FET's Long (Overdue) Goodbye
Good news and bad regarding taxes--first the good news, you won't pay federal excise tax on toll telephone service after July 31, 2006; the bad news is that you've been paying this tax for nearly half a century longer than you should have. The telephone federal excise tax was originally a luxury tax imposed on those who could then afford telephones (i.e., the rich) as a means of funding the six billion dollar price-tag for the Spanish-American war. Despite the fact the war ended nearly 108 years ago, the tax lived on resulting in taxpayer overpayment of approximately 294 billion dollars.
Section 4251 of the Internal Revenue Code ("IRC") imposes the 3% federal excise tax on "toll telephone service." Section 4252(b)(1) of the IRC defines "toll telephone service" as "a telephonic quality communication for which (a) there is a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication and (b) the charge is paid within the United States." Section 4252(b)(2) of the IRC provides that the definition also includes service for which a subscriber pays a flat fee for unlimited long-distance calling. In recent years (and at least 11 times), taxpayers have challenged in court the validity of the federal excise tax as it relates to toll telephone service on the basis that the toll is no longer mileage-based. In other words, today's caller in Los Angeles will pay the same per-minute rate for a call to Las Vegas as he would pay for a call to Boston. Of those eleven cases, the taxpayers prevailed in ten of those cases at trial, and upon appeal with respect to the eleventh case.
Rather than continue to fight, the government has instead thrown in the toll-tax towel, although you'd never come to that conclusion listening to their comments. "Enough is enough!" exclaimed U.S. Treasury Secretary John Snow, "Today is a good day for American taxpayers; it marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose and by now should have been ancient history."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 added, "It's time to 'disconnect' this tax and put it on the permanent 'do not call' list."
Snow also added, "That [telephone tax] is the taxpayers' money, and they deserve to have it, not the government" but perhaps he didn't quite mean exactly that. Rather, Mr. Snow could have more accurately proclaimed, "That is the taxpayers' money, and they deserve to have to eat it, not the government." Exactly how the process will work is yet to be determined but the federal government is working even now to develop a process whereby taxpayers may request refunds (with "interest") dating back to March 2003. Any monies paid from February 2003 back to 1955 (give or take a year or two) will not be refundable, oddly however, neither Mr. Snow nor the government is offering any explanation as to why. Refunds will most likely be processed as the result of a line item on the taxpayer's income tax return. Additionally, the refund process will work the same way for non-individual (e.g., corporate) filers.
Snow estimates the government will issue "refunds" of approximately 13 billion dollars (quiz: what is 294 billion minus 13 billion?) but couldn't guess what the average taxpayer refund would be. However, Sen. Rick Santorum (R-Pa.) said his tax bill amounted to $3 to $4 each month. "It's a nice little check for a lot of folks," he said of the expected refunds. Secretary Snow was right, enough is enough!