Great news! You probably heard that the 3% phone tax is finally history – sort of. I’m talking about the Federal Excise Tax, which was enacted in 1898 to pay for the Spanish-American War, and has been charged to telecom users pretty much ever since (it was briefly repealed from 1902 to 1914).
In September, I noted the Senate was reviewing proposals to eliminate the FET. As I said then: “As for the Spanish-American War: Hello, Washington, it ended in 1898. Let’s terminate its taxes, too.”
Now it would be really nice if our elected representatives had heeded that call and made the sensible decision that the FET was a bad idea whose time had gone.
But no, that’s asking too much of the folks in Congress. We owe FET repeal to the courts, which ruled against the Internal Revenue System (IRS) in a series of lawsuits filed by enterprises including OfficeMax and Ford.
Amusingly, the Department of the Treasury, which oversees the IRS, recently lauded the ruling – which the IRS had appealed five separate times in federal courts. As Treasury Secretary John Snow said, “The government will finally abolish the outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history.”
You heard that correctly: Despite having fought tooth and nail in the courts to keep the tax, the IRS is glad it lost the case, and would like to take credit for the outcome. (No word on whether the IRS is planning a refund to taxpayers on the legal fees it’s racked up.)
The basic details: Starting July 31, phone companies can no longer charge the FET on long-distance calls and bundled services, and the IRS will be issuing refunds to individuals and businesses on all such taxes paid over the past three years, to the tune of approximately $13 billion.
To make sure your organization gets the refund, alert your accounting department to the change. And, as an individual, make sure to apply on your 2006 tax forms (the ones that are filed in 2007).
But here’s the kicker: The court ruling only applies to the FET levied on long-distance calls. FET is still collected on local calls – and if you’ve been paying attention to your phone bills lately, you’ll notice the local access portion is a hefty chunk of change. The rationale? OfficeMax and the others didn’t contest the local portion of the FET. Because it wasn’t in contention, it still remains.
You’d think Congress would act quickly to eradicate the other half of the FET. You’d be wrong. Congress has been trying to phase out the tax since the 1960s, but because it supplies some $4 billion per year to the federal coffers, our fearless legislators can’t seem to muster the backbone. So if you want to get rid of the other half of the FET, you’ll need to do what worked the first time: Bring on the lawyers.
