The Communication Services Tax is a tax on services such as any voice, data, audio, video or other information or signals, including cable services transmitted by any medium. The communication vendor remits to the State of Florida Department of Revenue on a monthly basis a tax return, which indicates the amount of tax due to each jurisdiction including the State of Florida. The Department of Revenue remits the money, based on the returns, to the individual jurisdictions. In Fiscal Year 2006, the City received $5,620,990 in Communication Services Tax Revenues. Beginning Fiscal Year 2007, the projected revenues for the Communication Services Tax were $5,950,000.
During the month of December 2006, the City of Pensacola received the first Communication Services Tax receipt for FY 2007. At that time, a decrease of $146,519 was noticed from the FY 2006 receipt for the same time period. The Director of Finance understood at that time that a one-time adjustment had been made for that remittance. Upon receiving the second monthly receipt in January 2007, it was roughly $100,000 lower than the first monthly receipt and it was $185,000 less than the FY 2006 receipt for the same period. It appeared that the decrease was due to a change in reporting from Cox Communications. The Director of Finance changed the City’s budgeted revenue estimate for Communication Services Tax from $5,950,000 to $4,350,000, a $1.6 million reduction.
During the first week of February 2007, local Cox Communications officials and the City had discussions on the issue. Cox Communications provided the City with an estimate of $3.4 million that the City was overpaid for the months of July 2004 through September 2006. It is the City’s understanding from Cox Communications that beginning July 2004, they were utilizing a third party vendor to remit the Communication Services Tax to the State. That vendor was incorrectly filing the tax returns, which resulted in the Florida of Department of Revenue sending all Communication Services Taxes revenue to the City of Pensacola instead of sending the proper allocations to the City of Pensacola, Escambia County and the State of Florida.
Once final amounts are known, it is the City’s understanding that the standard process is that the City’s remittance will be reduced until all overpayments are repaid. Based on the information received from Cox Communications, that would equate to 27 months. However, this was due through no fault of the City; therefore, the final resolution has yet to be determined.
Based on the information received from Cox Communications, the Director of Finance has recommended that the $5 million shortfall will be reviewed in two categories. The $1.6 million ongoing shortfall will be accomplished through expenditure reductions. Specifically by instituting a hiring freeze within the General Fund and General Fund-Related Departments and reviewing departmental requested 5% budget reductions. The affected departments have been notified and currently are compiling areas to reduce and the impacts of such a reduction. Additionally, the Director of Finance will be reviewing fund balances in the various City funds to provide alternatives for the $3.4 million one-time payback. A special Committee of the Whole meeting has been scheduled for Monday, February 26, 2007 to discuss these issues.