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Information on the repeal of an old Telephone Usage Tax

On May 25, 2006 The US Department of Treasury announced that a 3% Federal Excise Tax (FET) on long-distance telephone calls, in one form or another for most of the time since 1898 has been repealed.  It was created to pay for the cost of the Spanish-American war. It was considered a luxury tax since only the wealthy had telephone service and could afford long-distance calls.

What caused this action?  The tax was based on the way that long-distance telephone calls were made in 1965, this being a model that based the cost of the call on distance.  Since the early 90’s most carriers stopped using that model.  Some Enterprise Businesses have requested refunds for the tax and in Federal Courts the IRS have lost nearly all of the lawsuits. The one that they did win was overruled in appeals.

This means that all users of long-distance services will be entitled refunds. Everyone, no matter whether it’s a residential account or a business account.  It also includes cellphone accounts.  There will continue to be a 3% FET on local service, although there are moves to have this repealed as well.

Telecommunication carriers have been the tax collectors, but don’t go to them for the refund.  The only thing they can do for you are to issue reprints of bills.  By the time of your July invoice, the one usually received in August, they are required to discontinue collecting the tax.

Refunds will be issued by the IRS.  Their plan is have it accomplished as part of your 2006 tax filings. Residential users will have the option of taking a “safe haven” amount still to be determined by the IRS.  They can also calculate their refund from bills issued after February 28, 2003.  This date was determined due to Statues of Limitations of three years.

Businesses have only one option. They will be required to do the calculations for the exact amount paid and enter it on the tax form.  This is the information, as I understand it at mid June 2006.  There are still things to be determined and information may change.

Some businesses may have already filed with the IRS for refunds.  This has been happening for quite a few years generally by larger enterprises.  If your filing was before March 1, 2003 it will still be addressed.  If the filing was after that date, the IRS will disregard those filings and you will need to file for the refund through the Tax form.

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