged. The 10-year,
$2.4 million figure is the city's approximation.
The company has 30 days to respond to the lawsuit. The City Council discussed
the potential suit behind closed doors on Sept. 20.
A spokesperson from Verizon Wireless did not have a remark prepared by the Weekly's
Monday deadline, and said on Friday that the company usually doesn't comment
on litigation. The company, which has an office on Palo Alto's University Avenue,
has 40.4 million customers and had $22.5 billion in revenue in 2003, according
to its Web site.
Palo Alto's 5 percent tax, approved by voters in 1987, is known as
the "Utility
Users Tax." It also includes a 5 percent tax on utility services
like electricity and water. Overall, the tax brings in $7 million to
$8 million
of revenue per
year to the city's general fund, with about $2 million coming from the
phone customers.
If the city wins, it is possible -- though unlikely -- that the company
will force its Palo Alto customers to shell out the tax dollars they
were supposed
pay for the last decade.
Staff Writer Bill D'Agostino can be e-mailed at bdagostino@paweekly.com
E-mail a friend a link to this story.
