Spokane utility taxes to be audited after phone-related shortfall

We talk, text and increasingly read the news on our smartphones.

But we’re not just ignoring those sitting near us with this behavior. We’re also affecting the city of Spokane.

When the city projected earlier this year that it would fall $600,000 short in the revenue generated by telephone utility taxes, it hired an auditor to examine all of its utility taxes. The tax, which includes a 6 percent toll on telephones, also taps into money raised by the use of water, natural gas, electricity, the sewer system and cable TV.

“I think it’s long overdue,” Councilman Mike Allen said of the audit. “You see telephone tax revenue dropping, yet every house has four different cellphones. Your phone bill used to be $50 a month. Now it’s $350 a month. It’s counterintuitive.”

Tim Dunivant, the city’s budget director, said the drop in telephone revenue was a surprise.

“With the telephone tax, there did appear to be some pretty significant drops in what we anticipated to see with the revenue,” Dunivant said. “That’s the one that I have the most concern about because it has the highest probability as a place to recover money.”

Dunivant said weather patterns and subsequent consumer use is responsible for other utilities being off the mark, including water and electricity. And the sewer utility tax estimate was off, which the city’s accountants found early on, affecting the budget as a whole.

But the phone tax has vexed him.

Under a quirk in the federal law governing the Internet, smartphone data charges are exempt from local utility taxes, as is satellite TV. So when companies separate talk, text and data charges on a bill, they shrink the slice of the bill that’s taxable.

Still, Dunivant said he accounted for that, which is why he brought in Tacoma-based Tax Recovery Services to perform an audit. The company is auditing all 10 of the utilities the city taxes and expects to find up to $1 million in uncollected taxes. The company will keep 25 percent of what it recovers for this year’s taxes as well as its recoveries from the last four years. The city will keep all ongoing savings.

“People might be reporting this correctly. We might just be seeing a trend,” Dunivant said of the audit, the initial results of which are anticipated by year’s end. “This is prudent business practice. We’re just doing our due diligence. A bigger story is when we get results from the audit.”