U.S. May Stop, Refund Excise Tax
On Phone Service
By Robert Guy Matthews and Amol Sharma
The Wall Street Journal
Friday, April 14, 2006
WASHINGTON -- The Treasury Department, following a series of
hostile court rulings on the way it assesses the federal excise
tax on phone service, is working on a plan to stop collecting
the levy and refund billions of dollars to consumers and
businesses, according to people familiar with the matter.
Government officials are holding closely guarded discussions on
how to best handle the repayment process as well as mitigate the
impact of about $60 billion in potential refunds and lost
federal revenues over the next five years. The surcharge would
likely disappear from long-distance and wireless bills, but
local-call levies could remain.
The Treasury, Internal Revenue Service and Justice Department
wouldn't confirm the direction of the discussions. "Treasury,
IRS and Justice Department are working together and considering
the matter and you could expect some sort of decision to come in
the future," said Treasury spokesman Sean Kevilighan. Treasury,
Justice and the IRS wouldn't confirm that they are discussing
Courts have ruled seven times in recent years that the
government is misapplying the 3% tax and ordered refunds to
companies that have sued over the charges. The courts have
generally accepted the argument that the tax is outdated and
should no longer apply on long-distance calls, given how
technologies and calling plans have changed. More suits are
pending, and rather than continue with costly litigation, the
Treasury has decided to concede defeat, say government
Elimination of the excise tax would be a major victory for the
telecommunications industry, which has fought for years in court
and on Capitol Hill to do away with the surcharge.
The law -- originally enacted to help pay the costs of the
Spanish-American War -- taxes telecom services based on both the
duration of a call and the distance it travels. But the
changing nature of technology now lets phone companies offer
flat rate per minute or monthly plans. The government, however,
has continued to assess the tax under the old services, sparking
When the tax was enacted in 1898, telephone service was
something of a luxury and the levy affected relatively few
Americans. As telecommunications expanded to become a fixture
of modern life, the tax has become a steady revenue stream that
administrations of both political parties have been loath to
surrender. In 2000, Congress repealed the tax, at an estimated
five-year cost of $24 billion. Former President Clinton vetoed
the measure over budget concerns.
A multibillion-dollar giveback would hit the federal budget hard
at a time when the deficit is hovering around $423 billion,
according to government estimates for 2005. The telephone
excise tax brought in about $6 billion in 2004 and is estimated
to collect about $45 billion through 2010.
According to the Congressional Budget Office, if the law is
rescinded, the IRS would be required to refund payments going
back for about three years.
Treasury Secretary John Snow indicated in a House Ways and Means
Committee hearing in February that he would likely have to
concede total defeat if the IRS continued to lose appeals cases.
"Should the judgment come down in alignment with the prior three
Federal Circuit Courts, I think the handwriting is on the wall,"
Robert Guy Matthews at
firstname.lastname@example.org and Amol Sharma at