Menlo Park's Utility Users Tax (UUT) was approved by voters in 2006 and imposes a maximum 3.5% tax on gas, electrical and water usage and a maximum 2.5% tax on cable, telephone and wireless services, according to the city website. The taxes are collected by the utility service providers and sent monthly to the city's finance division.
The taxes, which have been set at 1% since 2007, also set a cap of $12,000 for the total amount a user can pay for electric, gas and water utilities. In the 20-21 fiscal year, the city collected about $1.4 million in utility users taxes, and the amount collected annually since the 2012-13 fiscal year has generally fluctuated between roughly $1.1 million and $1.7 million.
An Oct. 28 demand letter by attorney James Pistorino on behalf of Fogel, Pertsev and Darke states that these residents are demanding that the city stop collecting utility users tax and provide a refund.
According to the lawsuit, filed Dec. 28, each person who paid Menlo Park's utility users tax past Dec. 31, 2016, "is entitled to a refund (with interest) of all such monies paid."
When asked whether Menlo Park residents might see a tax refund in their future, City Attorney Nira Doherty said in an email to The Almanac, "The City now has the opportunity to file a responsive pleading to the class action lawsuit. The lawsuit is in the very early stages; any determinations on the allegations, including those related to a tax refund, would be premature."
At the time the tax was approved in 2006, Pistorino writes in the initial demand letter, those pushing to have the measure passed argued that the city faced a recurring budget deficit of $2.2 million and needed the utility users taxes to avoid "drastic cuts" and help pay for police, emergency preparedness, libraries, street repairs, park maintenance and senior and youth programs. The law passed by a narrow 67-vote majority.
In the municipal code, it says that the tax would need to be reviewed every two years, and to be reauthorized, the City Council would have to, by a two-thirds majority, make findings that the tax is "necessary for the financial health of the city." If it didn't, the tax would be terminated at the end of the calendar year. That's what happened when the council allegedly neglected to reauthorize the tax any time after 2016, Pistorino argues.
Furthermore, under the California Constitution, it says that governments are not permitted to "impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote." Since Menlo Park voters haven't voted on it since the tax allegedly lapsed, the city is allegedly in violation of the state constitution, the lawsuit claims.
According to Pistorino, citing city documents he obtained, the City Council made the needed findings in 2008, 2010, 2012 and 2014, but hadn't been made in 2016 or any year beyond that, and as a result, the UUT would have expired at the end of 2016 — which, by extension, means that any taxes collected after then were illegally collected.
The group bring forward the lawsuit is making it a class action lawsuit on behalf of all of the households who paid the utility users tax after its authorization lapsed; estimated to be more than 12,000 households or entities, according to the legal complaint.
The lawsuit requests that the judge determine that the UUT is no longer in effect, bar the city from collecting any more UUT, order the city to refund those taxes, including interest, and award the plaintiffs and class members litigation expenses and legal relief.
The claimants' research into the UUT began after Aug. 31, 2021, when now Mayor Betsy Nash, Vice Mayor Jen Wolosin and Councilwoman Cecilia Taylor expressed favor toward increasing the utility users tax to the maximum 3.5% up from the current 1% rate to generate funds to help low-income households replace gas power with electric power. The votes "prompted increased scrutiny of the UUT itself and, as a result, this demand letter," Pistorino wrote.