Washington – The Treasury Department, conceding that it has no right to continue collecting a 108-year-old tax on long- distance telephone calls, announced Thursday that it will drop its legal battle for the tax and instead refund $13 billion to callers who have paid the tax in the past three years.
The 3 percent tax, enacted in 1898 to help pay for the Spanish-American War and revised in 1965, has been declared illegal by five federal courts of appeal during the past year as the result of challenges brought by companies forced to pay it.
Long-distance carriers have been required to bill customers for the tax and remit it to the government.
Treasury Secretary John Snow called it “an outdated, antiquated tax that has survived a century beyond its original purpose and by now should have been ancient history.”
The tax, originally considered a luxury tax because only wealthy people had telephones at the time, will go out of existence July 31.
“It’s a great day for consumers,” said Gene Kimmelman, director of the Washington office of Consumers Union. “The last residue of the Spanish-American War is finally complete.”
The Treasury Department had no figures on how much of a refund an individual might expect, but Kimmelman said, “People with the biggest phone bills will be the biggest winners.”
Those are principally businesses and high-income consumers who tend to make heavier use of phone services than do lower-income individuals, he said.
He cautioned that many, perhaps most, households will see only a modest refund, possibly $10 or so.
Over the past several years, traditional long-distance usage has fallen as cellphones and the Internet have gained popularity.
Snow said the taxpayers will be able to claim three years’ worth of the tax, the legal limit on claiming tax overpayments, on their 2006 tax returns.
The Internal Revenue Service, he said, is working on a simplified method by which taxpayers can claim their refunds.
It is expected that, as with sales-tax deductions, taxpayers will be allowed to claim either a standard amount or an exact amount based on their phone bills.
Individuals who are not required to file tax returns will be offered a special form for the rebate.
“It was an antiquated tax that made no sense whatever,” Kimmelman said. With advances in telephone technology, cellphones and the Internet, he said, it has become increasingly difficult to determine which party in a call the tax should be assigned to. “You can’t track it,” he said. “That made the levy unsustainable.”
