Three telecom firms rung up by court over rates
SAN JOSE >> A court decision rebuffing three of America's largest telecommunications companies has temporarily saved California residents and business owners from potentially having to cough up hundreds of millions of dollars in extra taxes.
In a Jan. 6 ruling issued by the 6th District Court of Appeals, Santa Clara County prevailed over AT&T, Sprint and T-Mobile, which had argued that they pay unlawful and excessive property taxes for their infrastructure under state law.
The case is of statewide importance because if the court had sided with the telecoms, forcing a rejiggering of tax rates, counties then would be forced to find other ways to replace missing tax dollars, Santa Clara County Counsel James Williams said.
The county's attorney said the fight isn't over and he expects an appeal to the California Supreme Court, which considers only a small fraction of submitted cases. The wider legal battle involves 34 other counties, but those cases were put on hold pending a court decision involving Santa Clara.
According to Williams' estimates, increases in Santa Clara County alone would have amounted to roughly $44 million in 2020, the year the companies first filed suit. The dollars in question are debtservice taxes, which residents and business owners pay yearly to cover interest on water, school or other related bond measures.
Central to the case is whether counties could continue imposing higher taxes on telecommunications equipment — including telephone wires, switches, power distribution systems and other infrastructure — than nonutility property such as homes and small businesses. According to the appeals court ruling, the county levied a 1.04% debt-service tax on the telecommunication companies' equipment in 2014 — as compared with a 0.2% tax for the nonutility property.
The companies sought tax refunds from the county amounting to roughly $12 million from 2014 to 2016 — which Santa Clara refused to pay, sparking the 2020 lawsuit. The telecoms pointed to a statute in the California Constitution that they interpreted as requiring utility company infrastructure to be treated the same as other property in regards to taxes. In April 2021, a lower state court ruled that it could not determine the intent of the specific state statute, while holding that the companies had a right to submit refund claims, which the companies continued to send in, Williams said.
In the 6th District's decision this month, the court ruled that the utility companies' interpretation of the state Constitution was inaccurate and that it does not require utility companies' property to be taxed at the same rate as other infrastructure. Local jurisdictions, have the right to set the rates themselves, the court ruled.
“We recognize the force of the utilities' arguments that the tax rates … ask them to pay a disproportionate share of the debt burden of certain counties in California,” the ruling states. “The remedy for such disparate treatment, however, lies with the Legislature.”
In a statement, AT&T wrote that it was disappointed in the court's ruling “because it fails to address a flawed property rate formula that results in utilities being charged a rate that is twice (that) of other businesses in the area. We are currently reviewing the options to achieve a resolution of this problem, including an appeal.”
Attorneys for the telecommunication companies, including the San Francisco-based California Appellate Law Group, declined to comment. Oakland-based law firm Boersch and Illovsky and the Sacramentobased Capitol Law and Policy group did not respond to requests for comment.