Publication Date: Wednesday, December 21, 2005
Palo Alto faces loss in Verizon lawsuit
Palo Alto faces loss in Verizon lawsuit
(December 21, 2005) City could lose vital revenue source
by Bill D'Agostino
A superior court judge is expected to rule against Palo Alto in the city's $1.7 million lawsuit against Verizon Wireless early next year, creating a concern for city officials that a vital revenue source could be lost.
The city recently discovered that for several years Verizon's customers had not paid a 5 percent tax on phone calls made within Palo Alto. The city filed a lawsuit in Santa Clara County Superior Court in October 2004, hopeful to recover $1.2 million, plus fees, from the past three years -- the presumed statute of limitations. Verizon lawyers argued its customers were exempt from the tax.
Meanwhile, three federal appeals courts ruled this year that the Federal Excise Tax, a 3 percent tax, does not apply to phone companies that charge customers by the length of their calls, rather than the distance between the calls' participants. That ruling could cost the federal government $9 billion.
At a recent hearing in Palo Alto's case, Superior Court Judge Jamie Jacobs-May announced she would likely rule in Verizon's favor, citing those federal cases. The city hasn't received a written ruling but expects one in early 2006.
Mark Strombotne, an attorney whom the city hired to argue the case, said Palo Alto believes the judge misapplied the federal cases to the city's lawsuit.
"We believe that some of Verizon's local calling plans are taxable," Strombotne said.
Mayor Jim Burch worried other telephone companies would now stop charging the tax. The city gets about $2 million annually from phone customers.
"They're not going to pay if Verizon doesn't," he said. "They'll all use it as a precedent."
For now, the expected ruling would only apply to Verizon, Strombotne said.
The city will consider appealing after it receives the written ruling, Burch said. He predicted numerous friends of the court would join Palo Alto's fight.
City voters narrowly approved the Utility Users Tax, which also includes a 5 percent tax on electricity, gas and water, in 1987.
Staff Writer Bill D'Agostino can be e-mailed at bdagostino@paweekly.com.
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