U.S. May Stop, Refund Excise Tax On Phone Service

US MAY STOP, REFUND EXCISE TAX ON PHONE SERVICE
[SOURCE: Wall Street Journal 4/14, AUTHOR: Robert Guy Matthews robertguy.matthews@wsj.com and Amol Sharma]
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. 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 The courts have generally accepted the argument that the tax is outdated and should no longer apply on long-distance calls, given how technologies and calling plans have changed.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 officials. 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 The law -- originally enacted to help pay the costs of the Spanish-American War -- taxes telecom services based on both the duration of a call and the distance it travels.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 widespread protest.
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