Companies Discover It Isn't Easy to Claim Phone-Tax Refunds
By Robert Guy Matthews
The Wall Street Journal
Tuesday, August 1, 2006
First, the good news: The Internal Revenue Service plans to
refund $13 billion in phone taxes to businesses and
consumers following court rulings that the taxes were
illegal. The bad news: Getting more than a nominal refund
could cost a bundle.
Lee Mayer, managing partner of Quality Staffing LLC, a
Belmont, Calif., agency that provides drivers to businesses,
figures the IRS owes his company $25,000 in refunds for
taxes levied on long-distance calls over the past three
years. But to prove that to the IRS, he says, he'll have to
spend a couple of thousand dollars to buy the old monthly
bills from his wireless carrier,
Sprint Nextel Corp., and have an outside firm sift
through the mountain of data to calculate the refund.
Mr. Mayer says he is annoyed to have to furnish such
detailed proof, considering that the courts have ruled the
IRS shouldn't have imposed the tax in the first place.
"What can you say?" he says. "You are dealing with a
Sean Kevelighan, spokesman for economic and tax policy for
the Treasury Department, says the government recognizes that
recovering old bills is a tedious process but that it is
necessary to prevent fraud.
The Treasury Department, after a series of court rulings
against the government, announced in May that it would stop
collecting the 3% excise tax on long-distance telephone
service and refund billions of dollars to 25 million
businesses and 150 million individuals -- virtually all the
businesses and individuals who filed tax returns during the
period in question. Although the tax dates back to the
Spanish-American War, the agency said, under the statute of
limitations, it would refund only taxes imposed starting
March 2003 through mid-2006.
For consumers, getting the refund will be fairly simple.
The IRS is likely to set an amount -- probably from $30 to
$70, depending on usage and the number of telephones in the
household -- that taxpayers can get without documentation,
says David R. Williams, an IRS official overseeing the
refund effort. Mr. Williams says the IRS's initial
calculations show that most consumers have shelled out less
than $70 in telephone taxes since 2003.
The IRS and the phone companies are discussing how to come
up with an easiest way for them to calculate the average
refunds that households are due. Those and other details
are still being worked out, he says.
It seems likely to be much more complicated for businesses
to get the money. The now-defunct tax was based on the
length and the distance of each call; businesses often have
hundreds or even thousands of phones, both land-line and
wireless. Calculating the refunds is especially daunting
for small businesses that might not have archives of old
phone records going back several years. Most phone
companies supply the records but charge for them.
Big companies say figuring it all out is a headache. "This
is a monumental task and for us requires quite a substantial
investigation," says John Simley, a spokesman for
Wal-Mart Stores Inc., which has 4,000 stores, 1.4
million employees and thousands of phone lines provided by
several different phone companies.
Jake Siewert, a spokesman for
Alcoa Inc., the world's largest aluminum company in
terms of output, says the company "can't even guess" what it
might be entitled to in refunds and has staff working on it.
Some businesses see a chance to profit from the refund
effort. Wireless Watchdogs, a Los Angeles company that
checks businesses' wireless bills for errors, is offering a
new service: retrieving old phone bills and calculating the
government-owed refunds. Michael Schwartz, chief executive,
says he charges a per-phone fee for the service, but
declines to say how much. He says he already has a "few
To simplify the refund process, the IRS plans to include a
special line on 2006 tax returns that businesses can use to
claim their refunds. Businesses can reduce their tax
payments by the amount of their claim; they won't have to
wait for the government to issue a separate check.
Still, Mr. Kevelighan says, businesses are going to have to
foot the costs of locating old bills and calculating the
refunds. He says the IRS and Treasury officials are talking
with phone companies and business taxpayers to come up with
the easiest formula . As with all IRS tax-deduction claims,
businesses wouldn't need to send the proof to the IRS along
with their tax returns, but they would have to show what
method they used to come up with the claimed amount. And if
the IRS conducts an audit, the businesses would need to
provide the old phone bills as proof.
As a way to offset some of the costs, the IRS said it would
pay both individuals and businesses some interest, but the
rate is still being worked out.
Most phone companies say they have little choice but to
charge a fee for providing invoices, considering the cost of
retrieving them from storage and sending them out. Nextel,
for example, is charging $2.50 an invoice for the last 13
months, and $15 for any invoice older than 13 months, says
Travis Sowders, spokesman for Sprint Nextel. Sprint will
charge $5 per monthly bill.
BellSouth Corp. will charge $5 per monthly bill, largely
because the retrieval process involves manually combing
through records kept on computer tapes in storage, says Bill
McClosky, a company spokesman.
Other carriers say they will charge both businesses and
individuals to retrieve old bills but declined to say how
much. Carolyn Tyler, spokeswoman for
Verizon Communications Inc.'s Verizon Business, says
requests will be handled on a customer-by-customer basis.
Because of the number of businesses calling for information,
she says, Verizon has posted the answers to frequently asked
questions on its Web site.
Robert Guy Matthews at