Santa Rosa, business owners at odds over utility tax overpayments

Santa Rosa won a round in court last week against downtown property owners who say the city has systematically overtaxed their utility bills for the past decade.

Sonoma County Superior Court Judge Elliot Lee Daum on Wednesday delivered a setback to developer Richard Coombs' legal challenge to the way the city administers its 5 percent tax on utility bills.

But Coombs vowed to press on with a lawsuit he says aims not just to recoup the remaining $136,000 the city overtaxed him and his partners but to change the taxing scheme he and others say is secretive and unfair.

"This is far from over," said Coombs, a partner in three prominent downtown buildings. "When something is so obviously and intentionally hidden, by name and by mechanism of collection, it's just wrong."

Coombs is a partner in the Airport Business Center, a commercial real estate group whose holdings are mostly focused around Charles M. Schulz-Sonoma County Airport. But the group also owns or co-owns three properties downtown, including the six-story office building at 50 Old Courthouse Square, the Roxy Stadium 14 movie theater and 3rd Street Cinemas building.

Coombs says that for years the city collected a 5 percent tax on the utility bills for each of his three buildings without anyone in his organization knowing they were paying "far in excess" of the annual $1,000 cap per utility.

When he sought a refund in 2012, city officials acknowledged he had been overtaxed but would only refund about $24,500 or 15 percent of approximately $160,000 in overpayments, citing city rules limiting refunds to only those discovered within a year, he said.

"Their position is 'It's your guys' fault that you didn't catch this,'" Coombs said.

He's not the only one upset with the city's process for collecting and refunding the tax on electric, gas, cable TV, and landline telephones known as the Utility Users Tax.

"I've been screaming about this for two years," said Catt Tripoli, owner of PowerHouse Gym on Fifth Street.

Tripoli said she realized in 2012 she had been overcharged thousands of dollars by the city over six years. When she learned of the overpayments, she contacted the city but was told she could only recover a portion of what she had overpaid, she said.

She received a one-year refund of about $850, which she called "travesty" given that she documented an additional $4,250 in overpayments.

"For a small business, that's somebody's raise," Tripoli said.

The litigation by Coombs comes at an inopportune time for the city, which is putting a ballot measures before voters this fall to "modernize" the tax. The city received about $9.6 million from the tax in 2013. Officials worry that revenue could decline sharply as technological changes drive people to unplug their landline phones.

The City Council just last month voted to ask voters in November to lower the tax from 5 percent to 4.25 percent and expand it to cover cellphones.

Coombs said he can't believe the city wants to expand such a flawed tax measure.

"If they have not proved their ability to implement this tax properly why should we allow them implement it on more people?" Coombs asked.

City Manager Kathy Millison acknowledged the caps, which were put in place to limit the exposure of large businesses and property owners to higher tax bills, add "complexity to the administration of the tax."

But she said the city "has no desire or intent to make errors in how the tax is collected."

The notion that the city isn't being transparent about the tax is untrue, other officials said. Many cities have such taxes and Santa Rosa's has been in place since 1970.

"We weren't trying to hide it," City Attorney Caroline Fowler said.

The city has a separate page on its website devoted to explaining the Utility Users Tax, and also has taken out ads in The Press Democrat informing people that they may qualify for a refund, Fowler said. The city also lets users prepay their tax, allowing them to avoid being overcharged and required to request refunds, Fowler said.

In 2012, the city paid 37 utility users a total of $370,461 in refunds, according to city records.

After the overcharges were raised in 2012, the city contacted PG&E and reminded the utility of its responsibility to comply with the city's tax law, including the $1,000 cap, Fowler said.

The city demanded PG&E allow it to see who is eligible for a refund, even threatening in 2012 to subpoena such records, according to letters provided by the city. PG&E responded that it is prohibited by state and federal law from disclosing such information without the consent of its customers. It suggested the city notify residents in water bills, which the city has begun doing.