May 25, 2006

Telephone Tax repealed

I had written about this tax last January: The 3% Federal Excise Tax on your telephone bill…

From the TaxProf Blog:

Can You Hear Me Now? IRS to Refund $15 Billion of Telephone Taxes to Consumers
The Treasury Department and IRS announced this morning that after losing in five circuit courts of appeals, the Government is throwing in the towel and will no longer seek to enforce the 3% excise tax on long-distance telephone calls enacted during the Spanish-American War of 1898 as a “luxury” tax on wealthy Americans who owned telephones. The IRS will will issue $15 billion in refunds to consumers for long-distance telephone service taxes paid over the past three years:
  • 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 long-distance 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.
  • Refunds will not include tax paid on local telephone service, which was not involved in the litigation.

This is also covered by Reuters:

UPDATE 1-U.S. to repeal federal long-distance phone tax
The U.S. Treasury Department on Thursday conceded a legal dispute over the federal excise tax on long-distance telephone service and said the Internal Revenue Service will refund tax paid on the service over the past three years.

In a statement, U.S. Treasury Secretary John Snow also urged Congress to repeal the excise tax on local telephone service.

The Justice Department will no longer pursue litigation on the long-distance issue, the statement said.

The Treasury Department said taxpayers can claim a refund on their 2006 returns for the long-distance tax, which was established in 1898 as a luxury tax on wealthy Americans who owned telephones.

Snow, at a press conference on Capitol Hill with lawmakers, said the tax was “antiquated” and well-rid of.

“It's not often you get to kill a tax, particularly one that goes back so far in history,” Snow said, adding that Treasury was pleased to concede this tax was no longer useful.

According to a report in The Wall Street Journal, the decision will lead to billion of dollars in refunds to U.S. consumers and businesses who have paid it, with refunds and lost revenue over the next five years adding up to about $60 billion.

Snow estimated the cost of refunding taxpayers for three years of past taxes would total about $13 billion, and said that there would be no problem in finding that amount.

“The revenue stream is strong and can easily absorb this,” Snow said.

In response to questions, Snow said he could not specify how much of the refund might be made to businesses and how much to individuals. He also said Treasury could not yet estimate the size of refund an average individual could expect to get.

And I wonder how much our phone bills will go up to cover this loss of revenue. Out of one pocket and into another one…

Posted by DaveH at May 25, 2006 04:44 PM | TrackBack
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