Chula Vista Cell Phone Tax Class Action: $8 Million Settlement Fund for 100,000+ Wireless Subscribers

Chula Vista's Telephone User's Tax dates to 1970, when the city enacted it to cover landline utility service. For decades, the ordinance sat largely uncontested. But by the mid-2000s, a series of federal court defeats for the IRS had called into question whether utility user taxes originally written for wireline service could lawfully be extended to cellular calls. Chula Vista continued collecting its 5 percent wireless tax anyway, generating roughly $5.6 million a year.

In 2011, Casey Gerry Schenk Francavilla Blatt and Penfield, together with Newport Beach firm Capretz and Associates, filed a class action on behalf of Chula Vista residents Carla Villa and a second named plaintiff. The complaint, styled Carla Villa, et al. v. City of Chula Vista, alleged that applying the decades-old tax to mobile phone service was unlawful and demanded restitution of all collected taxes on behalf of the full class of affected wireless subscribers. Thomas Penfield, a partner at Casey Gerry, told Voice of San Diego that the city's potential exposure stretched well beyond a single year, pointing to a comparable San Diego sewer-rate dispute that ultimately covered four years of overcharges.

The city maintained it had done nothing wrong. A spokeswoman acknowledged the legal complexity but framed the city's position as one of financial necessity: without the tax revenue, public services would face cuts. The city argued its maximum liability was capped at one year, approximately $5.6 million. Plaintiffs disputed that figure. San Diego Superior Court Judge Richard E.L. Strauss certified the class of more than 100,000 subscribers in 2012 and set the case on a trial track.

With trial approaching, the parties negotiated a settlement. Judge Strauss granted preliminary approval on April 5, 2013, and final approval in December 2013. The city agreed to make $8 million available for subscriber refunds and to pay litigation expenses and attorney fees out of the same fund. Eligible class members who paid the wireless tax between April 2010 and April 2013 could choose from three refund tiers: a flat $35 rebate, $50 per year up to $150 with proof of payment, or an estimated full refund for those who could document their bills precisely. The city also agreed to reduce the tax rate from 5 percent to 4.75 percent and to clarify its ordinance so that future collection would comply with current law.

The claim period ran through July 31, 2013. Casey Gerry held informational meetings for Chula Vista residents to explain the claim process and help subscribers understand their options. The settlement did not constitute an admission of liability by the city.