Telephone Companies

Telephone Companies

January 01, 2006 | By Keith Martin in Washington, DC

TELEPHONE COMPANIES are fretting about having to collect excise taxes on long-distance telephone calls after the US government lost for the tenth straight time in court in lawsuits by large customers to get their tax money back.

The latest losses were in suits by AMTRAK — which runs passenger trains in the United States — and OfficeMax, an office supply chain. Both decisions were at the appeals court level.

The US government is litigating another 19 cases. Taxpayers have won $12 million in refund claims to date. The United States imposes a 3% excise tax on long-distance telephone calls. Telephone companies act as collection agents. The tax statute is badly out of date. The tax applies only to calls that are billed on the basis of time and distance. Almost all long-distance service in the United States is now billed at a flat, perminute rate or by charging a fixed price for an unlimited number of calls.

The Congressional Budget Office estimates that the tax brings the federal government $1.6 billion a year.

Twenty telecom companies and a trade association sent the US Treasury secretary a letter in December urging the government to drop the tax. The IRS put the phone companies on notice in late October that it expects them to continue collecting the tax. At least two long-distance carriers — AT&T and Cingular Wireless — reportedly remove the tax from monthly bills if requested by a customer.

Many large companies have been advised by tax counsel to file protective refund claims even if they do not intend to litigate in case the government decides to make refunds.