Government, Personal Finance 

IRS Ends 3% Long Distance Telephone Excise Tax

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During the Spanish-American War of 1898, the government started collecting a 3% excise tax on long distance telephone calls from wealthy Americans and until recently, this 3% tax had been collected month after month after month. You might remember receiving a flier along with your bill telling you to call someone in the government about it. Well, today the Treasury Department and the Internal Revenue Service released press releases announcing the ending of the tax and the return of taxes paid in the last three years (since Feb. 28, 2003) plus interest.

From the Treasury Department release (text in bold is my own addition):

Key Facts Regarding Tax Refunds:

  • No immediate action is required by taxpayers.
  • Refunds will be a part of 2006 tax returns filed in 2007.
  • Refund claims will cover all excise tax paid on long-distance service over the last three years (time allowed given statute of limitations). Interest will be paid on refunds.
  • The IRS is working on a simplified method for individuals to use to claim a refund on their 2006 tax returns. (You can only claim it on this form, according to IRS Notice 2006-50)
  • Refunds will not include tax paid on local telephone service, which was not involved in the litigation.
  • Originally established in 1898 as a “luxury” tax on wealthy Americans who owned telephones, the federal excise tax on telephone calls is not compatible with today’s modern information-age society.
  • If you’re in the mood to read an IRS document, IRS Notice 2006-50, has all that yummy information in nice clear simple language. Unfortunately, you will have to request a specific amount unless you paid the tax for the duration of Feb 28th 2003 until Aug 1st 2006, then you can enter the “safe harbor” amount. The safe harbor amount is just a dollar amount you can claim without having to show any supporting documentation. The actual safe harbor amount will be announced later.

    I’m sure as these results shake themselves out you will see clearer language, specification of the “safe harbor” amount, and easier forms.

    { 7 comments, please add your thoughts now! }

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    7 Responses to “IRS Ends 3% Long Distance Telephone Excise Tax”

    1. Tim MMF says:

      This must be the “luxury tax” that’s been on phones. I always wondered if/when they’d remove it. Any word on how much revenue the tax accounted for?

    2. jim says:

      $5.9 billion 2005 according to CNN Money…

    3. Glad to see the Spanish American War is officially over. I’ve always wondered where and when that tax on telephones came from.

    4. I’m surprised they gave up after only 5 losses in court – they sure didn’t seem to want to give it up 😉

    5. Gary Peterson says:

      In fact the telephone excise tax on long disance was a high as 25% during the last part of World War 2. This was done when the government order a major reduction on long distance rates. A cross coutry long distance bill of $4.00 at the night rate was reduced to $3.00 for three minutes. The tax first went to 3%, then 6%, 10% and finally 25%. This in effect made a cross country call including tax go from $4.40 to $3.75 a reduction while a short long distance call of 20 cents would in effect go up from 22 to 25 cents. Since the government had wage and price controls that had to set a good example and not increase taxes too much. Since the goverennment was the greatest use of long distance during the war that amounted to a big savings from the government and with rates going down they could also increase the taxes on long distance service without the public paying little if any more.

    6. Mark says:

      Something to think about….In 1898 phones were a luxury. I think the prevailing thought was lets screw the rich guys. Amazing little example of the dangers in class warfare.

    7. Gary Peterson says:

      After World War 2 there was another reduction in cross country long distance three minutes calls. The night rate it went from $3.00 to $2.00 so there was really no hurry end the tax. Now they needed the money for reconstruction and the Martial plan to fight the cold war with the Soviets. AFter the Spanish American War and World War 1 the tax was eliminated when the US decided to stay out for foreign affairs. It was brought back during the depression and was also brough back in October 1941 to pay for the non fighting ally. Also many other items had an excise tax and the revenue of some dried up when those items were not made during the war. After the war the tax was 10% local and 15% long distance until 1954 when it was 10% for everything. THe tax reduction act of 1954 also would lower the sin taxes on tabacco and alcohol in three phases to what they were before the Korean War but many critics said they should not go down becuase the taxes were based on amount and not percent which in effect because of inflation were going down every year. The routinly extended those rates year by year and in 1959 made the 10% telephone tax subject to renewal each year along with the sin taxes starting in 1960. They didn’t want to drop it right away because it would have gotten vetoed because phone tax was probably generating more revenue than keeping the sin taxes at the Korean War rates instead of letting them go the the pre Korean War rates. In 1965 they decided to make the sin tax rate permanent and drop taxes on many other items right away if they were expensice retroactice to May 15 and other lesser items including phones would remain at the current rates until January 1, 1966. The manufactures tax on auto went from 10% to 7% on May 15 and down to 6% on January 1, 1966. The telephone tax also went down to 3%. They were now going to phase out the telephone tax 1 percent at a time each year until it went off in 1969 and the auto tax to 4, 2, 1% in 1969. Then they decided to retore the phone and auto tax to December 31, 1965 levels for two year begining April 1 when the other law would kick back in. Then the auto and phone taxes were subject to annual reneweals just like the sin taxes were earlier. AFter that they decided on a 1% reduction in return for nox asking for an extention any more. The auto was take on on August 15, 1971 with a price freeze and the phone tax went down 1 each year until it was kept and 2% for an extra year in 1981 and went to 1% in 1982 and back to 3% to help get high interest rates down and made permanent. Many special interest goups got exemptions in the phone tax in return for the extentions.

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