Telephone taxes had to be refunded in two more cases. | Norton Rose Fulbright
The US government collects a 3% excise tax on long-distance telephone calls, but the law is outdated, and the tax only applies to calls for which the fees charged vary by both the distance and elapsed time of the call.
A number of big companies have successfully sued in the US courts recently to get the taxes back. The amounts can be substantial. The latest to do so are America Online, or AOL, a company through which many Americans have email accounts and access to the internet, and American Bankers Insurance Group.
AOL customers can dial a toll-free number to reach customer service representatives. The company sued for a refund of telephone taxes paid not only on these calls, but also on outgoing long-distance calls made by AOL employees. AOL pays a flat rate per minute for the calls, but the rate does not vary by distance, except that a different flat rate applies for calls with Canada than for calls inside the United States. The US claims court held for AOL in a decision released in early April. The case is American Online, Inc. v. United States.
The American Bankers Insurance Group sued for a refund of taxes collected by its telephone company, AT&T, on both domestic and international calls. The domestic calls are at a uniform rate. International calls vary only with the country to which the calls are placed. The US government won the case in the district court, but a US appeals court reversed in May.
The judge in the AOL case said that if the US government has a problem with the result, Congress should change the law.
The case “involves a disconnect between a forty-year-old tax scheme and recent innovations in the telecommunications industry. It is plainly Congress’s responsibility to decide whether to revise the statute to accommodate such developments,” the judge said, quoting from a decision in another refund case earlier this year involving Fortis, Inc.