The Treasury Department says it will eliminate a tax on longdistance
telephone calls and refund about $13 billion collected from consumers.
Noting that its not often that the government kills a tax, Treasury Secretary
John Snow announced the federal excise tax on telephone service will officially
expire at the end of July.
Originally established in 1898 as a "luxury" tax on wealthy Americans who had
telephones, the federal excise tax on telephone calls is not compatible with
todays modern informationage society.
It was adopted under the War Revenue Act as a temporary levy to help fund the
SpanishAmerican War. The war, which ended in October of that year, established
the independence of Cuba, ceded Puerto Rico and Guam to the United States, and
allowed the U.S. to purchase the Philippines Islands from Spain for $20 million.
The tax was repealed in 1902 but didnt stay gone for long. It was reintroduced
during World War I and was subsequently used to fund the nations military
activities during World War II, the Korean War and the Vietnam War.
The tax was given permanent status in 1990 and now stands at 3 percent of a
consumers monthly phone bill. It raises about $6 billion a year for general
federal expenditures, including military spending.
In recent years, opponents of the Iraq War have refused to pay the excise tax,
citing its long history of funding military activities.
Not surprisingly, telecommunications interests have long inveighed against it.
"We think its antiquated and has no place in a modern economy," said Joe Farren,
a spokesman for telecom industry group that represents wireless carriers. "We
think this tax is outrageous and shouldnt be assessed."
It was not a tax that went gently into the night. The Treasury Department
engaged in a longrunning legal dispute before finally conceding defeat.
The Department of Justice will no longer pursue litigation and the Internal
Revenue Service (IRS) will issue refunds of tax on longdistance service for the
past three years.
Taxpayers will be able to apply for refunds on their 2006 tax forms, to be filed
"Today is a good day for American taxpayers it marks the beginning of the end
of an outdated, antiquated tax that has survived a century beyond its original
purpose, and by now should have been ancient history," Snow declared.
"The Federal Appeals courts have spoken across the board. Its time to
disconnect this tax and put it on the permanent do not call list," he said.
Government officials said no immediate action is required by taxpayers. Refunds
will be a part of 2006 tax returns filed in 2007.
Refund claims will cover all excise tax paid on longdistance service over the
last three years (time allowed given statute of limitations). Interest will be
paid on refunds. The IRS is working on a simplified method for individuals to
use to claim a refund on their 2006 tax returns.