The U.S. Treasury Department said on Thursday it would concede the legal fight over the federal excise tax on long-distance telephone service, and require the IRS to issue refunds to consumers and businesses for proceeds paid over the past three years.
The 3 percent tax originally was established in 1898 as a “luxury” tax on wealthy Americans who owned telephones, because the government needed to finance the Spanish-American war. The Treasury Department and phone companies say the tax on telephone calls is not compatible with communications in the 21st century.
Today is a good day for American taxpayers; it marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history, said Treasury Secretary John Snow in a statement.
Snow also called on Congress to repeal the excise tax on local phone service as well.
The end of the tax comes after a series of court rulings finding the government has been misapplying the tax, “The Wall Street Journal” reported in April. The Treasury Department said taxpayers will be eligible to apply for the refunds on their 2006 tax forms, which will be filed next year. The government will pay interest on those refunds.
The government’s announcement on the significant curbing of the federal excise tax on talking is wonderful news for consumers, said Herschel Abbot, vice president of governmental affairs for BellSouth Corp., in a news release. Customers should see a noticeable difference in their phone bills within the next few months. We hope this decision is a harbinger of removal of other discriminatory taxes on communications customers.”
Wireless association CTIA also praised the taxs repeal.
Today every wireless subscriber in the nation can celebrate a much-deserved 3 percent tax cut,” said Steve Largent, president and CEO. “Without the millions of wireless users all across America lending their voice to this effort, we may not have reached this important day.”
Similarly, Verizon Communications Inc.s Tom Tauke, executive vice president of public affairs, policy and communications lauded the news as good for consumers, but also said Congress should eliminate the tax from local phone services.
This is a good first step in alleviating consumers telephone tax burden, which currently accounts for more than 18 percent of the average bill, he said.