How Santa Barbara, CA is Protecting Essential Utility User Tax Revenue

Locally controlled taxes are incredibly important for our annual budget process. Those taxes fund essential services for this community, such as police officers, firefighters, park maintenance workers, librarians. We rely on those local taxes to help pay for those essential critical services that our residents and our visitors come to expect from city government. Utility users tax is important to us.

It helps pay for those services I mentioned earlier. And having local control allows us to manage them and administer them as the residents originally voted them to be. The case with Disney was really important for us here locally. We believe that our local utility users tax applies for digital streaming services.

So we pursued an audit in partnership with Neumo where we sent out audit letters to many streaming service providers. And through that process, we entered into a really specific process with Disney where we were able to obtain some data and we were able to calculate past due utility users tax, plus penalties plus interest and then we started the legal process. And that first started with me as the tax administrator issuing a formal letter of determination saying that this utility users tax applies for streaming services. That decision was issued.

Disney did not agree with it. The independent hearing officer found completely in the city’s favor that the tax administrator’s decision was to be upheld. Disney appealed that decision to the Santa Barbara County Superior Court. That process took a little over a year and ultimately the judge in the Superior Court found in favor of the city and the independent hearing officer as well.

Disney did not agree with that decision, so they went ahead and appealed it. The Court of Appeals upheld the tax determination. This decision is binding, and so it could be used as precedent for future cities that may want to embark on a similar process that we did here locally in the city of Santa Barbara, we did not have to go out and ask the voters to approve a brand new tax.

This is quite simply the applicability of an existing tax that the voters approved many years ago, having it be applicable for streaming services, which we believe it should be.

Also, many people have sort of cut the cord. They don’t subscribe to traditional cable service anymore. And we used to receive utility user tax revenue based on traditional cable service. So that has been a declining revenue source for us.

So the way we see it is that having the utility user tax be applicable on digital streaming services is offsetting. It’s sort of replacing the prior tax being collected on traditional cable service. This potential revenue source could be one that many cities across California could look to generate some additional revenue to pay for their essential services.

Again, it’s really important for these cities to review their existing utility user tax ordinance to make sure that it’s modern, that it can be applicable for digital streaming services.

They could engage with an audit firm such as Neumo to go out and audit and request data from these streaming service providers to determine if past due tax could be collected, but then also working with them to ensure that they are remitting and collecting the utility user tax going forward. It was not a pleasant experience having to go up against a very large corporation, but I felt very strongly that I was doing the job that I was meant to do.

Doing that work is an essential critical role as a finance director and I took that job very, very seriously and I was happy with the outcome, but I was happy with the work that we did because it was the right thing to do.